As filed with the Securities and Exchange Commission
on August 30, 2021
Securities Act File No. 333-152915
Investment
Company Act File No. 811-22227
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | ☐ |
Pre-Effective Amendment No. | ☐ |
Post-Effective Amendment No. 207 | ☒ |
| and/or |
REGISTRATION
STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | ☐ |
Amendment
No. 209 | ☒ |
INDEXIQ ETF TRUST
(Exact Name of Registrant as Specified in Charter)
51 Madison Avenue
New York, NY 10010
(Address of Principal Executive Office)
Registrant’s Telephone Number, including
Area Code: (888) 474-7725
Matthew V. Curtin, Esq.
IndexIQ Advisors LLC
51 Madison Avenue
New York, NY 10010
It is proposed that this filing will become effective
(check appropriate box):
| ☐ | Immediately upon filing pursuant to paragraph (b) of Rule 485. |
| ☒ | On August 31, 2021 pursuant to paragraph (b) of Rule 485. |
| ☐ | 60 days after filing pursuant to paragraph (a)(1) of Rule 485. |
| ☐ | On (date) pursuant to paragraph (a) of Rule 485. |
| ☐ | 75 days after filing pursuant to paragraph (a)(2) of Rule 485. |
| ☐ | On (date) pursuant to paragraph (a) of Rule 485. |
If appropriate, check the following box:
| ☐ | This post-effective amendment designates a new effective date
for a previously filed post-effective amendment. |
IndexIQ ETF Trust
Prospectus
August 31, 2021
| IQ Hedge Multi-Strategy Tracker ETF (QAI) IQ Hedge Macro Tracker ETF (MCRO) IQ Hedge Market Neutral Tracker ETF (QMN) IQ Hedge Long/Short Tracker ETF (QLS) | | | IQ Hedge Event-Driven Tracker ETF (QED) IQ Real Return ETF (CPI) | |
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVE OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
As permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Funds’ shareholder reports will no longer be Sent by mail, unless you specifically request paper copies of the reports from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you hold accounts through a financial intermediary, you may contact your financial intermediary to enroll in electronic delivery. Please note that not all financial intermediaries may offer this service.
You may elect to receive all future reports in paper free of charge. If you hold accounts through a financial intermediary, you can contact your financial intermediary to request that You continue to receive paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held with your financial intermediary.
Not FDIC Insured | May Lose Value | No Bank Guarantee
IndexIQ ETF Trust (the “Trust”) is a registered investment company that consists of separate investment Portfolios called “Funds.” This Prospectus relates to the following Funds:
Fund Name | | | CUSIP | | | Symbol | |
IQ Hedge Multi-Strategy Tracker ETF | | | 45409B107 | | | QAI | |
IQ Hedge Macro Tracker ETF | | | 45409B206 | | | MCRO | |
IQ Hedge Market Neutral Tracker ETF | | | 45409B503 | | | QMN | |
IQ Hedge Long/Short Tracker ETF | | | 45409B305 | | | QLS | |
IQ Hedge Event-Driven Tracker ETF | | | 45409B404 | | | QED | |
IQ Real Return ETF | | | 45409B602 | | | CPI | |
Each Fund is an exchange-traded fund (“ETF”). This means that shares of the Funds are listed on a national Securities exchange, such as the NYSE Arca, Inc. (“NYSE Arca”), and trade at market prices. The market Price for a Fund’s shares may be different from its net asset value per share (the “NAV”). Each Fund has its Own CUSIP number and exchange trading symbol.
| | | | | | 4 | | |
| | | | | | 16 | | |
| | | | | | 26 | | |
| | | | | | 38 | | |
| | | | | | 49 | | |
| | | | | | 59 | | |
| | | | | | 68 | | |
| | | | | | 68 | | |
| | | | | | 69 | | |
| | | | | | 69 | | |
| | | | | | 84 | | |
| | | | | | 86 | | |
| | | | | | 86 | | |
| | | | | | 88 | | |
| | | | | | 89 | | |
| | | | | | 89 | | |
| | | | | | 89 | | |
| | | | | | 90 | | |
| | | | | | 90 | | |
| | | | | | 90 | | |
| | | | | | 95 | | |
| | | | | | 95 | | |
| | | | | | 95 | | |
| | | | | | 96 | | |
| | | | | | 103 | | |
| | | | | | 104 | | |
IQ Hedge Multi-Strategy Tracker ETF
Investment Objective
The Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index, the IQ Hedge Multi-Strategy Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy, sell or hold shares of the Fund (“Shares”). Investors may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee | | | | | 0.75% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses | | | | | 0.01% | | |
| Acquired Fund Fees & Expenses(a) | | | | | 0.25% | | |
| Total Annual Fund Operating Expenses(a) | | | | | 1.01% | | |
| Fee Waiver(b) | | | | | 0.22% | | |
| Total Annual Fund Operating Expenses After Fee Waiver | | | | | 0.79% | | |
(a)
(b)
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$81 |
|
|
$300 |
|
|
$536 |
|
|
$1,216 |
|
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 163% of the average value of its portfolio. This rate excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Shares.
Principal Investment Strategies
The Fund is a “fund of funds” which means it invests, under normal circumstances, at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the investments included in its Underlying Index, which includes underlying funds. The Underlying Index consists of a number of components (“Underlying Index Components”) selected in accordance with IndexIQ’s rules-based methodology of such Underlying Index. Such Underlying Index Components will include primarily ETFs and/or other exchange-traded vehicles issuing
equity securities organized in the U.S., such as exchange-traded commodity pools (“ETVs”), and may include exchange-traded notes (“ETNs”) (such ETFs, ETVs and ETNs are referred to collectively as “exchange-traded products” or “ETPs”). The Fund may also invest in one or more financial instruments, including but not limited to futures contracts and swap agreements (collectively, “Financial Instruments”).
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the Underlying Index, which was developed by IndexIQ LLC (“IndexIQ”), an affiliate of IndexIQ Advisors LLC, the Fund’s investment advisor (the “Advisor”). The Underlying Index seeks to track the “beta” portion of the returns (i.e., that portion of the returns of hedge funds that are non-idiosyncratic, or unrelated to manager skill) of hedge funds that employ various hedge fund investment styles (the “Strategy”). These styles may include but are not limited to long/short equity, macro, market neutral, event-driven, fixed-income arbitrage, emerging markets and other strategies commonly used by hedge fund managers. The Fund does not invest in hedge funds, and the Underlying Index does not include hedge funds as Underlying Index Components. The Fund is not a fund of hedge funds.
The Underlying Index may include both long and short positions in ETFs and ETVs. As opposed to taking long positions in which an investor seeks to profit from increases in the price of a security, short selling (or “selling short”) is a technique used by the Fund to try and profit from the falling price of a security. Short selling involves selling a security that has been borrowed from a third party with the intention of buying the identical security back at a later date to return to that third party. The basic principle of short selling is that one can profit by selling a security now at a high price and later buying it back at a lower price. The short seller hopes to profit from a decline in the price of the security between the sale and the repurchase, as the seller will pay less to buy the security than it received on selling the security.
The Strategy generally seeks exposure to the following hedge fund investment styles:
•
Event-Driven hedge funds typically invest in a combination of credit opportunities and event-driven equities. Within the credit-oriented portion, sub-strategies include long/short high yield credit (below investment grade corporate bonds or “junk” bonds), leveraged loans (bank debt, mezzanine, or self-oriented loans), capital structure arbitrage (debt vs. debt or debt vs. equity), and reorganization equity. Within the equity portion, sub-strategies include risk (or merger) arbitrage, holding company arbitrage, special situations and value equities where a change in management, significant product launch, or some other economic catalyst is expected to unlock shareholder wealth. Event-driven managers invest across multiple asset classes and may also seek to exploit shifts in economic cycles.
•
Emerging Market hedge funds typically invest in financial instruments such as equities, sovereign and corporate debt issues and currencies of countries in “emerging” markets. Emerging countries are those in a transitional state from developing to developed.
•
Fixed Income Arbitrage hedge funds typically employ strategies that seek to take advantage of price differentials and inefficiencies between related fixed-income securities that are related either economically or statistically. Such funds may limit volatility by hedging out interest rate risk and market exposure.
•
Long/short hedge funds typically diversify their risks by limiting the net exposure to particular regions, industries, sectors and market capitalization bands, allowing them to focus on company-specific anomalies. At the same time, long/short managers often hedge against un-diversifiable risk, such as market risk (i.e., the returns of the overall market). Certain long/short managers focus on specific sectors, regions or industries, on particular investment styles, such as value or growth, or certain types of stocks, such as small or large.
•
Macro hedge funds typically employ top-down macro analysis (e.g., political trends, macroeconomics, etc.) to identify dislocations in equity, fixed-income, currency and commodity markets that are expected to lead to large price movements.
•
Market Neutral hedge funds typically invest in both long and short positions in stocks while minimizing exposure to the systematic components of risk. These market neutral strategies seek to have a zero “beta” (or “market”) exposure to one or more systematic risk factors including the overall market (as represented by the S&P 500 Index), economic sectors or industries, market capitalization, region and country. Market neutral strategies that effectively neutralize the market exposure are not impacted by directional moves in the market.
The Underlying Index generally is based on the premise that hedge fund returns, when aggregated among hedge funds with similar investment styles, display over time significant exposures to a set of common investment strategies and asset classes. By creating an index that has similar exposures to the same investment strategies and asset classes as hedge funds generally, IndexIQ seeks to replicate the beta return characteristics of hedge funds.
The Underlying Index Components of this Strategy generally provide exposures to:
•
Commodities;
•
Emerging market equity, debt and sovereign debt, including small-capitalization equity;
•
Foreign currencies and currency futures;
•
Foreign sovereign debt and equity, including small-capitalization equity;
•
Municipal bonds;
•
The implied volatility of the S&P 500® Index;
•
U.S. and foreign preferred securities;
•
U.S. and foreign real estate investment trusts;
•
U.S. bank loans;
•
U.S. convertible debt;
•
U.S. floating rate bank loans;
•
U.S. floating rate bond;
•
U.S. government short-term, intermediate-term and long-term maturity bond;
•
U.S. growth equity;
•
U.S. high yield (or “junk”) debt;
•
U.S. investment grade corporate debt;
•
U.S. large-capitalization equity;
•
U.S. mortgage-backed debt;
•
U.S. small-capitalization equity;
•
U.S. Treasury Inflation Protection Securities (“TIPS”); and
•
U.S. value equity.
The Underlying Index is unlike traditional market-oriented indexes like the Standard & Poor’s 500® Composite Stock Total Return Index (the “S&P 500 Index”). Instead of tracking the performance of publicly-traded issuers representing a market or industry sector, the Underlying Index seeks to track the returns of distinct hedge fund investment styles.
The Underlying Index may include as a component one or more ETFs advised by the Advisor (“Affiliated ETFs”) and the Fund will typically invest in any Affiliated ETF included in the Underlying Index. The Fund also may invest in Affiliated ETFs that are not components of the index if such an investment will help the Fund track the Underlying Index.
The weights of the Underlying Index Components are rebalanced on a monthly basis. Annually, IndexIQ conducts a review process pursuant to which it may reconstitute the Underlying Indexes by adding or subtracting Underlying Index Components according to IndexIQ’s rules-based process.
Principal Risks
As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program. An investment in the Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, the Advisor or any of its affiliates. You should consider carefully the following risks before investing in the Fund.
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Counterparty Risk
A counterparty (the other party to a transaction or an agreement or the party with whom the Fund executes transactions) to a transaction with the Fund may be unable or unwilling to make timely principal, interest, settlement or margin payments, fulfill the delivery conditions of the contract or transaction, or otherwise honor its obligations. If a counterparty fails to meet its contractual obligations the Fund will have contractual remedies pursuant to the agreements related to the transaction but the Fund may be unable to terminate or realize any gain on the investment or transaction, resulting in a loss to the Fund. The Fund may experience significant delays in obtaining any recovery in an insolvency, bankruptcy, or other reorganization proceeding involving a counterparty (including recovery of any collateral posted by it) and may obtain limited or no recovery in such circumstances.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Derivatives Risk
Derivatives are investments whose value depends on (or is derived from) the value of an underlying instrument, such as a security, asset, reference rate or index and involve risks different from, and possibly greater than, the risks associated with other investments. These risks include: (i) the risk that the counterparty to a derivatives transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. Such prices are influenced by numerous factors that affect the markets, including, but not limited to, changing supply and demand relationships, government programs and policies, national and international political and economic events, changes in interest rates, inflation and deflation, and changes in supply and demand relationships. Unlike other investments, derivative contracts often have leverage inherent in their terms. The use of leveraged derivatives can magnify potential for gain or loss and, therefore, amplify the effects of market volatility on the Fund’s Share price. The effects of leverage may also cause the Fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations or to meet collateral segregation requirements.
Exchange Traded Products Risk
Unlike an investment in a mutual fund, the value of the Fund’s investment in other exchange-traded funds or exchange-traded investment products (“ETPs”) is based on its market price (rather than NAV) and the Fund could lose money due to premiums/discounts of the ETP (which could cause the Fund to buy shares at market prices that are higher than their value or sell shares at market prices that are lower than their value); the failure of an active trading market to develop; or exchange trading halts or delistings. An investment in the Fund will entail more costs and expenses than a direct investment in any Underlying ETP. As the Fund’s allocations to Underlying ETPs changes, or the expense ratio of Underlying ETPs change, the operating expenses borne by the Fund from such investments may increase or decrease.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
Liquidity Risk
Liquidity risk exists when particular investments are difficult to purchase or sell. Certain investments may be subject to restrictions on resale, trade over-the-counter or in limited volume, or lack an active trading market. Accordingly, the Fund may not be able to sell or close out of such investments at favorable times or prices (or at all), or at the prices approximating those at which the Fund currently values them. Illiquid securities may trade at a discount from comparable, more liquid investments and may be subject to wide fluctuations in market value.
Long/Short Risk
The Fund seeks long exposure to certain securities and short exposure to certain other securities. There is no guarantee that the returns on the Fund’s long or short positions will produce positive returns, and the Fund could lose money if either or both positions produce negative returns. In addition, the Fund may gain enhanced long exposure to certain securities (i.e., obtain investment exposure that exceeds the amount directly invested in those assets, a form of leverage) and, as a result, suffer losses that exceed the amount invested in those assets.
Market Risk
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Underlying Index or the index calculation agent may make errors. The index provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences
between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions
•
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Portfolio Turnover Risk
The Fund’s strategy may frequently involve buying and selling portfolio securities to rebalance the Fund’s investment exposures. High portfolio turnover may result in the Fund paying higher levels of transaction costs and generating greater tax liabilities for shareholders. Portfolio turnover risk may cause the Fund’s performance to be less than expected.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask” spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value.
Swap Agreements Risk
Swap agreements may involve greater risks than direct investment in securities as they may be leveraged and are subject to credit risk, counterparty risk, liquidity risk and valuation risk. A swap agreement could result in losses if the underlying reference or asset does not perform as anticipated. In addition, many swaps trade over-the-counter and may be considered illiquid. It may not be possible for the Fund to liquidate a swap position at an advantageous time or price, which may result in significant losses.
Short Sales Risk
Short sales are transactions in which the Fund sells a security it does not own, or uses derivatives, such as futures or swaps, to effect short exposure to a particular reference asset. Such a position subjects the Fund to the risk that instead of declining, the price of the security or reference asset to which the Fund has short exposure will rise. If the price of the security or reference asset increases between the date of the short sale and the date on which the Fund replaces the security or otherwise closes out its short position, the Fund will experience a loss, which is theoretically unlimited since there is a theoretically unlimited potential for the market price of a security or other instrument sold short to increase.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Risks of Underlying ETPs
The Fund may invest in the securities of other ETPs, including Affiliated ETFs. Investments in the Fund are subject to the risks associated with an investment in the Underlying ETPs. In addition to the risks described above, the following risks should also be considered when making an investment in the Fund.
•
Asset-Backed Securities Risk. Asset-backed securities are securities that represent interests in, and whose values and payments are based on, a “pool” of underlying assets, which may include, among others, lower-rated debt securities and corporate loans, consumer loans or mortgages and leases of property. Asset-backed securities include collateralized debt obligations, collateralized bond obligations, and collateralized loan obligations and other similarly structured vehicles. As with other debt securities, asset-backed securities are subject to credit risk, extension risk, interest rate risk, liquidity risk and valuation risk. The impairment of the value of collateral or other assets underlying an asset-backed security, such as a result of non-payment of loans or non-performance of underlying assets, may result in a reduction in the value of such asset-backed securities and losses to the Fund.
Investments in mortgage-related securities make an investor more susceptible to adverse economic, interest rate, political or regulatory events that affect the value of real estate. Mortgage-related securities are also significantly affected by the rate of prepayments. Impairment of the underlying obligations or collateral, such as by non-payment, will reduce a mortgage-related security’s value.
•
Commodities Risk. Exposure to the commodities markets may subject the Fund to greater volatility than investments in traditional securities, and exposure to commodities, directly or through other securities, can cause the value of the Fund’s assets to decline or fluctuate in a rapid and unpredictable manner. The value of commodities may be affected by changes in overall market movements, real or perceived inflationary trends, commodity index volatility, changes in interest rates or currency exchange rates, population growth and changing demographics, international economic, political and regulatory developments, and factors affecting a particular region, industry or commodity, such as drought, floods, or other weather conditions, livestock disease, changes in storage costs, trade embargoes, competition from substitute products, transportation bottlenecks or shortages, fluctuations in supply and demand, and tariffs.
•
Convertible Securities Risk. A convertible security has characteristics of both equity and debt securities and, as a result, is exposed to risks that are typically associated with both types of securities. Convertible securities are typically subordinate to an issuer’s other debt obligations. Issuers of convertible securities may be more vulnerable to changes in the economy, such as a recession or a sustained period of rising interest rates, which could affect their ability to make interest and principal payments. If an issuer stops making interest and/or principal payments, the Fund could lose its entire investment.
•
Credit Risk. Credit risk is the risk that the issuer or guarantor of a debt instrument or the counterparty to a derivatives contract, repurchase agreement or loan of portfolio securities will be unable or unwilling to make its timely interest and/or principal payments when due or otherwise honor its obligations. Changes in an issuer’s or counterparty’s credit rating or the market’s perception of an issuer’s or counterparty’s creditworthiness may also adversely affect the value of the Fund’s investment in that issuer. The degree of credit risk depends on an issuer’s or counterparty’s financial condition and on the terms of an obligation.
•
Currency Risk. Investments directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign (non-U.S.) currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad.
•
Debt Securities Risk. The risks of investing in debt securities include (without limitation): (i) credit risk, e.g., the issuer or guarantor of a debt security may be unable or unwilling (or be perceived as unable or unwilling) to make timely principal and/or interest payments or otherwise honor its obligations; (ii) interest rate risk, e.g., when interest rates go up, the value of a debt security generally goes down, and when interest rates go down, the value of a debt security generally goes up; (iii) liquidity risk and valuation risk,
e.g., debt securities generally do not trade on a securities exchange, making them generally less liquid and more difficult to value than common stock; (iv) call risk and income risk, e.g., during a period of falling interest rates, the issuer may redeem a security by repaying it early, which may reduce the Fund’s income if the proceeds are reinvested at lower interest rates; and (v) extension risk, e.g., if interest rates rise, repayments of debt securities may occur more slowly than anticipated by the market, which may drive the prices of these securities down because their interest rates are lower than the current interest rate and the securities remain outstanding longer. Debt securities most frequently trade in institutional round lot size transactions. If the Fund purchases bonds in amounts less than the institutional round lot size, which are frequently referred to as “odd” lots, the odd lot size positions may have more price volatility than institutional round lot size positions. The Fund uses a third-party pricing service to value bond holdings and the pricing service values bonds assuming orderly transactions of an institutional round lot size.
•
Emerging Markets Securities Risk. Securities of issuers based in countries with developing economies (emerging market countries) may present market, credit, currency, liquidity, legal, political and other risks different from, or greater than, the risks of investing in developed market countries and are generally considered speculative in nature. Emerging market countries are subject to greater market volatility, lower trading volume, political and economic instability, uncertainty regarding the existence of trading markets, rapid inflation, possible repatriation of investment income and capital, currency convertibility issues, less uniform accounting standards and more governmental limitations on foreign investment than more developed markets. Laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder rights may change quickly and unpredictably. In addition, the enforcement of systems of taxation at federal, regional and local levels in emerging market countries may be inconsistent and subject to sudden change.
•
Emerging Markets Sovereign Debt Risk. Government obligors in emerging market countries are among the world’s largest debtors to commercial banks, other governments, international financial organizations and other financial institutions. Historically, certain issuers of the government debt securities in which an Underlying ETP may invest have experienced substantial difficulties in meeting their external debt obligations, resulting in defaults on certain obligations and the restructuring of certain indebtedness, which could result in losses to an Underlying ETP.
•
Equity Securities Risk. Investments in common stocks and other equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Holders of an issuer’s common stock may be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
•
Foreign Securities Risk. Investments in the securities of non-U.S. issuers involve risks beyond those associated with investments in U.S. securities. These additional risks include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Some countries and regions have experienced security concerns, war or threats of war and aggression, terrorism, economic uncertainty, natural and environmental disasters and/or systemic market dislocations that have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on the U.S. and world economies and markets generally. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing, financial reporting and record keeping than are U.S. issuers, and therefore not all material information will be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact the Fund’s ability to invest in foreign securities or may prevent the Fund from repatriating its investments. Less developed securities markets are more likely to experience problems with the clearing and settling of trades, as well as the holding of securities by local banks, agents and depositories. The less developed a country’s securities market is, the greater the likelihood of custody problems.
•
High Yield Securities Risk. High yield securities, or “junk” bonds, generally offer a higher current yield than the yield available from higher grade issues, but are subject to greater market fluctuations, are less liquid
and provide a greater risk of loss than investment grade securities, and therefore are considered to be highly speculative. In general, high yield securities may have a greater risk of default than other types of securities and could cause income and principal losses for the Fund.
•
Interest Rate Risk. An increase in interest rates may cause the value of securities held by the Fund to decline. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, making them more volatile than securities with shorter durations or floating or adjustable interest rates. The negative impact on the Fund from potential interest rate increases could be swift and significant, including falling market values, increased redemptions and reduced liquidity. The Fund may be subject to a greater risk of rising interest rates than would normally be the case due to the current period of historically low rates and the effect of potential government fiscal policy initiatives and resulting market reaction to those initiatives.
When interest rates rise, certain obligations will be paid off by the issuer (or other obligated party) more slowly than anticipated, causing the value of these securities to fall. As a result, in a period of rising interest rates, securities may exhibit additional volatility and may lose value. The value of securities with longer maturities generally changes more in response to changes in interest rates than does the value of securities with shorter maturities.
During periods of falling interest rates, an issuer of a callable security held by the Fund may “call” or repay the security before its stated maturity, which may result in the Fund having to reinvest the proceeds in securities with lower yields, resulting in a decline in the Fund’s income, or in securities with greater risks or with other less favorable features.
The terms of floating rate notes and other instruments may be tied to the London Interbank Offered Rate (“LIBOR”), which functions as a reference rate or benchmark. It is anticipated that LIBOR will be discontinued at the end of 2021, which may cause increased volatility and illiquidity in the markets for instruments with terms tied to LIBOR or other adverse consequences, such as decreased yields and reduction in value, for these instruments. These events may adversely affect the Fund and its investments in such instruments.
•
Municipal Bond Risk. Issuers, including governmental issuers, may be unable to pay their obligations as they come due. The values of Municipal Bonds that depend on a specific revenue source to fund their payment obligations may fluctuate as a result of actual or anticipated changes in the cash flows generated by the revenue source or changes in the priority of the municipal obligation to receive the cash flows generated by the revenue source. The values of Municipal Bonds held by the Fund may be adversely affected by local political and economic conditions and developments. Adverse conditions in an industry significant to a local economy could have a correspondingly adverse effect on the financial condition of local issuers. This risk would be heightened to the extent that the Fund invests a substantial portion of its assets in Municipal Bonds issued pursuant to similar projects or whose interest is paid solely from revenues of similar projects. In addition, income from Municipal Bonds held by the Fund could be declared taxable because of, among other things, unfavorable changes in tax laws, adverse interpretations by the Internal Revenue Service or state tax authorities, or noncompliant conduct of an issuer or other obligated party. Loss of tax-exempt status may cause interest received and distributed to shareholders by the Fund to be taxable and may result in a significant decline in the values of such municipal securities. There are various different types of Municipal Bonds, each with its own unique risk profile. Some of these risks include:
•
General Obligation Bonds Risk — timely payments depend on the issuer’s credit quality, ability to raise tax revenues and ability to maintain an adequate tax base;
•
Revenue Bonds (including Industrial Development Bonds) Risk — timely payments depend on the money earned by the particular facility or class of facilities, or the amount of revenues derived from another source, and may be negatively impacted by the general credit of the user of the facility;
•
Private Activity Bonds Risk — municipalities and other public authorities issue private activity bonds to finance development of industrial facilities for use by a private enterprise, which is solely responsible for paying the principal and interest on the bonds, and payment under these bonds depends on the private enterprise’s ability to do so;
•
Moral Obligation Bonds Risk — moral obligation bonds are generally issued by special purpose public authorities of a state or municipality. If the issuer is unable to meet its obligations, repayment of these bonds becomes a moral commitment, but not a legal obligation, of the state or municipality;
•
Municipal Notes Risk — municipal notes are shorter-term municipal debt obligations that pay interest that is, in the opinion of bond counsel for the issuer at the time of issuance, generally excludable from gross income for federal income tax purposes (except that the interest may be includable in taxable income for purposes of the federal alternative minimum tax) and that have a maturity that is generally one year or less. If there is a shortfall in the anticipated proceeds, the notes may not be fully repaid and the Fund may lose money; and
•
Municipal Lease Obligations Risk — in a municipal lease obligation, the issuer agrees to make payments when due on the lease obligation. Although the issuer does not pledge its unlimited taxing power for payment of the lease obligation, the lease obligation is secured by the leased property.
•
Preferred Securities Risk. Preferred securities combine some of the characteristics of both common stocks and bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms of priority to corporate income, subjecting them to greater credit risk than those debt securities. Generally, holders of preferred securities have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may obtain limited rights. In certain circumstances, an issuer of preferred securities may defer payment on the securities and, in some cases, redeem the securities prior to a specified date. Preferred securities may also be substantially less liquid than other securities, including common stock.
•
Real Estate Companies Risk. An investment in companies that invest in real estate (including REITs) exposes the Fund to the risks of the real estate market and the risks associated with the ownership of real estate. These risks can include fluctuations in the value of or destruction of underlying properties; realignment in tenant living and work habits (for example, movements to and from different parts of a nation, a region, a state or a city); tenant or borrower default; market saturation; changes in general and local economic conditions; decreases in market rates for rents; increases in vacancies; competition; property taxes; capital expenditures or operating expenses; other economic or political events affecting the real estate industry including interest rates and government regulation; concentration in a limited number of properties, geographic regions or property types; and low quality and/or conflicted management. Real estate is generally a less liquid asset class and companies that hold real estate may not be able to liquidate or modify their holdings quickly in response to changes in economic or other market conditions. Additionally, such companies may utilize leverage, which increases investment risk and the potential for more volatility in the Fund’s returns.
•
Small- and/or Mid-Capitalization Companies Risk. Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies.
•
Variable and Floating Rate Instruments Risk. Variable and floating rate instruments include debt securities issued by corporate and governmental entities, bank loans, mortgage-backed securities and asset-backed securities, preferred equity securities and derivative variable rate securities, such as inverse floaters. Variable and floating rate instruments are structured so that the instrument’s coupon rate fluctuates based upon the level of a reference rate. A variable or floating rate instrument’s coupon rate resets periodically according to its terms. Consequently, in a rising interest rate environment, variable and floating rate instruments with coupon rates that reset infrequently may lag behind the changes in market interest rates.
•
VIX Exposure Risk. The Fund may invest in investment products whose value is linked to the performance of the Cboe Volatility Index (the “VIX Index”). The VIX Index seeks to measure the 30-day expected volatility of the S&P 500 Index, as calculated based on the prices of certain put and call options on the S&P 500 Index. Products providing exposure to the VIX Index are not able to invest directly in the components of the VIX Index, but rather generally gain exposure to the VIX Index’s performance by purchasing or selling futures contracts on the VIX Index. The level of the S&P 500 Index, the prices of options on the S&P 500 Index, the level of the VIX Index itself and the value of futures contracts on the VIX Index may change suddenly and unpredictably, and may negatively affect the value of the Fund’s investments in VIX Index-linked products. In addition, the actual volatility of the S&P 500 Index may not conform to a level predicted by the VIX Index or to the prices of the included put and call options. Several factors may affect the price of the VIX Index, including, but not limited to: market prices and forward volatility levels; expectations that volatility as measured by the VIX Index will fluctuate; supply
and demand of VIX Index futures and listed and over-the-counter equity derivative markets; international or domestic political, economic, geographic or financial events; natural disasters; and changes in legal and regulatory regimes in the United States.
Valuation Risk
Independent market quotations for certain investments held by the Fund may not be readily available, and such investments may be fair valued or valued by a pricing service at an evaluated price. These valuations involve subjectivity and different market participants may assign different prices to the same investment. As a result, there is a risk that the Fund may not be able to sell an investment at the price assigned to the investment by the Fund. In addition, the value of the securities or other assets in the Fund’s portfolio may change on days or during time periods when shareholders will not be able to purchase or sell the Fund’s Shares.
Performance Information
The bar chart that follows shows the annual total returns of the Fund for a full calendar year. The table that follows the bar chart shows the Fund’s average annual total returns, both before and after taxes. The bar chart and table provide an indication of the risks of investing in the Fund by comparing the Fund’s performance from year to year and by showing how the Fund’s average annual returns for one calendar year compared with its underlying index and additional broad measures of market performance. The HFRI Fund of Funds Composite Index is an equally weighted hedge fund index including over 650 domestic and off-shore funds of funds. The S&P 500® Index is a broad-based unmanaged index of 500 stocks, which is designed to represent the equity market in general (performance data assumes reinvestment of dividends, but it does not reflect management fees, transaction costs or other expenses).
All returns assume reinvestment of dividends and distributions. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Performance reflects fee waivers and/or expense reimbursement in effect, if such waivers or reimbursements were not in place, the Fund’s performance would be reduced. Fund performance current to the most recent month-end is available by calling 1-888-474-7725 or by visiting newyorklifeinvestments.com.
The Fund’s year-to-date total return as of June 30, 2021 was 1.28%.
Best and Worst Quarter Returns (for the period reflected in the bar chart above)
| | | Return | | | Quarter/Year | |
Highest Return | | | | | 6.45% | | | | | | 2Q/2020 | | |
Lowest Return | | | | | -7.48% | | | | | | 1Q/2020 | | |
Average Annual Total Returns as of December 31, 2020
| | | 1 Year | | | 5 Years | | | 10 Years | |
Returns before taxes | | | | | 5.56% | | | | | | 3.49% | | | | | | 2.70% | | |
Returns after taxes on distributions(1) | | | | | 4.75% | | | | | | 3.02% | | | | | | 2.26% | | |
Returns after taxes on distributions and sale of Fund Shares(1) | | | | | 3.32% | | | | | | 2.49% | | | | | | 1.92% | | |
IQ Hedge Multi-Strategy Index (reflects no deduction for fees, expenses or taxes) | | | | | 6.26% | | | | | | 4.26% | | | | | | 3.56% | | |
HFRI Fund of Funds Composite Index(2) (reflects no deduction for fees, expenses or taxes) | | | | | 10.88% | | | | | | 4.56% | | | | | | 3.32% | | |
| | | 1 Year | | | 5 Years | | | 10 Years | |
S&P 500® Index (reflects no deduction for fees, expenses or taxes) | | | | | 17.75% | | | | | | 14.53% | | | | | | 13.18% | | |
(1)
(2)
Investment Advisor
IndexIQ Advisors LLC is the investment advisor to the Fund.
Portfolio Manager
The professionals jointly and primarily responsible for the day-to-day management of the Fund are Greg Barrato and James Harrison. Mr. Barrato, Senior Vice President of the Advisor, has been a portfolio manager of the Fund since February 2011 and Mr. Harrison, Vice President of the Advisor, has been a portfolio manager of the Fund since April 2018.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units.” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
IQ Hedge Macro Tracker ETF
Investment Objective
The Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index, the IQ Hedge Macro Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy, sell or hold shares of the Fund (“Shares”). Investors may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee | | | | | 0.75% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses | | | | | 0.01% | | |
| Acquired Fund Fees & Expenses(a) | | | | | 0.26% | | |
| Total Annual Fund Operating Expenses(a) | | | | | 1.02% | | |
| Fee Waiver(b) | | | | | 0.35% | | |
| Total Annual Fund Operating Expenses After Fee Waiver | | | | | 0.67% | | |
(a)
(b)
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$68 |
|
|
$290 |
|
|
$529 |
|
|
$1,216 |
|
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 104% of the average value of its portfolio. This rate excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Shares.
Principal Investment Strategies
The Fund is a “fund of funds” which means it invests, under normal circumstances, at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the investments included in its Underlying Index, which includes underlying funds. The Underlying Index consists of a number of components (“Underlying Index Components”) selected in accordance with IndexIQ’s rules-based methodology of such Underlying Index. Such Underlying Index Components will include primarily ETFs and/or other exchange-traded vehicles issuing
equity securities organized in the U.S., such as exchange-traded commodity pools (“ETVs”), and may include exchange-traded notes (“ETNs”) (such ETFs, ETVs and ETNs are referred to collectively as “exchange-traded products” or “ETPs”). The Fund may also invest in one or more financial instruments, including but not limited to futures contracts and swap agreements (collectively, “Financial Instruments”).
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the Underlying Index, which was developed by IndexIQ LLC (“IndexIQ”), an affiliate of IndexIQ Advisors LLC, the Fund’s investment advisor (the “Advisor”). The Underlying Index seeks to track the “beta” portion of the returns (i.e., that portion of the returns of hedge funds that are non-idiosyncratic, or unrelated to manager skill) of a combination of hedge funds pursuing a macro strategy and hedge funds pursuing an emerging markets strategy (the “Strategy”). Macro hedge funds typically employ top-down macro analysis (e.g., political trends, macroeconomics, etc.) to identify dislocations in equity, fixed-income, currency and commodity markets that are expected to lead to large price movements. Emerging Market hedge funds typically invest in financial instruments such as equities, sovereign and corporate debt issues and currencies of countries in “emerging” markets. Emerging market countries are those in a transitional state from developing to developed. The Fund does not invest in hedge funds, and the Underlying Index does not include hedge funds as Underlying Index Components. The Fund is not a fund of hedge funds.
The Underlying Index may include both long and short positions in ETFs and ETVs. As opposed to taking long positions in which an investor seeks to profit from increases in the price of a security, short selling (or “selling short”) is a technique used by the Fund to try and profit from the falling price of a security. Short selling involves selling a security that has been borrowed from a third party with the intention of buying the identical security back at a later date to return to that third party. The basic principle of short selling is that one can profit by selling a security now at a high price and later buying it back at a lower price. The short seller hopes to profit from a decline in the price of the security between the sale and the repurchase, as the seller will pay less to buy the security than it received on selling the security.
The Underlying Index generally is based on the premise that hedge fund returns, when aggregated among hedge funds with similar investment styles, display over time significant exposures to a set of common investment strategies and asset classes. By creating an index that has similar exposures to the same investment strategies and asset classes as hedge funds generally, IndexIQ seeks to replicate the beta return characteristics of hedge funds.
The Underlying Index Components of this Strategy generally provide exposures to:
•
Commodities;
•
Emerging market equity, debt and sovereign debt, including small-capitalization equity;
•
Foreign currencies and currency futures;
•
Foreign sovereign debt and equity, including small-capitalization equity;
•
U.S. and foreign real estate investment trusts;
•
U.S. floating rate bond;
•
U.S. government short-term, intermediate-term and long-term maturity bond;
•
U.S. growth equity;
•
U.S. high yield (or “junk”) debt;
•
U.S. investment grade corporate debt;
•
U.S. small-capitalization equity;
•
U.S. large-capitalization equity; and
•
U.S. value equity.
The Underlying Index is unlike traditional market-oriented indexes like the Standard & Poor’s 500® Composite Stock Total Return Index (the “S&P 500 Index”). Instead of tracking the performance of publicly-traded issuers representing a market or industry sector, the Underlying Index seeks to track the returns of distinct hedge fund investment styles.
The Underlying Index may include as a component one or more ETFs advised by the Advisor (“Affiliated ETFs”) and the Fund will typically invest in any Affiliated ETF included in the Underlying Index. The Fund also may invest in Affiliated ETFs that are not components of the index if such an investment will help the Fund track the Underlying Index.
The weights of the Underlying Index Components are rebalanced on a monthly basis. Annually, IndexIQ conducts a review process pursuant to which it may reconstitute the Underlying Indexes by adding or subtracting Underlying Index Components according to IndexIQ’s rules-based process.
Principal Risks
As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program. An investment in the Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, the Advisor or any of its affiliates. You should consider carefully the following risks before investing in the Fund.
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Convertible Securities Risk
A convertible security has characteristics of both equity and debt securities and, as a result, is exposed to risks that are typically associated with both types of securities. Convertible securities are typically subordinate to an issuer’s other debt obligations. Issuers of convertible securities may be more vulnerable to changes in the economy, such as a recession or a sustained period of rising interest rates, which could affect their ability to make interest and principal payments. If an issuer stops making interest and/or principal payments, the Fund could lose its entire investment.
Counterparty Risk
A counterparty (the other party to a transaction or an agreement or the party with whom the Fund executes transactions) to a transaction with the Fund may be unable or unwilling to make timely principal, interest, settlement or margin payments, fulfill the delivery conditions of the contract or transaction, or otherwise honor its obligations. If a counterparty fails to meet its contractual obligations the Fund will have contractual remedies pursuant to the agreements related to the transaction but the Fund may be unable to terminate or realize any gain on the investment or transaction, resulting in a loss to the Fund. The Fund may experience significant delays in obtaining any recovery in an insolvency, bankruptcy, or other reorganization proceeding involving a counterparty (including recovery of any collateral posted by it) and may obtain limited or no recovery in such circumstances.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Derivatives Risk
Derivatives are investments whose value depends on (or is derived from) the value of an underlying instrument, such as a security, asset, reference rate or index and involve risks different from, and possibly greater than, the risks associated with other investments. These risks include: (i) the risk that the counterparty to a derivatives transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. Such prices are
influenced by numerous factors that affect the markets, including, but not limited to, changing supply and demand relationships, government programs and policies, national and international political and economic events, changes in interest rates, inflation and deflation, and changes in supply and demand relationships. Unlike other investments, derivative contracts often have leverage inherent in their terms. The use of leveraged derivatives can magnify potential for gain or loss and, therefore, amplify the effects of market volatility on the Fund’s Share price. The effects of leverage may also cause the Fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations or to meet collateral segregation requirements.
Exchange Traded Products Risk
Unlike an investment in a mutual fund, the value of the Fund’s investment in other exchange-traded funds or exchange-traded investment products (“ETPs”) is based on its market price (rather than NAV) and the Fund could lose money due to premiums/discounts of the ETP (which could cause the Fund to buy shares at market prices that are higher than their value or sell shares at market prices that are lower than their value); the failure of an active trading market to develop; or exchange trading halts or delistings. An investment in the Fund will entail more costs and expenses than a direct investment in any Underlying ETP. As the Fund’s allocations to Underlying ETPs changes, or the expense ratio of Underlying ETPs change, the operating expenses borne by the Fund from such investments may increase or decrease.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
Liquidity Risk
Liquidity risk exists when particular investments are difficult to purchase or sell. Certain investments may be subject to restrictions on resale, trade over-the-counter or in limited volume, or lack an active trading market. Accordingly, the Fund may not be able to sell or close out of such investments at favorable times or prices (or at all), or at the prices approximating those at which the Fund currently values them. Illiquid securities may trade at a discount from comparable, more liquid investments and may be subject to wide fluctuations in market value.
Long/Short Risk
The Fund seeks long exposure to certain securities and short exposure to certain other securities. There is no guarantee that the returns on the Fund’s long or short positions will produce positive returns, and the Fund could lose money if either or both positions produce negative returns. In addition, the Fund may gain enhanced long exposure to certain securities (i.e., obtain investment exposure that exceeds the amount directly invested in those assets, a form of leverage) and, as a result, suffer losses that exceed the amount invested in those assets.
Market Risk
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other
third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Underlying Index or the index calculation agent may make errors. The index provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Portfolio Turnover Risk
The Fund’s strategy may frequently involve buying and selling portfolio securities to rebalance the Fund’s investment exposures. High portfolio turnover may result in the Fund paying higher levels of transaction costs and generating greater tax liabilities for shareholders. Portfolio turnover risk may cause the Fund’s performance to be less than expected.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask” spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value.
Short Sales Risk
Short sales are transactions in which the Fund sells a security it does not own, or uses derivatives, such as futures or swaps, to effect short exposure to a particular reference asset. Such a position subjects the Fund to the risk that instead of declining, the price of the security or reference asset to which the Fund has short exposure will rise. If the price of the security or reference asset increases between the date of the short sale and the date on which the Fund replaces the security or otherwise closes out its short position, the Fund will experience a loss, which is theoretically unlimited since there is a theoretically unlimited potential for the market price of a security or other instrument sold short to increase.
Swap Agreements Risk
Swap agreements may involve greater risks than direct investment in securities as they may be leveraged and are subject to credit risk, counterparty risk, liquidity risk and valuation risk. A swap agreement could result in losses if the underlying reference or asset does not perform as anticipated. In addition, many swaps trade over-the-counter and may be considered illiquid. It may not be possible for the Fund to liquidate a swap position at an advantageous time or price, which may result in significant losses.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Risks of Underlying ETPs
The Fund may invest in the securities of other ETPs, including Affiliated ETFs. Investments in the Fund are subject to the risks associated with an investment in the Underlying ETPs. In addition to the risks described above, the following risks should also be considered when making an investment in the Fund.
•
Asset-Backed Securities Risk. Asset-backed securities are securities that represent interests in, and whose values and payments are based on, a “pool” of underlying assets, which may include, among others, lower-rated debt securities and corporate loans, consumer loans or mortgages and leases of property. Asset-backed securities include collateralized debt obligations, collateralized bond obligations, and collateralized loan obligations and other similarly structured vehicles. As with other debt securities, asset-backed securities are subject to credit risk, extension risk, interest rate risk, liquidity risk and valuation risk. The impairment of the value of collateral or other assets underlying an asset-backed security, such as a result of non-payment of loans or non-performance of underlying assets, may result in a reduction in the value of such asset-backed securities and losses to the Fund.
Investments in mortgage-related securities make an investor more susceptible to adverse economic, interest rate, political or regulatory events that affect the value of real estate. Mortgage-related securities are also significantly affected by the rate of prepayments. Impairment of the underlying obligations or collateral, such as by non-payment, will reduce a mortgage-related security’s value.
•
Convertible Securities Risk. A convertible security has characteristics of both equity and debt securities and, as a result, is exposed to risks that are typically associated with both types of securities. Convertible securities are typically subordinate to an issuer’s other debt obligations. Issuers of convertible securities may be more vulnerable to changes in the economy, such as a recession or a sustained period of rising interest rates, which could affect their ability to make interest and principal payments. If an issuer stops making interest and/or principal payments, the Fund could lose its entire investment.
•
Commodities Risk. Exposure to the commodities markets may subject the Fund to greater volatility than investments in traditional securities, and exposure to commodities, directly or through other securities, can cause the value of the Fund’s assets to decline or fluctuate in a rapid and unpredictable manner. The value of commodities may be affected by changes in overall market movements, real or perceived inflationary trends, commodity index volatility, changes in interest rates or currency exchange rates, population growth and changing demographics, international economic, political and regulatory developments, and factors affecting a particular region, industry or commodity, such as drought, floods, or other weather conditions, livestock disease, changes in storage costs, trade embargoes, competition from substitute products, transportation bottlenecks or shortages, fluctuations in supply and demand, and tariffs.
•
Credit Risk. Credit risk is the risk that the issuer or guarantor of a debt instrument or the counterparty to a derivatives contract, repurchase agreement or loan of portfolio securities will be unable or unwilling to make its timely interest and/or principal payments when due or otherwise honor its obligations. Changes
in an issuer’s or counterparty’s credit rating or the market’s perception of an issuer’s or counterparty’s creditworthiness may also adversely affect the value of the Fund’s investment in that issuer. The degree of credit risk depends on an issuer’s or counterparty’s financial condition and on the terms of an obligation.
•
Currency Risk. Investments directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign (non-U.S.) currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad.
•
Debt Securities Risk. The risks of investing in debt securities include (without limitation): (i) credit risk, e.g., the issuer or guarantor of a debt security may be unable or unwilling (or be perceived as unable or unwilling) to make timely principal and/or interest payments or otherwise honor its obligations; (ii) interest rate risk, e.g., when interest rates go up, the value of a debt security generally goes down, and when interest rates go down, the value of a debt security generally goes up; (iii) liquidity risk and valuation risk, e.g., debt securities generally do not trade on a securities exchange, making them generally less liquid and more difficult to value than common stock; (iv) call risk and income risk, e.g., during a period of falling interest rates, the issuer may redeem a security by repaying it early, which may reduce the Fund’s income if the proceeds are reinvested at lower interest rates; and (v) extension risk, e.g., if interest rates rise, repayments of debt securities may occur more slowly than anticipated by the market, which may drive the prices of these securities down because their interest rates are lower than the current interest rate and the securities remain outstanding longer. Debt securities most frequently trade in institutional round lot size transactions. If the Fund purchases bonds in amounts less than the institutional round lot size, which are frequently referred to as “odd” lots, the odd lot size positions may have more price volatility than institutional round lot size positions. The Fund uses a third-party pricing service to value bond holdings and the pricing service values bonds assuming orderly transactions of an institutional round lot size.
•
Emerging Markets Securities Risk. Securities of issuers based in countries with developing economies (emerging market countries) may present market, credit, currency, liquidity, legal, political and other risks different from, or greater than, the risks of investing in developed market countries and are generally considered speculative in nature. Emerging market countries are subject to greater market volatility, lower trading volume, political and economic instability, uncertainty regarding the existence of trading markets, rapid inflation, possible repatriation of investment income and capital, currency convertibility issues, less uniform accounting standards and more governmental limitations on foreign investment than more developed markets. Laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder rights may change quickly and unpredictably. In addition, the enforcement of systems of taxation at federal, regional and local levels in emerging market countries may be inconsistent and subject to sudden change.
•
Emerging Markets Sovereign Debt Risk. Government obligors in emerging market countries are among the world’s largest debtors to commercial banks, other governments, international financial organizations and other financial institutions. Historically, certain issuers of the government debt securities in which an Underlying ETP may invest have experienced substantial difficulties in meeting their external debt obligations, resulting in defaults on certain obligations and the restructuring of certain indebtedness, which could result in losses to an Underlying ETP.
•
Equity Securities Risk. Investments in common stocks and other equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Holders of an issuer’s common stock may be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
•
Foreign Securities Risk. Investments in the securities of non-U.S. issuers involve risks beyond those associated with investments in U.S. securities. These additional risks include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Some countries and regions have experienced security concerns, war or threats of war and aggression, terrorism, economic uncertainty, natural and environmental disasters and/or systemic market dislocations that have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on the U.S. and world economies and markets generally. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing, financial reporting and record keeping than are U.S. issuers, and therefore not all material information will be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact the Fund’s ability to invest in foreign securities or may prevent the Fund from repatriating its investments. Less developed securities markets are more likely to experience problems with the clearing and settling of trades, as well as the holding of securities by local banks, agents and depositories. The less developed a country’s securities market is, the greater the likelihood of custody problems.
•
Interest Rate Risk. An increase in interest rates may cause the value of securities held by the Fund to decline. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, making them more volatile than securities with shorter durations or floating or adjustable interest rates. The negative impact on the Fund from potential interest rate increases could be swift and significant, including falling market values, increased redemptions and reduced liquidity. The Fund may be subject to a greater risk of rising interest rates than would normally be the case due to the current period of historically low rates and the effect of potential government fiscal policy initiatives and resulting market reaction to those initiatives.
When interest rates rise, certain obligations will be paid off by the issuer (or other obligated party) more slowly than anticipated, causing the value of these securities to fall. As a result, in a period of rising interest rates, securities may exhibit additional volatility and may lose value. The value of securities with longer maturities generally changes more in response to changes in interest rates than does the value of securities with shorter maturities.
During periods of falling interest rates, an issuer of a callable security held by the Fund may “call” or repay the security before its stated maturity, which may result in the Fund having to reinvest the proceeds in securities with lower yields, resulting in a decline in the Fund’s income, or in securities with greater risks or with other less favorable features.
•
Real Estate Companies Risk. An investment in companies that invest in real estate (including REITs) exposes the Fund to the risks of the real estate market and the risks associated with the ownership of real estate. These risks can include fluctuations in the value of or destruction of underlying properties; realignment in tenant living and work habits (for example, movements to and from different parts of a nation, a region, a state or a city); tenant or borrower default; market saturation; changes in general and local economic conditions; decreases in market rates for rents; increases in vacancies; competition; property taxes; capital expenditures or operating expenses; other economic or political events affecting the real estate industry including interest rates and government regulation; concentration in a limited number of properties, geographic regions or property types; and low quality and/or conflicted management. Real estate is generally a less liquid asset class and companies that hold real estate may not be able to liquidate or modify their holdings quickly in response to changes in economic or other market conditions. Additionally, such companies may utilize leverage, which increases investment risk and the potential for more volatility in the Fund’s returns.
•
Small- and/or Mid-Capitalization Companies Risk. Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies.
•
Variable and Floating Rate Instruments Risk. Variable and floating rate instruments include debt securities issued by corporate and governmental entities, bank loans, mortgage-backed securities and asset-backed securities, preferred equity securities and derivative variable rate securities, such as inverse floaters. Variable and floating rate instruments are structured so that the instrument’s coupon rate
fluctuates based upon the level of a reference rate. A variable or floating rate instrument’s coupon rate resets periodically according to its terms. Consequently, in a rising interest rate environment, variable and floating rate instruments with coupon rates that reset infrequently may lag behind the changes in market interest rates.
Valuation Risk
Independent market quotations for certain investments held by the Fund may not be readily available, and such investments may be fair valued or valued by a pricing service at an evaluated price. These valuations involve subjectivity and different market participants may assign different prices to the same investment. As a result, there is a risk that the Fund may not be able to sell an investment at the price assigned to the investment by the Fund. In addition, the value of the securities or other assets in the Fund’s portfolio may change on days or during time periods when shareholders will not be able to purchase or sell the Fund’s Shares.
Performance Information
The bar chart that follows shows the annual total returns of the Fund for a full calendar year. The table that follows the bar chart shows the Fund’s average annual total returns, both before and after taxes. The bar chart and table provide an indication of the risks of investing in the Fund by comparing the Fund’s performance from year to year and by showing how the Fund’s average annual returns for one calendar year compared with its underlying index and additional broad measures of market performance. The HFRI Macro (Total) Index is an equally weighted index of hedge funds that employ macro strategies. The HFRI Fund of Funds Composite Index is an equally weighted hedge fund index including over 650 domestic and off-shore funds of funds. The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets (performance data assumes reinvestment of dividends, but it does not reflect management fees, transaction costs or other expenses).
All returns assume reinvestment of dividends and distributions. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Performance reflects fee waivers and/or expense reimbursement in effect, if such waivers or reimbursements were not in place, the Fund’s performance would be reduced. Fund performance current to the most recent month-end is available by calling 1-888-474-7725 or by visiting newyorklifeinvestments.com.
The Fund’s year-to-date total return as of June 30, 2021 was 1.89%.
Best and Worst Quarter Returns (for the period reflected in the bar chart above)
| | | Return | | | Quarter/Year | |
Highest Return | | | | | 9.04% | | | | | | 2Q/2020 | | |
Lowest Return | | | | | -8.65% | | | | | | 1Q/2020 | | |
Average Annual Total Returns as of December 31, 2020
| | | 1 Year | | | 5 Years | | | 10 Years | |
Returns before taxes | | | | | 8.68% | | | | | | 4.11% | | | | | | 1.36% | | |
Returns after taxes on distributions(1) | | | | | 7.63% | | | | | | 3.71% | | | | | | 0.96% | | |
Returns after taxes on distributions and sale of Fund Shares(2) | | | | | 5.18% | | | | | | 3.02% | | | | | | 0.88% | | |
IQ Hedge Macro Index (reflects no deduction for fees, expenses or taxes) | | | | | 9.28% | | | | | | 4.86% | | | | | | 2.09% | | |
HFRI Macro (Total) Index(2) (reflects no deduction for fees, expenses or taxes) | | | | | 5.38% | | | | | | 2.14% | | | | | | 1.00% | | |
MSCI World Index (reflects no deduction for fees, expenses or taxes) | | | | | 15.90% | | | | | | 12.19% | | | | | | 9.87% | | |
(1)
(2)
Investment Advisor
IndexIQ Advisors LLC (the “Advisor”) is the investment advisor to the Fund.
Portfolio Manager
The professionals jointly and primarily responsible for the day-to-day management of the Fund are Greg Barrato and James Harrison. Mr. Barrato, Senior Vice President of the Advisor, has been a portfolio manager of the Fund since February 2011 and Mr. Harrison, Vice President of the Advisor, has been a portfolio manager of the Fund since April 2018.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units.” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
IQ Hedge Market Neutral Tracker ETF
Investment Objective
The Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index, the IQ Hedge Market Neutral Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy, sell or hold shares of the Fund (“Shares”). Investors may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee | | | | | 0.75% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses | | | | | 0.01% | | |
| Acquired Fund Fees & Expenses(a) | | | | | 0.25% | | |
| Total Annual Fund Operating Expenses(a) | | | | | 1.01% | | |
| Fee Waiver(b) | | | | | 0.35% | | |
| Total Annual Fund Operating Expenses After Fee Waiver | | | | | 0.66% | | |
(a)
(b)
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates.
Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$67 |
|
|
$287 |
|
|
$524 |
|
|
$1,204 |
|
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 116% of the average value of its portfolio. This rate excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Shares.
Principal Investment Strategies
The Fund is a “fund of funds” which means it invests, under normal circumstances, at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the investments included in its Underlying Index, which includes underlying funds. The Underlying Index consists of a number of components (“Underlying Index Components”) selected in accordance with IndexIQ’s rules-based methodology of such Underlying Index.
Such Underlying Index Components will include primarily ETFs and/or other exchange-traded vehicles issuing equity securities organized in the U.S., such as exchange-traded commodity pools (“ETVs”), and may include exchange-traded notes (“ETNs”) (such ETFs, ETVs and ETNs are referred to collectively as “exchange-traded products” or “ETPs”). The Fund may also invest in one or more financial instruments, including but not limited to futures contracts and swap agreements (collectively, “Financial Instruments”).
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the Underlying Index, which was developed by IndexIQ LLC (“IndexIQ”), an affiliate of IndexIQ Advisors LLC, the Fund’s investment advisor (the “Advisor”). The Underlying Index seeks to track the “beta” portion of the returns (i.e., that portion of the returns of hedge funds that are non-idiosyncratic, or unrelated to manager skill) of hedge funds pursuing a market neutral strategy (the “Strategy”). Market Neutral hedge funds typically invest in both long and short positions in stocks while minimizing exposure to the systematic components of risk. These market neutral strategies seek to have a zero “beta” (or “market”) exposure to one or more systematic risk factors including the overall market (as represented by the S&P 500 Index), economic sectors or industries, market capitalization, region and country. Market neutral strategies that effectively neutralize the market exposure are not impacted by directional moves in the market. The Fund does not invest in hedge funds, and the Underlying Index does not include hedge funds as Underlying Index Components. The Fund is not a fund of hedge funds.
The Underlying Index may include both long and short positions in ETFs and ETVs. As opposed to taking long positions in which an investor seeks to profit from increases in the price of a security, short selling (or “selling short”) is a technique used by the Fund to try and profit from the falling price of a security. Short selling involves selling a security that has been borrowed from a third party with the intention of buying the identical security back at a later date to return to that third party. The basic principle of short selling is that one can profit by selling a security now at a high price and later buying it back at a lower price. The short seller hopes to profit from a decline in the price of the security between the sale and the repurchase, as the seller will pay less to buy the security than it received on selling the security.
The Underlying Index generally is based on the premise that hedge fund returns, when aggregated among hedge funds with similar investment styles, display over time significant exposures to a set of common investment strategies and asset classes. By creating an index that has similar exposures to the same investment strategies and asset classes as hedge funds generally, IndexIQ seeks to replicate the beta return characteristics of hedge funds.
The Underlying Index Components of this Strategy generally provide exposures to:
•
Emerging market equity;
•
Foreign currencies and currency futures;
•
Foreign equity, including small-capitalization equity;
•
Municipal bonds;
•
U.S. and foreign preferred securities;
•
U.S. bank loans;
•
U.S. convertible debt;
•
U.S. floating rate bond;
•
U.S. government short- and intermediate-term maturity bond;
•
U.S. growth equity;
•
U.S. high yield (or “junk”) debt;
•
U.S. investment grade corporate debt;
•
U.S. large-capitalization equity;
•
U.S. mortgage-backed debt;
•
U.S. small-capitalization equity;
•
U.S. Treasury Inflation Protection Securities (“TIPS”); and
•
U.S. value equity.
The Underlying Index is unlike traditional market-oriented indexes like the Standard & Poor’s 500® Composite Stock Total Return Index (the “S&P 500 Index”). Instead of tracking the performance of publicly-traded issuers representing a market or industry sector, the Underlying Index seeks to track the returns of distinct hedge fund investment styles.
The Underlying Index may include as a component one or more ETFs advised by the Advisor (“Affiliated ETFs”) and the Fund will typically invest in any Affiliated ETF included in the Underlying Index. The Fund also may invest in Affiliated ETFs that are not components of the index if such an investment will help the Fund track the Underlying Index.
The weights of the Underlying Index Components are rebalanced on a monthly basis. Annually, IndexIQ conducts a review process pursuant to which it may reconstitute the Underlying Indexes by adding or subtracting Underlying Index Components according to IndexIQ’s rules-based process.
Principal Risks
As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program. An investment in the Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, the Advisor or any of its affiliates. You should consider carefully the following risks before investing in the Fund.
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Counterparty Risk
A counterparty (the other party to a transaction or an agreement or the party with whom the Fund executes transactions) to a transaction with the Fund may be unable or unwilling to make timely principal, interest, settlement or margin payments, fulfill the delivery conditions of the contract or transaction, or otherwise honor its obligations. If a counterparty fails to meet its contractual obligations the Fund will have contractual remedies pursuant to the agreements related to the transaction but the Fund may be unable to terminate or realize any gain on the investment or transaction, resulting in a loss to the Fund. The Fund may experience significant delays in obtaining any recovery in an insolvency, bankruptcy, or other reorganization proceeding involving a counterparty (including recovery of any collateral posted by it) and may obtain limited or no recovery in such circumstances.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Derivatives Risk
Derivatives are investments whose value depends on (or is derived from) the value of an underlying instrument, such as a security, asset, reference rate or index and involve risks different from, and possibly greater than, the risks associated with other investments. These risks include: (i) the risk that the counterparty to a derivatives transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. Such prices are
influenced by numerous factors that affect the markets, including, but not limited to, changing supply and demand relationships, government programs and policies, national and international political and economic events, changes in interest rates, inflation and deflation, and changes in supply and demand relationships. Unlike other investments, derivative contracts often have leverage inherent in their terms. The use of leveraged derivatives can magnify potential for gain or loss and, therefore, amplify the effects of market volatility on the Fund’s Share price. The effects of leverage may also cause the Fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations or to meet collateral segregation requirements.
Exchange Traded Products Risk
Unlike an investment in a mutual fund, the value of the Fund’s investment in other exchange-traded funds or exchange-traded investment products (“ETPs”) is based on its market price (rather than NAV) and the Fund could lose money due to premiums/discounts of the ETP (which could cause the Fund to buy shares at market prices that are higher than their value or sell shares at market prices that are lower than their value); the failure of an active trading market to develop; or exchange trading halts or delistings. An investment in the Fund will entail more costs and expenses than a direct investment in any Underlying ETP. As the Fund’s allocations to Underlying ETPs changes, or the expense ratio of Underlying ETPs change, the operating expenses borne by the Fund from such investments may increase or decrease.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
Liquidity Risk
Liquidity risk exists when particular investments are difficult to purchase or sell. Certain investments may be subject to restrictions on resale, trade over-the-counter or in limited volume, or lack an active trading market. Accordingly, the Fund may not be able to sell or close out of such investments at favorable times or prices (or at all), or at the prices approximating those at which the Fund currently values them. Illiquid securities may trade at a discount from comparable, more liquid investments and may be subject to wide fluctuations in market value.
Long/Short Risk
The Fund seeks long exposure to certain securities and short exposure to certain other securities. There is no guarantee that the returns on the Fund’s long or short positions will produce positive returns, and the Fund could lose money if either or both positions produce negative returns. In addition, the Fund may gain enhanced long exposure to certain securities (i.e., obtain investment exposure that exceeds the amount directly invested in those assets, a form of leverage) and, as a result, suffer losses that exceed the amount invested in those assets.
Market Risk
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other
third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Underlying Index or the index calculation agent may make errors. The index provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Portfolio Turnover Risk
The Fund’s strategy may frequently involve buying and selling portfolio securities to rebalance the Fund’s investment exposures. High portfolio turnover may result in the Fund paying higher levels of transaction costs and generating greater tax liabilities for shareholders. Portfolio turnover risk may cause the Fund’s performance to be less than expected.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask” spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value.
Short Sales Risk
Short sales are transactions in which the Fund sells a security it does not own, or uses derivatives, such as futures or swaps, to effect short exposure to a particular reference asset. Such a position subjects the Fund to the risk that instead of declining, the price of the security or reference asset to which the Fund has short exposure will rise. If the price of the security or reference asset increases between the date of the short sale and the date on which the Fund replaces the security or otherwise closes out its short position, the Fund will experience a loss, which is theoretically unlimited since there is a theoretically unlimited potential for the market price of a security or other instrument sold short to increase.
Swap Agreements Risk
Swap agreements may involve greater risks than direct investment in securities as they may be leveraged and are subject to credit risk, counterparty risk, liquidity risk and valuation risk. A swap agreement could result in losses if the underlying reference or asset does not perform as anticipated. In addition, many swaps trade over-the-counter and may be considered illiquid. It may not be possible for the Fund to liquidate a swap position at an advantageous time or price, which may result in significant losses.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Risks of Underlying ETPs
The Fund may invest in the securities of other ETPs, including Affiliated ETFs. Investments in the Fund are subject to the risks associated with an investment in the Underlying ETPs. In addition to the risks described above, the following risks should also be considered when making an investment in the Fund.
•
Asset-Backed Securities Risk. Asset-backed securities are securities that represent interests in, and whose values and payments are based on, a “pool” of underlying assets, which may include, among others, lower-rated debt securities and corporate loans, consumer loans or mortgages and leases of property. Asset-backed securities include collateralized debt obligations, collateralized bond obligations, and collateralized loan obligations and other similarly structured vehicles. As with other debt securities, asset-backed securities are subject to credit risk, extension risk, interest rate risk, liquidity risk and valuation risk. The impairment of the value of collateral or other assets underlying an asset-backed security, such as a result of non-payment of loans or non-performance of underlying assets, may result in a reduction in the value of such asset-backed securities and losses to the Fund.
Investments in mortgage-related securities make an investor more susceptible to adverse economic, interest rate, political or regulatory events that affect the value of real estate. Mortgage-related securities are also significantly affected by the rate of prepayments. Impairment of the underlying obligations or collateral, such as by non-payment, will reduce a mortgage-related security’s value.
•
Commodities Risk. Exposure to the commodities markets may subject the Fund to greater volatility than investments in traditional securities, and exposure to commodities, directly or through other securities, can cause the value of the Fund’s assets to decline or fluctuate in a rapid and unpredictable manner. The value of commodities may be affected by changes in overall market movements, real or perceived inflationary trends, commodity index volatility, changes in interest rates or currency exchange rates, population growth and changing demographics, international economic, political and regulatory developments, and factors affecting a particular region, industry or commodity, such as drought, floods, or other weather conditions, livestock disease, changes in storage costs, trade embargoes, competition from substitute products, transportation bottlenecks or shortages, fluctuations in supply and demand, and tariffs.
•
Convertible Securities Risk. A convertible security has characteristics of both equity and debt securities and, as a result, is exposed to risks that are typically associated with both types of securities. Convertible securities are typically subordinate to an issuer’s other debt obligations. Issuers of convertible securities may be more vulnerable to changes in the economy, such as a recession or a sustained period of rising interest rates, which could affect their ability to make interest and principal payments. If an issuer stops making interest and/or principal payments, the Fund could lose its entire investment.
•
Credit Risk. Credit risk is the risk that the issuer or guarantor of a debt instrument or the counterparty to a derivatives contract, repurchase agreement or loan of portfolio securities will be unable or unwilling to make its timely interest and/or principal payments when due or otherwise honor its obligations. Changes
in an issuer’s or counterparty’s credit rating or the market’s perception of an issuer’s or counterparty’s creditworthiness may also adversely affect the value of the Fund’s investment in that issuer. The degree of credit risk depends on an issuer’s or counterparty’s financial condition and on the terms of an obligation.
•
Currency Risk. Investments directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign (non-U.S.) currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad.
•
Debt Securities Risk. The risks of investing in debt securities include (without limitation): (i) credit risk, e.g., the issuer or guarantor of a debt security may be unable or unwilling (or be perceived as unable or unwilling) to make timely principal and/or interest payments or otherwise honor its obligations; (ii) interest rate risk, e.g., when interest rates go up, the value of a debt security generally goes down, and when interest rates go down, the value of a debt security generally goes up; (iii) liquidity risk and valuation risk, e.g., debt securities generally do not trade on a securities exchange, making them generally less liquid and more difficult to value than common stock; (iv) call risk and income risk, e.g., during a period of falling interest rates, the issuer may redeem a security by repaying it early, which may reduce the Fund’s income if the proceeds are reinvested at lower interest rates; and (v) extension risk, e.g., if interest rates rise, repayments of debt securities may occur more slowly than anticipated by the market, which may drive the prices of these securities down because their interest rates are lower than the current interest rate and the securities remain outstanding longer. Debt securities most frequently trade in institutional round lot size transactions. If the Fund purchases bonds in amounts less than the institutional round lot size, which are frequently referred to as “odd” lots, the odd lot size positions may have more price volatility than institutional round lot size positions. The Fund uses a third-party pricing service to value bond holdings and the pricing service values bonds assuming orderly transactions of an institutional round lot size.
•
Emerging Markets Securities Risk. Securities of issuers based in countries with developing economies (emerging market countries) may present market, credit, currency, liquidity, legal, political and other risks different from, or greater than, the risks of investing in developed market countries and are generally considered speculative in nature. Emerging market countries are subject to greater market volatility, lower trading volume, political and economic instability, uncertainty regarding the existence of trading markets, rapid inflation, possible repatriation of investment income and capital, currency convertibility issues, less uniform accounting standards and more governmental limitations on foreign investment than more developed markets. Laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder rights may change quickly and unpredictably. In addition, the enforcement of systems of taxation at federal, regional and local levels in emerging market countries may be inconsistent and subject to sudden change.
•
Emerging Markets Sovereign Debt Risk. Government obligors in emerging market countries are among the world’s largest debtors to commercial banks, other governments, international financial organizations and other financial institutions. Historically, certain issuers of the government debt securities in which an Underlying ETP may invest have experienced substantial difficulties in meeting their external debt obligations, resulting in defaults on certain obligations and the restructuring of certain indebtedness, which could result in losses to an Underlying ETP.
•
Equity Securities Risk. Investments in common stocks and other equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Holders of an issuer’s common stock may be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
•
Foreign Securities Risk. Investments in the securities of non-U.S. issuers involve risks beyond those associated with investments in U.S. securities. These additional risks include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Some countries and regions have experienced security concerns, war or threats of war and aggression, terrorism, economic uncertainty, natural and environmental disasters and/or systemic market dislocations that have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on the U.S. and world economies and markets generally. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing, financial reporting and record keeping than are U.S. issuers, and therefore not all material information will be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact the Fund’s ability to invest in foreign securities or may prevent the Fund from repatriating its investments. Less developed securities markets are more likely to experience problems with the clearing and settling of trades, as well as the holding of securities by local banks, agents and depositories. The less developed a country’s securities market is, the greater the likelihood of custody problems.
•
High Yield Securities Risk. High yield securities, or “junk” bonds, generally offer a higher current yield than the yield available from higher grade issues, but are subject to greater market fluctuations, are less liquid and provide a greater risk of loss than investment grade securities, and therefore are considered to be highly speculative. In general, high yield securities may have a greater risk of default than other types of securities and could cause income and principal losses for the Fund.
•
Interest Rate Risk. An increase in interest rates may cause the value of securities held by the Fund to decline. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, making them more volatile than securities with shorter durations or floating or adjustable interest rates. The negative impact on the Fund from potential interest rate increases could be swift and significant, including falling market values, increased redemptions and reduced liquidity. The Fund may be subject to a greater risk of rising interest rates than would normally be the case due to the current period of historically low rates and the effect of potential government fiscal policy initiatives and resulting market reaction to those initiatives.
When interest rates rise, certain obligations will be paid off by the issuer (or other obligated party) more slowly than anticipated, causing the value of these securities to fall. As a result, in a period of rising interest rates, securities may exhibit additional volatility and may lose value. The value of securities with longer maturities generally changes more in response to changes in interest rates than does the value of securities with shorter maturities.
During periods of falling interest rates, an issuer of a callable security held by the Fund may “call” or repay the security before its stated maturity, which may result in the Fund having to reinvest the proceeds in securities with lower yields, resulting in a decline in the Fund’s income, or in securities with greater risks or with other less favorable features.
The terms of floating rate notes and other instruments may be tied to the London Interbank Offered Rate (“LIBOR”), which functions as a reference rate or benchmark. It is anticipated that LIBOR will be discontinued at the end of 2021, which may cause increased volatility and illiquidity in the markets for instruments with terms tied to LIBOR or other adverse consequences, such as decreased yields and reduction in value, for these instruments. These events may adversely affect the Fund and its investments in such instruments.
•
Municipal Bond Risk. Issuers, including governmental issuers, may be unable to pay their obligations as they come due. The values of Municipal Bonds that depend on a specific revenue source to fund their payment obligations may fluctuate as a result of actual or anticipated changes in the cash flows generated by the revenue source or changes in the priority of the municipal obligation to receive the cash flows generated by the revenue source. The values of Municipal Bonds held by the Fund may be adversely affected by local political and economic conditions and developments. Adverse conditions in an industry significant to a local economy could have a correspondingly adverse effect on the financial condition of local issuers. This risk would be heightened to the extent that the Fund invests a substantial portion of its assets in Municipal Bonds issued pursuant to similar projects or whose interest is paid solely from revenues of similar projects. In addition, income from Municipal Bonds held by the Fund could be declared taxable because of, among other things, unfavorable changes in tax laws, adverse
interpretations by the Internal Revenue Service or state tax authorities, or noncompliant conduct of an issuer or other obligated party. Loss of tax-exempt status may cause interest received and distributed to shareholders by the Fund to be taxable and may result in a significant decline in the values of such municipal securities. There are various different types of Municipal Bonds, each with its own unique risk profile. Some of these risks include:
•
General Obligation Bonds Risk — timely payments depend on the issuer’s credit quality, ability to raise tax revenues and ability to maintain an adequate tax base;
•
Revenue Bonds (including Industrial Development Bonds) Risk — timely payments depend on the money earned by the particular facility or class of facilities, or the amount of revenues derived from another source, and may be negatively impacted by the general credit of the user of the facility;
•
Private Activity Bonds Risk — municipalities and other public authorities issue private activity bonds to finance development of industrial facilities for use by a private enterprise, which is solely responsible for paying the principal and interest on the bonds, and payment under these bonds depends on the private enterprise’s ability to do so;
•
Moral Obligation Bonds Risk — moral obligation bonds are generally issued by special purpose public authorities of a state or municipality. If the issuer is unable to meet its obligations, repayment of these bonds becomes a moral commitment, but not a legal obligation, of the state or municipality;
•
Municipal Notes Risk — municipal notes are shorter-term municipal debt obligations that pay interest that is, in the opinion of bond counsel for the issuer at the time of issuance, generally excludable from gross income for federal income tax purposes (except that the interest may be includable in taxable income for purposes of the federal alternative minimum tax) and that have a maturity that is generally one year or less. If there is a shortfall in the anticipated proceeds, the notes may not be fully repaid and the Fund may lose money; and
•
Municipal Lease Obligations Risk — in a municipal lease obligation, the issuer agrees to make payments when due on the lease obligation. Although the issuer does not pledge its unlimited taxing power for payment of the lease obligation, the lease obligation is secured by the leased property.
•
Preferred Securities Risk. Preferred securities combine some of the characteristics of both common stocks and bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms of priority to corporate income, subjecting them to greater credit risk than those debt securities. Generally, holders of preferred securities have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may obtain limited rights. In certain circumstances, an issuer of preferred securities may defer payment on the securities and, in some cases, redeem the securities prior to a specified date. Preferred securities may also be substantially less liquid than other securities, including common stock.
•
Real Estate Companies Risk. An investment in companies that invest in real estate (including REITs) exposes the Fund to the risks of the real estate market and the risks associated with the ownership of real estate. These risks can include fluctuations in the value of or destruction of underlying properties; realignment in tenant living and work habits (for example, movements to and from different parts of a nation, a region, a state or a city); tenant or borrower default; market saturation; changes in general and local economic conditions; decreases in market rates for rents; increases in vacancies; competition; property taxes; capital expenditures or operating expenses; other economic or political events affecting the real estate industry including interest rates and government regulation; concentration in a limited number of properties, geographic regions or property types; and low quality and/or conflicted management. Real estate is generally a less liquid asset class and companies that hold real estate may not be able to liquidate or modify their holdings quickly in response to changes in economic or other market conditions. Additionally, such companies may utilize leverage, which increases investment risk and the potential for more volatility in the Fund’s returns.
•
Risks of Investing in Loans. Investments in loans are subject to the same risks as investments in other types of debt securities, including credit risk, interest rate risk, liquidity risk and valuation risk that may be heightened because of the limited public information available regarding loans and because loan borrowers may be leveraged and tend to be more adversely affected by changes in market or
economic conditions. Default in the payment of interest or principal on a loan will result in a reduction in the value of the loan and consequently a reduction in the value of an investment in that loan. If an investor holds a loan through another financial institution or relies on a financial institution to administer the loan, its receipt of principal and interest on the loan may be subject to the credit risk of that financial institution. It is possible that any collateral securing a loan may be insufficient or unavailable to the investor, and that the investor’s rights to collateral may be limited by bankruptcy or insolvency laws. Additionally, there is no central clearinghouse for loan trades and the loan market has not established enforceable settlement standards or remedies for failure to settle. Consequently, the secondary market for loans may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods (in some cases longer than 7 days), which may cause an investor to be unable to realize the full value of its investment. In addition, loans are generally not registered with the SEC under the Securities Act of 1933, as amended, and may not be considered “securities,” and an investor may not be entitled to rely on the anti-fraud protections of the federal securities laws. An investment in loans made to non-U.S. borrowers may be affected by political and social instability, changes in economic or taxation policies, difficulties in enforcing obligations, decreased liquidity and increased volatility. Foreign borrowers may be subject to less regulation, resulting in less publicly available information about the borrowers.
The loan market has seen a significant increase in loans with weaker lender protections including, but not limited to, limited financial maintenance covenants or, in some cases, no financial maintenance covenants (i.e., “covenant-lite loans”) that would typically be included in a traditional loan agreement and general weakening of other restrictive covenants applicable to the borrower such as limitations on incurrence of additional debt, restrictions on payments of junior debt or restrictions on dividends and distributions. Weaker lender protections such as the absence of financial maintenance covenants in a loan agreement and the inclusion of “borrower-favorable” terms may impact recovery values and/or trading levels of loans in the future. The absence of financial maintenance covenants in a loan agreement generally means that the lender may not be able to declare a default if financial performance deteriorates. This may hinder an investor’s ability to reprice credit risk associated with a particular borrower and reduce the investor’s ability to restructure a problematic loan and mitigate potential loss. As a result, an investor’s exposure to losses on investments in loans may be increased, especially during a downturn in the credit cycle or changes in market or economic conditions.
•
Small- and/or Mid-Capitalization Companies Risk. Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies.
•
Variable and Floating Rate Instruments Risk. Variable and floating rate instruments include debt securities issued by corporate and governmental entities, bank loans, mortgage-backed securities and asset-backed securities, preferred equity securities and derivative variable rate securities, such as inverse floaters. Variable and floating rate instruments are structured so that the instrument’s coupon rate fluctuates based upon the level of a reference rate. A variable or floating rate instrument’s coupon rate resets periodically according to its terms. Consequently, in a rising interest rate environment, variable and floating rate instruments with coupon rates that reset infrequently may lag behind the changes in market interest rates.
Valuation Risk
Independent market quotations for certain investments held by the Fund may not be readily available, and such investments may be fair valued or valued by a pricing service at an evaluated price. These valuations involve subjectivity and different market participants may assign different prices to the same investment. As a result, there is a risk that the Fund may not be able to sell an investment at the price assigned to the investment by the Fund. In addition, the value of the securities or other assets in the Fund’s portfolio may change on days or during time periods when shareholders will not be able to purchase or sell the Fund’s Shares.
Performance Information
The bar chart that follows shows the annual total returns of the Fund for a full calendar year. The table that follows the bar chart shows the Fund’s average annual total returns, both before and after taxes. The bar chart and table provide an indication of the risks of investing in the Fund by comparing the Fund’s performance from year to year and by showing how the Fund’s average annual returns for one calendar year compared with its underlying index and additional broad measures of market performance. The HFRI Equity Market Neutral Index
is an equally weighted hedge fund index including both Factor Based and Statistical Arbitrage/Trading strategies. The Bloomberg Barclays U.S. Short Treasury Bond Index measures the performance of public obligations of the Treasury that have a remaining maturing of between 1 and 12 months.
All returns assume reinvestment of dividends and distributions. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Performance reflects fee waivers and/or expense reimbursement in effect, if such waivers or reimbursements were not in place, the Fund’s performance would be reduced. Fund performance current to the most recent month-end is available by calling 1-888-474-7725 or by visiting newyorklifeinvestments.com.
The Fund’s year-to-date total return as of June 30, 2021 was 0.62%.
Best and Worst Quarter Returns (for the period reflected in the bar chart above)
| | | Return | | | Quarter/Year | |
Highest Return | | | | | 5.22% | | | | | | 2Q/2020 | | |
Lowest Return | | | | | -6.31% | | | | | | 1Q/2020 | | |
Average Annual Total Returns as of December 31, 2020
| | | 1 Year | | | 5 Years | | | Since Inception(1) | |
Returns before taxes | | | | | 4.01% | | | | | | 2.81% | | | | | | 1.96% | | |
Returns after taxes on distributions(2) | | | | | 3.16% | | | | | | 2.39% | | | | | | 1.61% | | |
Returns after taxes on distributions and sale of Fund Shares(2) | | | | | 2.39% | | | | | | 1.99% | | | | | | 1.37% | | |
IQ Hedge Market Neutral Index (reflects no deduction for fees, expenses or taxes) | | | | | 4.51% | | | | | | 3.57% | | | | | | 2.86% | | |
HFRI Equity Market Neutral Index(3) (reflects no deduction for fees, expenses or taxes) | | | | | -0.11% | | | | | | 1.65% | | | | | | 2.75% | | |
Bloomberg Barclays U.S. Short Treasury Bond Index (reflects no deduction for fees, expenses or taxes) | | | | | 0.95% | | | | | | 1.32% | | | | | | 0.85% | | |
(1)
(2)
(3)
Investment Advisor
IndexIQ Advisors LLC is the investment advisor to the Fund.
Portfolio Manager
The professionals jointly and primarily responsible for the day-to-day management of the Fund are Greg Barrato and James Harrison. Mr. Barrato, Senior Vice President of the Advisor, has been a portfolio manager of the Fund since its inception and Mr. Harrison, Vice President of the Advisor, has been a portfolio manager of the Fund since April 2018.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units.” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
IQ Hedge Long/Short Tracker ETF
Investment Objective
The Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index, the IQ Hedge Long/Short Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy, sell or hold shares of the Fund (“Shares”). Investors may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee | | | | | 0.75% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses | | | | | 0.01% | | |
| Acquired Fund Fees & Expenses(a) | | | | | 0.18% | | |
| Total Annual Fund Operating Expenses(a) | | | | | 0.94% | | |
| Fee Waiver(b) | | | | | 0.35% | | |
| Total Annual Fund Operating Expenses After Fee Waiver | | | | | 0.59% | | |
(a)
(b)
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates.
Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$60 |
|
|
$265 |
|
|
$486 |
|
|
$1,123 |
|
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 156% of the average value of its portfolio. This rate excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Shares.
Principal Investment Strategies
The Fund is a “fund of funds” which means it invests, under normal circumstances, at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the investments included in its Underlying Index, which includes underlying funds. The Underlying Index consists of a number of components (“Underlying Index Components”) selected in accordance with IndexIQ’s rules-based methodology of such Underlying Index.
Such Underlying Index Components will include primarily ETFs and/or other exchange-traded vehicles issuing equity securities organized in the U.S., such as exchange-traded commodity pools (“ETVs”), and may include exchange-traded notes (“ETNs”) (such ETFs, ETVs and ETNs are referred to collectively as “exchange-traded products” or “ETPs”). The Fund may also invest in one or more financial instruments, including but not limited to futures contracts and swap agreements (collectively, “Financial Instruments”).
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the Underlying Index, which was developed by IndexIQ LLC (“IndexIQ”), an affiliate of IndexIQ Advisors LLC, the Fund’s investment advisor (the “Advisor”). The Underlying Index seeks to track the “beta” portion of the returns (i.e., that portion of the returns of hedge funds that are non-idiosyncratic, or unrelated to manager skill) of hedge funds pursuing a long/short strategy (the “Strategy”). Long/short hedge funds typically diversify their risks by limiting the net exposure to particular regions, industries, sectors and market capitalization bands, allowing them to focus on company-specific anomalies. At the same time, long/short managers often hedge against un-diversifiable risk, such as market risk (i.e., the returns of the overall market). Certain long/short managers focus on specific sectors, regions or industries, on particular investment styles, such as value or growth, or certain types of stocks, such as small or large. The Fund does not invest in hedge funds, and the Underlying Index does not include hedge funds as Underlying Index Components. The Fund is not a fund of hedge funds.
The Underlying Index may include both long and short positions in securities, including, primarily, ETPs. As opposed to taking long positions in which an investor seeks to profit from increases in the price of a security, short selling (or “selling short”) is a technique used by the Fund to try and profit from the falling price of a security. Short selling involves selling a security that has been borrowed from a third party with the intention of buying the identical security back at a later date to return to that third party. The basic principle of short selling is that one can profit by selling a security now at a high price and later buying it back at a lower price. The short seller hopes to profit from a decline in the price of the security between the sale and the repurchase, as the seller will pay less to buy the security than it received on selling the security.
The Underlying Index generally is based on the premise that hedge fund returns, when aggregated among hedge funds with similar investment styles, display over time significant exposures to a set of common investment strategies and asset classes. By creating an index that has similar exposures to the same investment strategies and asset classes as hedge funds generally, IndexIQ seeks to replicate the beta return characteristics of hedge funds.
The Underlying Index Components of this Strategy generally provide exposures to:
•
Emerging market equity;
•
Foreign equity, including small-capitalization equity;
•
The implied volatility of the S&P 500® Index;
•
U.S. and foreign preferred securities;
•
U.S. and foreign real estate investment trusts;
•
U.S. bank loans;
•
U.S. government long-term maturity obligations;
•
U.S. growth equity;
•
U.S. investment grade corporate debt;
•
U.S. large-capitalization equity;
•
U.S. small-capitalization equity; and
•
U.S. value equity.
The Underlying Index is unlike traditional market-oriented indexes like the Standard & Poor’s 500® Composite Stock Total Return Index (the “S&P 500 Index”). Instead of tracking the performance of publicly-traded issuers representing a market or industry sector, the Underlying Index seeks to track the returns of distinct hedge fund investment styles.
The Underlying Index may include as a component one or more ETFs advised by the Advisor (“Affiliated ETFs”) and the Fund will typically invest in any Affiliated ETF included in the Underlying Index. The Fund also may invest in Affiliated ETFs that are not components of the index if such an investment will help the Fund track the Underlying Index.
The weights of the Underlying Index Components are rebalanced on a monthly basis. Annually, IndexIQ conducts a review process pursuant to which it may reconstitute the Underlying Indexes by adding or subtracting Underlying Index Components according to IndexIQ’s rules-based process.
Principal Risks
Investors in the Fund should be willing to accept a high degree of volatility in the price of the Shares and the possibility of significant losses. An investment in the Fund involves a substantial degree of risk and the Fund does not represent a complete investment program. As with all investments, you may lose money in the Fund. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Therefore, you should consider carefully the following risks before investing in the Fund. A more complete discussion of Principal Risks is included under “Description of the Principal Risks of the Funds.”
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Counterparty Risk
A counterparty (the other party to a transaction or an agreement or the party with whom the Fund executes transactions) to a transaction with the Fund may be unable or unwilling to make timely principal, interest, settlement or margin payments, fulfill the delivery conditions of the contract or transaction, or otherwise honor its obligations. If a counterparty fails to meet its contractual obligations the Fund will have contractual remedies pursuant to the agreements related to the transaction but the Fund may be unable to terminate or realize any gain on the investment or transaction, resulting in a loss to the Fund. The Fund may experience significant delays in obtaining any recovery in an insolvency, bankruptcy, or other reorganization proceeding involving a counterparty (including recovery of any collateral posted by it) and may obtain limited or no recovery in such circumstances.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Derivatives Risk
Derivatives are investments whose value depends on (or is derived from) the value of an underlying instrument, such as a security, asset, reference rate or index and involve risks different from, and possibly greater than, the risks associated with other investments. These risks include: (i) the risk that the counterparty to a derivatives transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. Such prices are influenced by numerous factors that affect the markets, including, but not limited to, changing supply and demand relationships, government programs and policies, national and international political and economic events, changes in interest rates, inflation and deflation, and changes in supply and demand relationships. Unlike other investments, derivative contracts often have leverage inherent in their terms. The use of leveraged derivatives can magnify potential for gain or loss and, therefore, amplify the effects of market volatility on the Fund’s Share price. The effects of leverage may also cause the Fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations or to meet collateral segregation requirements.
Exchange Traded Products Risk
Unlike an investment in a mutual fund, the value of the Fund’s investment in other exchange-traded funds or exchange-traded investment products (“ETPs”) is based on its market price (rather than NAV) and the Fund could lose money due to premiums/discounts of the ETP (which could cause the Fund to buy shares at market prices that are higher than their value or sell shares at market prices that are lower than their value); the failure of an active trading market to develop; or exchange trading halts or delistings. An investment in the Fund will entail more costs and expenses than a direct investment in any Underlying ETP. As the Fund’s allocations to Underlying ETPs changes, or the expense ratio of Underlying ETPs change, the operating expenses borne by the Fund from such investments may increase or decrease.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
Long/Short Risk
The Fund seeks long exposure to certain securities and short exposure to certain other securities. There is no guarantee that the returns on the Fund’s long or short positions will produce positive returns, and the Fund could lose money if either or both positions produce negative returns. In addition, the Fund may gain enhanced long exposure to certain securities (i.e., obtain investment exposure that exceeds the amount directly invested in those assets, a form of leverage) and, as a result, suffer losses that exceed the amount invested in those assets.
Liquidity Risk
Liquidity risk exists when particular investments are difficult to purchase or sell. Certain investments may be subject to restrictions on resale, trade over-the-counter or in limited volume, or lack an active trading market. Accordingly, the Fund may not be able to sell or close out of such investments at favorable times or prices (or at all), or at the prices approximating those at which the Fund currently values them. Illiquid securities may trade at a discount from comparable, more liquid investments and may be subject to wide fluctuations in market value.
Market Risk
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on a Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Underlying Index or the index calculation agent may make errors. The index provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Portfolio Turnover Risk
The Fund’s strategy may frequently involve buying and selling portfolio securities to rebalance the Fund’s investment exposures. High portfolio turnover may result in the Fund paying higher levels of transaction costs and generating greater tax liabilities for shareholders. Portfolio turnover risk may cause the Fund’s performance to be less than expected.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask” spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value.
Short Sales Risk
Short sales are transactions in which the Fund sells a security it does not own, or uses derivatives, such as futures or swaps, to effect short exposure to a particular reference asset. Such a position subjects the Fund to the risk that instead of declining, the price of the security or reference asset to which the Fund has short exposure will rise. If the price of the security or reference asset increases between the date of the short sale and the date on which the Fund replaces the security or otherwise closes out its short position, the Fund will experience a loss, which is theoretically unlimited since there is a theoretically unlimited potential for the market price of a security or other instrument sold short to increase.
Swap Agreements Risk
Swap agreements may involve greater risks than direct investment in securities as they may be leveraged and are subject to credit risk, counterparty risk, liquidity risk and valuation risk. A swap agreement could result in losses if the underlying reference or asset does not perform as anticipated. In addition, many swaps trade
over-the-counter and may be considered illiquid. It may not be possible for the Fund to liquidate a swap position at an advantageous time or price, which may result in significant losses.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Risks of Underlying ETPs
The Fund may invest in the securities of other ETPs, including Affiliated ETFs. Investments in the Fund are subject to the risks associated with an investment in the Underlying ETPs. In addition to the risks described above, the following risks should also be considered when making an investment in the Fund.
•
Credit Risk. Credit risk is the risk that the issuer or guarantor of a debt instrument or the counterparty to a derivatives contract, repurchase agreement or loan of portfolio securities will be unable or unwilling to make its timely interest and/or principal payments when due or otherwise honor its obligations. Changes in an issuer’s or counterparty’s credit rating or the market’s perception of an issuer’s or counterparty’s creditworthiness may also adversely affect the value of the Fund’s investment in that issuer. The degree of credit risk depends on an issuer’s or counterparty’s financial condition and on the terms of an obligation.
•
Currency Risk. Investments directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign (non-U.S.) currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad.
•
Debt Securities Risk. The risks of investing in debt securities include (without limitation): (i) credit risk, e.g., the issuer or guarantor of a debt security may be unable or unwilling (or be perceived as unable or unwilling) to make timely principal and/or interest payments or otherwise honor its obligations; (ii) interest rate risk, e.g., when interest rates go up, the value of a debt security generally goes down, and when interest rates go down, the value of a debt security generally goes up; (iii) liquidity risk and valuation risk, e.g., debt securities generally do not trade on a securities exchange, making them generally less liquid and more difficult to value than common stock; (iv) call risk and income risk, e.g., during a period of falling interest rates, the issuer may redeem a security by repaying it early, which may reduce the Fund’s income if the proceeds are reinvested at lower interest rates; and (v) extension risk, e.g., if interest rates rise, repayments of debt securities may occur more slowly than anticipated by the market, which may drive the prices of these securities down because their interest rates are lower than the current interest rate and the securities remain outstanding longer. Debt securities most frequently trade in institutional round lot size transactions. If the Fund purchases bonds in amounts less than the institutional round lot size, which are frequently referred to as “odd” lots, the odd lot size positions may have more price volatility than institutional round lot size positions. The Fund uses a third-party pricing service to value bond holdings and the pricing service values bonds assuming orderly transactions of an institutional round lot size.
•
Emerging Markets Securities Risk. Securities of issuers based in countries with developing economies (emerging market countries) may present market, credit, currency, liquidity, legal, political and other risks different from, or greater than, the risks of investing in developed market countries and are generally considered speculative in nature. Emerging market countries are subject to greater market volatility, lower trading volume, political and economic instability, uncertainty regarding the existence of trading
markets, rapid inflation, possible repatriation of investment income and capital, currency convertibility issues, less uniform accounting standards and more governmental limitations on foreign investment than more developed markets. Laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder rights may change quickly and unpredictably. In addition, the enforcement of systems of taxation at federal, regional and local levels in emerging market countries may be inconsistent and subject to sudden change.
•
Emerging Markets Sovereign Debt Risk. Government obligors in emerging market countries are among the world’s largest debtors to commercial banks, other governments, international financial organizations and other financial institutions. Historically, certain issuers of the government debt securities in which an Underlying ETP may invest have experienced substantial difficulties in meeting their external debt obligations, resulting in defaults on certain obligations and the restructuring of certain indebtedness, which could result in losses to an Underlying ETP.
•
Equity Securities Risk. Investments in common stocks and other equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Holders of an issuer’s common stock may be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
•
Foreign Securities Risk. Investments in the securities of non-U.S. issuers involve risks beyond those associated with investments in U.S. securities. These additional risks include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Some countries and regions have experienced security concerns, war or threats of war and aggression, terrorism, economic uncertainty, natural and environmental disasters and/or systemic market dislocations that have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on the U.S. and world economies and markets generally. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing, financial reporting and record keeping than are U.S. issuers, and therefore not all material information will be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact the Fund’s ability to invest in foreign securities or may prevent the Fund from repatriating its investments. Less developed securities markets are more likely to experience problems with the clearing and settling of trades, as well as the holding of securities by local banks, agents and depositories. The less developed a country’s securities market is, the greater the likelihood of custody problems.
•
High Yield Securities Risk. High yield securities, or “junk” bonds, generally offer a higher current yield than the yield available from higher grade issues, but are subject to greater market fluctuations, are less liquid and provide a greater risk of loss than investment grade securities, and therefore are considered to be highly speculative. In general, high yield securities may have a greater risk of default than other types of securities and could cause income and principal losses for the Fund.
•
Interest Rate Risk. An increase in interest rates may cause the value of securities held by the Fund to decline. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, making them more volatile than securities with shorter durations or floating or adjustable interest rates. The negative impact on the Fund from potential interest rate increases could be swift and significant, including falling market values, increased redemptions and reduced liquidity. The Fund may be subject to a greater risk of rising interest rates than would normally be the case due to the current period of historically low rates and the effect of potential government fiscal policy initiatives and resulting market reaction to those initiatives.
When interest rates rise, certain obligations will be paid off by the issuer (or other obligated party) more slowly than anticipated, causing the value of these securities to fall. As a result, in a period of rising interest rates, securities may exhibit additional volatility and may lose value. The value of securities with longer maturities generally changes more in response to changes in interest rates than does the value of securities with shorter maturities.
During periods of falling interest rates, an issuer of a callable security held by the Fund may “call” or repay the security before its stated maturity, which may result in the Fund having to reinvest the
proceeds in securities with lower yields, resulting in a decline in the Fund’s income, or in securities with greater risks or with other less favorable features.
The terms of floating rate notes and other instruments may be tied to the London Interbank Offered Rate (“LIBOR”), which functions as a reference rate or benchmark. It is anticipated that LIBOR will be discontinued at the end of 2021, which may cause increased volatility and illiquidity in the markets for instruments with terms tied to LIBOR or other adverse consequences, such as decreased yields and reduction in value, for these instruments. These events may adversely affect the Fund and its investments in such instruments.
•
Real Estate Companies Risk. An investment in companies that invest in real estate (including REITs) exposes the Fund to the risks of the real estate market and the risks associated with the ownership of real estate. These risks can include fluctuations in the value of or destruction of underlying properties; realignment in tenant living and work habits (for example, movements to and from different parts of a nation, a region, a state or a city); tenant or borrower default; market saturation; changes in general and local economic conditions; decreases in market rates for rents; increases in vacancies; competition; property taxes; capital expenditures or operating expenses; other economic or political events affecting the real estate industry including interest rates and government regulation; concentration in a limited number of properties, geographic regions or property types; and low quality and/or conflicted management. Real estate is generally a less liquid asset class and companies that hold real estate may not be able to liquidate or modify their holdings quickly in response to changes in economic or other market conditions. Additionally, such companies may utilize leverage, which increases investment risk and the potential for more volatility in the Fund’s returns.
•
Small- and/or Mid-Capitalization Companies Risk. Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies.
•
Variable and Floating Rate Instruments Risk. Variable and floating rate instruments include debt securities issued by corporate and governmental entities, bank loans, mortgage-backed securities and asset-backed securities, preferred equity securities and derivative variable rate securities, such as inverse floaters. Variable and floating rate instruments are structured so that the instrument’s coupon rate fluctuates based upon the level of a reference rate. A variable or floating rate instrument’s coupon rate resets periodically according to its terms. Consequently, in a rising interest rate environment, variable and floating rate instruments with coupon rates that reset infrequently may lag behind the changes in market interest rates.
•
VIX Exposure Risk. The Fund may invest in investment products whose value is linked to the performance of the Cboe Volatility Index (the “VIX Index”). The VIX Index seeks to measure the 30-day expected volatility of the S&P 500 Index, as calculated based on the prices of certain put and call options on the S&P 500 Index. Products providing exposure to the VIX Index are not able to invest directly in the components of the VIX Index, but rather generally gain exposure to the VIX Index’s performance by purchasing or selling futures contracts on the VIX Index. The level of the S&P 500 Index, the prices of options on the S&P 500 Index, the level of the VIX Index itself and the value of futures contracts on the VIX Index may change suddenly and unpredictably, and may negatively affect the value of the Fund’s investments in VIX Index-linked products. In addition, the actual volatility of the S&P 500 Index may not conform to a level predicted by the VIX Index or to the prices of the included put and call options. Several factors may affect the price of the VIX Index, including, but not limited to: market prices and forward volatility levels; expectations that volatility as measured by the VIX Index will fluctuate; supply and demand of VIX Index futures and listed and over-the-counter equity derivative markets; international or domestic political, economic, geographic or financial events; natural disasters; and changes in legal and regulatory regimes in the United States.
Valuation Risk
Independent market quotations for certain investments held by the Fund may not be readily available, and such investments may be fair valued or valued by a pricing service at an evaluated price. These valuations involve subjectivity and different market participants may assign different prices to the same investment. As a result, there is a risk that the Fund may not be able to sell an investment at the price assigned to the investment by the Fund. In addition, the value of the securities or other assets in the Fund’s portfolio may change on days or during time periods when shareholders will not be able to purchase or sell the Fund’s Shares.
Performance Information
The bar chart that follows shows the annual total returns of the Fund for a full calendar year. The table that follows the bar chart shows the Fund’s average annual total returns, both before and after taxes. The bar chart and table provide an indication of the risks of investing in the Fund by comparing the Fund’s performance from year to year and by showing how the Fund’s average annual returns for one calendar year compared with its underlying index and additional broad measures of market performance. The HFRI Equity Hedge Index is an equally weighted hedge fund index including primarily equity and equity derivative securities. The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets (performance data assumes reinvestment of dividends, but it does not reflect management fees, transaction costs or other expenses).
All returns assume reinvestment of dividends and distributions. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Performance reflects fee waivers and/or expense reimbursement in effect, if such waivers or reimbursements were not in place, the Fund’s performance would be reduced. Fund performance current to the most recent month-end is available by calling 1-888-474-7725 or by visiting newyorklifeinvestments.com.
The Fund’s year-to-date total return as of June 30, 2021 was 5.55%.
Best and Worst Quarter Returns (for the period reflected in the bar chart above)
| | | Return | | | Quarter/Year | |
Highest Return | | | | | 14.01% | | | | | | 2Q/2020 | | |
Lowest Return | | | | | -12.27% | | | | | | 1Q/2020 | | |
Average Annual Total Returns as of December 31, 2020
| | | 1 Year | | | 5 Years | | | Since Inception(1) | |
Returns before taxes | | | | | 15.16% | | | | | | 8.56% | | | | | | 6.40% | | |
Returns after taxes on distributions(2) | | | | | 14.33% | | | | | | 7.88% | | | | | | 5.69% | | |
Returns after taxes on distributions and sale of Fund Shares(2) | | | | | 9.08% | | | | | | 6.47% | | | | | | 4.72% | | |
IQ Hedge Long/Short Index (reflects no deduction for fees, expenses or taxes) | | | | | 15.78% | | | | | | 9.50% | | | | | | 7.38% | | |
HFRI Equity Hedge Index(3) (reflects no deduction for fees, expenses or taxes) | | | | | 17.89% | | | | | | 8.26% | | | | | | 6.59% | | |
MSCI World Index (reflects no deduction for fees, expenses or taxes) | | | | | 15.90% | | | | | | 12.19% | | | | | | 9.48% | | |
(1)
(2)
(3)
the inception date of the Fund. In such instances, index performance is generally presented from the month-end nearest to the inception date of the Fund.
Investment Advisor
IndexIQ Advisors LLC is the investment advisor to the Fund.
Portfolio Manager
The professionals jointly and primarily responsible for the day-to-day management of the Fund are Greg Barrato and James Harrison. Mr. Barrato, Senior Vice President of the Advisor, has been a portfolio manager of the Fund since its inception and Mr. Harrison, Vice President of the Advisor, has been a portfolio manager of the Fund since April 2018.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units.” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
IQ Hedge Event-Driven Tracker ETF
Investment Objective
The Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index, the IQ Hedge Event-Driven Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy, sell or hold shares of the Fund (“Shares”). Investors may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee | | | | | 0.75% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses | | | | | 0.01% | | |
| Acquired Fund Fees & Expenses(a) | | | | | 0.29% | | |
| Total Annual Fund Operating Expenses(a) | | | | | 1.05% | | |
| Fee Waiver(b) | | | | | 0.35% | | |
| Total Annual Fund Operating Expenses After Fee Waiver | | | | | 0.70% | | |
(a)
(b)
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$72 |
|
|
$299 |
|
|
$545 |
|
|
$1,251 |
|
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 69% of the average value of its portfolio. This rate excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Shares.
Principal Investment Strategies
The Fund is a “fund of funds” which means it invests, under normal circumstances, at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the investments included in its Underlying Index, which includes underlying funds. The Underlying Index consists of a number of components (“Underlying Index Components”) selected in accordance with IndexIQ’s rules-based methodology of such Underlying Index.
Such Underlying Index Components will include primarily ETFs and/or other exchange-traded vehicles issuing equity securities organized in the U.S., such as exchange-traded commodity pools (“ETVs”), and may include exchange-traded notes (“ETNs”) (such ETFs, ETVs and ETNs are referred to collectively as “exchange-traded products” or “ETPs”). The Fund may also invest in one or more financial instruments, including but not limited to futures contracts and swap agreements (collectively, “Financial Instruments”).
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the Underlying Index, which was developed by IndexIQ LLC (“IndexIQ”), an affiliate of IndexIQ Advisors LLC, the Fund’s investment advisor (the “Advisor”). The Underlying Index seeks to track the “beta” portion of the returns (i.e., that portion of the returns of hedge funds that are non-idiosyncratic, or unrelated to manager skill) of hedge funds pursuing an event-driven strategy (the “Strategy”). Event-Driven hedge funds typically invest in a combination of credit opportunities and event-driven equities. Within the credit-oriented portion, sub-strategies include long/short high yield credit (below investment grade corporate bonds or “junk” bonds), leveraged loans (bank debt, mezzanine, or self-oriented loans), capital structure arbitrage (debt vs. debt or debt vs. equity), and reorganization equity. Within the equity portion, sub-strategies include risk (or merger) arbitrage, holding company arbitrage, special situations and value equities where a change in management, significant product launch, or some other economic catalyst is expected to unlock shareholder wealth. Event-Driven managers invest across multiple asset classes and may also seek to exploit shifts in economic cycles. The Fund does not invest in hedge funds, and the Underlying Index does not include hedge funds as Underlying Index Components. The Fund is not a fund of hedge funds.
The Underlying Index may include both long and short positions in securities, including, primarily, ETPs. As opposed to taking long positions in which an investor seeks to profit from increases in the price of a security, short selling (or “selling short”) is a technique used by the Fund to try and profit from the falling price of a security. Short selling involves selling a security that has been borrowed from a third party with the intention of buying the identical security back at a later date to return to that third party. The basic principle of short selling is that one can profit by selling a security now at a high price and later buying it back at a lower price. The short seller hopes to profit from a decline in the price of the security between the sale and the repurchase, as the seller will pay less to buy the security than it received on selling the security.
The Underlying Index generally is based on the premise that hedge fund returns, when aggregated among hedge funds with similar investment styles, display over time significant exposures to a set of common investment strategies and asset classes. By creating an index that has similar exposures to the same investment strategies and asset classes as hedge funds generally, IndexIQ seeks to replicate the beta return characteristics of hedge funds.
The Underlying Index Components of this Strategy generally provide exposures to:
•
Emerging market equity;
•
Foreign equity, including small-capitalization equity;
•
U.S. and foreign preferred securities;
•
U.S. bank loans;
•
U.S. convertible debt;
•
U.S. government short maturity obligations;
•
U.S. growth equity;
•
U.S. high yield (or “junk”) debt;
•
U.S. investment grade corporate debt;
•
U.S. large-capitalization equity;
•
U.S. mortgage-backed debt; and
•
U.S. small-capitalization equity.
The Underlying Index is unlike traditional market-oriented indexes like the Standard & Poor’s 500® Composite Stock Total Return Index (the “S&P 500 Index”). Instead of tracking the performance of publicly-traded issuers representing a market or industry sector, the Underlying Index seeks to track the returns of distinct hedge fund investment styles.
The Underlying Index may include as a component one or more ETFs advised by the Advisor (“Affiliated ETFs”) and the Fund will typically invest in any Affiliated ETF included in the Underlying Index. The Fund also may invest in Affiliated ETFs that are not components of the index if such an investment will help the Fund track the Underlying Index.
The weights of the Underlying Index Components are rebalanced on a monthly basis. Annually, IndexIQ conducts a review process pursuant to which it may reconstitute the Underlying Indexes by adding or subtracting Underlying Index Components according to IndexIQ’s rules-based process.
Principal Risks
As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program. An investment in the Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, the Advisor or any of its affiliates. You should consider carefully the following risks before investing in the Fund.
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Derivatives Risk
Derivatives are investments whose value depends on (or is derived from) the value of an underlying instrument, such as a security, asset, reference rate or index and involve risks different from, and possibly greater than, the risks associated with other investments. These risks include: (i) the risk that the counterparty to a derivatives transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. Such prices are influenced by numerous factors that affect the markets, including, but not limited to, changing supply and demand relationships, government programs and policies, national and international political and economic events, changes in interest rates, inflation and deflation, and changes in supply and demand relationships. Unlike other investments, derivative contracts often have leverage inherent in their terms. The use of leveraged derivatives can magnify potential for gain or loss and, therefore, amplify the effects of market volatility on the Fund’s Share price. The effects of leverage may also cause the Fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations or to meet collateral segregation requirements.
Exchange Traded Products Risk
Unlike an investment in a mutual fund, the value of the Fund’s investment in other exchange-traded funds or exchange-traded investment products (“ETPs”) is based on its market price (rather than NAV) and the Fund could lose money due to premiums/discounts of the ETP (which could cause the Fund to buy shares at market prices that are higher than their value or sell shares at market prices that are lower than their value); the failure of an active trading market to develop; or exchange trading halts or delistings. An investment in the Fund will entail more costs and expenses than a direct investment in any Underlying ETP. As the Fund’s allocations to Underlying ETPs changes, or the expense ratio of Underlying ETPs change, the operating expenses borne by the Fund from such investments may increase or decrease.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
Long/Short Risk
The Fund seeks long exposure to certain securities and short exposure to certain other securities. There is no guarantee that the returns on the Fund’s long or short positions will produce positive returns, and the Fund could lose money if either or both positions produce negative returns. In addition, the Fund may gain enhanced long exposure to certain securities (i.e., obtain investment exposure that exceeds the amount directly invested in those assets, a form of leverage) and, as a result, suffer losses that exceed the amount invested in those assets.
Market Risk
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Underlying Index or the index calculation agent may make errors. The index provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask” spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value.
Short Sales Risk
Short sales are transactions in which the Fund sells a security it does not own, or uses derivatives, such as futures or swaps, to effect short exposure to a particular reference asset. Such a position subjects the Fund to the risk that instead of declining, the price of the security or reference asset to which the Fund has short exposure will rise. If the price of the security or reference asset increases between the date of the short sale and the date on which the Fund replaces the security or otherwise closes out its short position, the Fund will experience a loss, which is theoretically unlimited since there is a theoretically unlimited potential for the market price of a security or other instrument sold short to increase.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Risks of Underlying ETPs
The Fund may invest in the securities of other ETPs, including Affiliated ETFs. Investments in the Fund are subject to the risks associated with an investment in the Underlying ETPs. In addition to the risks described above, the following risks should also be considered when making an investment in the Fund.
•
Asset-Backed Securities Risk. Asset-backed securities are securities that represent interests in, and whose values and payments are based on, a “pool” of underlying assets, which may include, among others, lower-rated debt securities and corporate loans, consumer loans or mortgages and leases of property. Asset-backed securities include collateralized debt obligations, collateralized bond obligations, and collateralized loan obligations and other similarly structured vehicles. As with other debt securities, asset-backed securities are subject to credit risk, extension risk, interest rate risk, liquidity risk and valuation risk. These securities are generally not backed by the full faith and credit of the U.S. government and are subject to the risk of default on the underlying asset or loan, particularly during periods of economic downturn. The impairment of the value of collateral or other assets underlying an asset-backed security, such as a result of non-payment of loans or non-performance of underlying assets, may result in a reduction in the value of such asset-backed securities and losses to the Fund.
Investments in mortgage-related securities make an investor more susceptible to adverse economic, political or regulatory events that affect the value of real estate. Mortgage-related securities are also significantly affected by the rate of prepayments and modifications of the mortgage loans underlying those securities, as well as by other factors such as borrower defaults, delinquencies, realized or liquidation losses and other shortfalls. Impairment of the underlying obligations or collateral, such as by
non-payment, will reduce a mortgage-related security’s value. Enforcing rights against such collateral in events of default may be difficult or insufficient. These securities may have a structure that makes their reaction to interest rate changes and other factors difficult to predict, making their value highly volatile.
•
Convertible Securities Risk. A convertible security has characteristics of both equity and debt securities and, as a result, is exposed to risks that are typically associated with both types of securities. Convertible securities are typically subordinate to an issuer’s other debt obligations. Issuers of convertible securities may be more vulnerable to changes in the economy, such as a recession or a sustained period of rising interest rates, which could affect their ability to make interest and principal payments. If an issuer stops making interest and/or principal payments, the Fund could lose its entire investment.
•
Credit Risk. Credit risk is the risk that the issuer or guarantor of a debt instrument or the counterparty to a derivatives contract, repurchase agreement or loan of portfolio securities will be unable or unwilling to make its timely interest and/or principal payments when due or otherwise honor its obligations. Changes in an issuer’s or counterparty’s credit rating or the market’s perception of an issuer’s or counterparty’s creditworthiness may also adversely affect the value of the Fund’s investment in that issuer. The degree of credit risk depends on an issuer’s or counterparty’s financial condition and on the terms of an obligation.
•
Currency Risk. Investments directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign (non-U.S.) currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad.
•
Debt Securities Risk. The risks of investing in debt securities include (without limitation): (i) credit risk, e.g., the issuer or guarantor of a debt security may be unable or unwilling (or be perceived as unable or unwilling) to make timely principal and/or interest payments or otherwise honor its obligations; (ii) interest rate risk, e.g., when interest rates go up, the value of a debt security generally goes down, and when interest rates go down, the value of a debt security generally goes up; (iii) liquidity risk and valuation risk, e.g., debt securities generally do not trade on a securities exchange, making them generally less liquid and more difficult to value than common stock; (iv) call risk and income risk, e.g., during a period of falling interest rates, the issuer may redeem a security by repaying it early, which may reduce the Fund’s income if the proceeds are reinvested at lower interest rates; and (v) extension risk, e.g., if interest rates rise, repayments of debt securities may occur more slowly than anticipated by the market, which may drive the prices of these securities down because their interest rates are lower than the current interest rate and the securities remain outstanding longer. Debt securities most frequently trade in institutional round lot size transactions. If the Fund purchases bonds in amounts less than the institutional round lot size, which are frequently referred to as “odd” lots, the odd lot size positions may have more price volatility than institutional round lot size positions. The Fund uses a third-party pricing service to value bond holdings and the pricing service values bonds assuming orderly transactions of an institutional round lot size.
•
Emerging Markets Securities Risk. Securities of issuers based in countries with developing economies (emerging market countries) may present market, credit, currency, liquidity, legal, political and other risks different from, or greater than, the risks of investing in developed market countries and are generally considered speculative in nature. Emerging market countries are subject to greater market volatility, lower trading volume, political and economic instability, uncertainty regarding the existence of trading markets, rapid inflation, possible repatriation of investment income and capital, currency convertibility issues, less uniform accounting standards and more governmental limitations on foreign investment than more developed markets. Laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder rights may change quickly and unpredictably. In addition, the enforcement of systems of taxation at federal, regional and local levels in emerging market countries may be inconsistent and subject to sudden change.
•
Emerging Markets Sovereign Debt Risk. Government obligors in emerging market countries are among the world’s largest debtors to commercial banks, other governments, international financial
organizations and other financial institutions. Historically, certain issuers of the government debt securities in which an Underlying ETP may invest have experienced substantial difficulties in meeting their external debt obligations, resulting in defaults on certain obligations and the restructuring of certain indebtedness, which could result in losses to an Underlying ETP.
•
Equity Securities Risk. Investments in common stocks and other equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Holders of an issuer’s common stock may be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
•
Foreign Securities Risk. Investments in the securities of non-U.S. issuers involve risks beyond those associated with investments in U.S. securities. These additional risks include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Some countries and regions have experienced security concerns, war or threats of war and aggression, terrorism, economic uncertainty, natural and environmental disasters and/or systemic market dislocations that have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on the U.S. and world economies and markets generally. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing, financial reporting and record keeping than are U.S. issuers, and therefore not all material information will be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact the Fund’s ability to invest in foreign securities or may prevent the Fund from repatriating its investments. Less developed securities markets are more likely to experience problems with the clearing and settling of trades, as well as the holding of securities by local banks, agents and depositories. The less developed a country’s securities market is, the greater the likelihood of custody problems.
•
High Yield Securities Risk. High yield securities, or “junk” bonds, generally offer a higher current yield than the yield available from higher grade issues, but are subject to greater market fluctuations, are less liquid and provide a greater risk of loss than investment grade securities, and therefore are considered to be highly speculative. In general, high yield securities may have a greater risk of default than other types of securities and could cause income and principal losses for the Fund.
•
Interest Rate Risk. An increase in interest rates may cause the value of securities held by the Fund to decline. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, making them more volatile than securities with shorter durations or floating or adjustable interest rates. The negative impact on the Fund from potential interest rate increases could be swift and significant, including falling market values, increased redemptions and reduced liquidity. The Fund may be subject to a greater risk of rising interest rates than would normally be the case due to the current period of historically low rates and the effect of potential government fiscal policy initiatives and resulting market reaction to those initiatives.
When interest rates rise, certain obligations will be paid off by the issuer (or other obligated party) more slowly than anticipated, causing the value of these securities to fall. As a result, in a period of rising interest rates, securities may exhibit additional volatility and may lose value. The value of securities with longer maturities generally changes more in response to changes in interest rates than does the value of securities with shorter maturities.
During periods of falling interest rates, an issuer of a callable security held by the Fund may “call” or repay the security before its stated maturity, which may result in the Fund having to reinvest the proceeds in securities with lower yields, resulting in a decline in the Fund’s income, or in securities with greater risks or with other less favorable features.
The terms of floating rate notes and other instruments may be tied to the London Interbank Offered Rate (“LIBOR”), which functions as a reference rate or benchmark. It is anticipated that LIBOR will be discontinued at the end of 2021, which may cause increased volatility and illiquidity in the markets for instruments with terms tied to LIBOR or other adverse consequences, such as decreased yields and reduction in value, for these instruments. These events may adversely affect the Fund and its investments in such instruments.
•
Liquidity Risk. Liquidity risk exists when particular investments are difficult to purchase or sell. Certain investments may be subject to restrictions on resale, trade over-the-counter or in limited volume, or lack an active trading market. Accordingly, the Fund may not be able to sell or close out of such investments at favorable times or prices (or at all), or at the prices approximating those at which the Fund currently values them. Illiquid securities may trade at a discount from comparable, more liquid investments and may be subject to wide fluctuations in market value.
•
Small- and/or Mid-Capitalization Companies Risk. Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies.
•
Risks of Investing in Loans. Investments in loans are subject to the same risks as investments in other types of debt securities, including credit risk, interest rate risk, liquidity risk and valuation risk that may be heightened because of the limited public information available regarding loans and because loan borrowers may be leveraged and tend to be more adversely affected by changes in market or economic conditions. Default in the payment of interest or principal on a loan will result in a reduction in the value of the loan and consequently a reduction in the value of an investment in that loan. If an investor holds a loan through another financial institution or relies on a financial institution to administer the loan, its receipt of principal and interest on the loan may be subject to the credit risk of that financial institution. It is possible that any collateral securing a loan may be insufficient or unavailable to the investor, and that the investor’s rights to collateral may be limited by bankruptcy or insolvency laws. Additionally, there is no central clearinghouse for loan trades and the loan market has not established enforceable settlement standards or remedies for failure to settle. Consequently, the secondary market for loans may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods (in some cases longer than 7 days), which may cause an investor to be unable to realize the full value of its investment. In addition, loans are generally not registered with the SEC under the Securities Act of 1933, as amended, and may not be considered “securities,” and an investor may not be entitled to rely on the anti-fraud protections of the federal securities laws. An investment in loans made to non-U.S. borrowers may be affected by political and social instability, changes in economic or taxation policies, difficulties in enforcing obligations, decreased liquidity and increased volatility. Foreign borrowers may be subject to less regulation, resulting in less publicly available information about the borrowers.
The loan market has seen a significant increase in loans with weaker lender protections including, but not limited to, limited financial maintenance covenants or, in some cases, no financial maintenance covenants (i.e., “covenant-lite loans”) that would typically be included in a traditional loan agreement and general weakening of other restrictive covenants applicable to the borrower such as limitations on incurrence of additional debt, restrictions on payments of junior debt or restrictions on dividends and distributions. Weaker lender protections such as the absence of financial maintenance covenants in a loan agreement and the inclusion of “borrower-favorable” terms may impact recovery values and/or trading levels of loans in the future. The absence of financial maintenance covenants in a loan agreement generally means that the lender may not be able to declare a default if financial performance deteriorates. This may hinder an investor’s ability to reprice credit risk associated with a particular borrower and reduce the investor’s ability to restructure a problematic loan and mitigate potential loss. As a result, an investor’s exposure to losses on investments in loans may be increased, especially during a downturn in the credit cycle or changes in market or economic conditions.
•
Variable and Floating Rate Instruments Risk. Variable and floating rate instruments include debt securities issued by corporate and governmental entities, bank loans, mortgage-backed securities and asset-backed securities, preferred equity securities and derivative variable rate securities, such as inverse floaters. Variable and floating rate instruments are structured so that the instrument’s coupon rate fluctuates based upon the level of a reference rate. A variable or floating rate instrument’s coupon rate resets periodically according to its terms. Consequently, in a rising interest rate environment, variable and floating rate instruments with coupon rates that reset infrequently may lag behind the changes in market interest rates.
•
Valuation Risk. Independent market quotations for certain investments held by the Fund may not be readily available, and such investments may be fair valued or valued by a pricing service at an evaluated price. These valuations involve subjectivity and different market participants may assign
different prices to the same investment. As a result, there is a risk that the Fund may not be able to sell an investment at the price assigned to the investment by the Fund. In addition, the value of the securities or other assets in the Fund’s portfolio may change on days or during time periods when shareholders will not be able to purchase or sell the Fund’s Shares.
Performance Information
The bar chart that follows shows the annual total returns of the Fund for a full calendar year. The table that follows the bar chart shows the Fund’s average annual total returns, both before and after taxes. The bar chart and table provide an indication of the risks of investing in the Fund by comparing the Fund’s performance from year to year and by showing how the Fund’s average annual returns for one calendar year compared with its underlying index and additional broad measures of market performance. The HFRI Event Driven Index is designed to be representative of the overall composition of the hedge fund universe implementing an event driven strategy. The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities.
All returns assume reinvestment of dividends and distributions. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Performance reflects fee waivers and/or expense reimbursement in effect, if such waivers or reimbursements were not in place, the Fund’s performance would be reduced. Fund performance current to the most recent month-end is available by calling 1-888-474-7725 or by visiting newyorklifeinvestments.com.
The Fund’s year-to-date total return as of June 30, 2021 was 2.15%.
Best and Worst Quarter Returns (for the period reflected in the bar chart above)
| | | Return | | | Quarter/Year | |
Highest Return | | | | | 11.41% | | | | | | 2Q/2020 | | |
Lowest Return | | | | | -9.55% | | | | | | 1Q/2020 | | |
Average Annual Total Returns as of December 31, 2020
| | | 1 Year | | | 5 Years | | | Since Inception(1) | |
Returns before taxes | | | | | 12.87% | | | | | | 7.40% | | | | | | 5.89% | | |
Returns after taxes on distributions(2) | | | | | 10.92% | | | | | | 6.11% | | | | | | 4.67% | | |
Returns after taxes on distributions and sale of Fund Shares(2) | | | | | 7.65% | | | | | | 5.21% | | | | | | 4.04% | | |
IQ Hedge Event Driven Index (reflects no deduction for fees, expenses or taxes) | | | | | 13.19% | | | | | | 7.92% | | | | | | 6.43% | | |
HFRI Event Driven Index(3) (reflects no deduction for fees, expenses or taxes) | | | | | 9.26% | | | | | | 6.46% | | | | | | 4.60% | | |
Bloomberg Barclays U.S. Aggregate Bond Index (reflects no deduction for fees, expenses or taxes) | | | | | 7.51% | | | | | | 4.44% | | | | | | 3.65% | | |
(1)
(2)
After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those
shown and are not relevant if you hold your Shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. In some cases the return after taxes may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of Fund Shares at the end of the measurement period.
(3)
Investment Advisor
IndexIQ Advisors LLC is the investment advisor to the Fund.
Portfolio Manager
The professionals jointly and primarily responsible for the day-to-day management of the Fund are Greg Barrato and James Harrison. Mr. Barrato, Senior Vice President of the Advisor, has been a portfolio manager of the Fund since its inception and Mr. Harrison, Vice President of the Advisor, has been a portfolio manager of the Fund since April 2018.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units.” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
IQ Real Return ETF
Investment Objective
The Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index, the IQ Real Return Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy, sell or hold shares of the Fund (“Shares”). Investors may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee | | | | | 0.48% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses | | | | | 0.01% | | |
| Acquired Fund Fees & Expenses(a) | | | | | 0.17% | | |
| Total Annual Fund Operating Expenses(a) | | | | | 0.66% | | |
| Fee Waiver(b) | | | | | 0.28% | | |
| Total Annual Fund Operating Expenses After Fee Waiver | | | | | 0.38% | | |
(a)
(b)
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$39 |
|
|
$183 |
|
|
$340 |
|
|
$796 |
|
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 66% of the average value of its portfolio. This rate excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Shares.
Principal Investment Strategies
The Fund is a “fund of funds” which means it invests, under normal circumstances, at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the investments included in its Underlying Index, which includes underlying funds. The Underlying Index consists of a number of components (“Underlying Index Components”) selected in accordance with the rules-based methodology of such Underlying Index, which was developed by IndexIQ LLC (“IndexIQ”), an affiliate of IndexIQ Advisors LLC, the Fund’s investment advisor (the
“Advisor”). Such Underlying Index Components will include primarily ETFs and/or other exchange-traded vehicles issuing equity securities organized in the U.S., such as exchange-traded commodity pools (“ETVs”), and may include exchange-traded notes (“ETNs”) (such ETFs, ETVs and ETNs are referred to collectively as “exchange-traded products” or “ETPs”). The Fund may also invest in one or more financial instruments, including but not limited to futures contracts and swap agreements (collectively, “Financial Instruments”).
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the Underlying Index. The Underlying Index seeks to provide investors with a hedge against the inflation rate by providing a “real return” or a return above the rate of inflation, as represented by the CPI (the “Strategy”). The CPI, or the Consumer Price Index, which is published by the Bureau of Labor Statistics, is a measure of the average change in prices over time of goods and services purchased by households. The CPI is reported with monthly frequency, but due to seasonality and other factors the monthly change in the CPI is reported both as the 1-month change and also on a rolling 12-month basis (the “Rolling 12-month CPI Returns”). It is the Rolling 12-month CPI Returns, not the monthly returns of the CPI, that the Underlying Index incorporates into its construction process.
The Underlying Index includes exposures to asset classes whose returns incorporate inflation expectations in an attempt to achieve its investment objective. This is based on the premise that capital market returns tend to be forward looking and anticipate economic developments, including inflation expectations. Since the Underlying Index’s objective is to provide a “real return,” as described above, the index construction process involves adding a real return target over and above the CPI returns and using the resulting “nominal returns” (i.e., inflation plus real return) to determine the weights of the Underlying Index Components.
The Underlying Index Components of this Strategy generally provide exposures to:
•
U.S. large capitalization equity;
•
U.S. small capitalization equity;
•
Foreign equity (Europe, Australasia & Far East);
•
U.S. government short-, intermediate-, and long-term maturity obligations;
•
Foreign currencies and currency futures;
•
U.S. real estate; and
•
Commodities.
The Underlying Index may include as a component one or more ETFs advised by the Advisor (“Affiliated ETFs”) and the Fund will typically invest in any Affiliated ETF included in the Underlying Index. The Fund also may invest in Affiliated ETFs that are not components of the index if such an investment will help the Fund track the Underlying Index.
The weights of the Underlying Index Components are rebalanced on a monthly basis. Annually, IndexIQ conducts a review process pursuant to which it may reconstitute the Underlying Indexes by adding or subtracting Underlying Index Components according to IndexIQ’s rules-based process.
Principal Risks
As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program. An investment in the Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, the Advisor or any of its affiliates. You should consider carefully the following risks before investing in the Fund.
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Derivatives Risk
Derivatives are investments whose value depends on (or is derived from) the value of an underlying instrument, such as a security, asset, reference rate or index and involve risks different from, and possibly greater than, the risks associated with other investments. These risks include: (i) the risk that the counterparty to a derivatives transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. Such prices are influenced by numerous factors that affect the markets, including, but not limited to, changing supply and demand relationships, government programs and policies, national and international political and economic events, changes in interest rates, inflation and deflation, and changes in supply and demand relationships. Unlike other investments, derivative contracts often have leverage inherent in their terms. The use of leveraged derivatives can magnify potential for gain or loss and, therefore, amplify the effects of market volatility on the Fund’s Share price. The effects of leverage may also cause the Fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations or to meet collateral segregation requirements.
Exchange Traded Products Risk
Unlike an investment in a mutual fund, the value of the Fund’s investment in other exchange-traded funds or exchange-traded investment products (“ETPs”) is based on its market price (rather than NAV) and the Fund could lose money due to premiums/discounts of the ETP (which could cause the Fund to buy shares at market prices that are higher than their value or sell shares at market prices that are lower than their value); the failure of an active trading market to develop; or exchange trading halts or delistings. An investment in the Fund will entail more costs and expenses than a direct investment in any Underlying ETP. As the Fund’s allocations to Underlying ETPs changes, or the expense ratio of Underlying ETPs change, the operating expenses borne by the Fund from such investments may increase or decrease.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
Market Risk
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on a Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Underlying Index or the index calculation agent may make errors. The index provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Portfolio Turnover Risk
The Fund’s strategy may frequently involve buying and selling portfolio securities to rebalance the Fund’s investment exposures. High portfolio turnover may result in the Fund paying higher levels of transaction costs and generating greater tax liabilities for shareholders. Portfolio turnover risk may cause the Fund’s performance to be less than expected.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask” spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during
periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Risks of Underlying ETPs
The Fund may invest in the securities of other ETPs, including Affiliated ETFs. Investments in the Fund are subject to the risks associated with an investment in the Underlying ETPs. In addition to the risks described above, the following risks should also be considered when making an investment in the Fund.
•
Commodities Risk. Exposure to the commodities markets may subject the Fund to greater volatility than investments in traditional securities, and exposure to commodities, directly or through other securities, can cause the value of the Fund’s assets to decline or fluctuate in a rapid and unpredictable manner. The value of commodities may be affected by changes in overall market movements, real or perceived inflationary trends, commodity index volatility, changes in interest rates or currency exchange rates, population growth and changing demographics, international economic, political and regulatory developments, and factors affecting a particular region, industry or commodity, such as drought, floods, or other weather conditions, livestock disease, changes in storage costs, trade embargoes, competition from substitute products, transportation bottlenecks or shortages, fluctuations in supply and demand, and tariffs.
•
Credit Risk. Credit risk is the risk that the issuer or guarantor of a debt instrument or the counterparty to a derivatives contract, repurchase agreement or loan of portfolio securities will be unable or unwilling to make its timely interest and/or principal payments when due or otherwise honor its obligations. Changes in an issuer’s or counterparty’s credit rating or the market’s perception of an issuer’s or counterparty’s creditworthiness may also adversely affect the value of the Fund’s investment in that issuer. The degree of credit risk depends on an issuer’s or counterparty’s financial condition and on the terms of an obligation.
•
Currency Risk. Investments directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign (non-U.S.) currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad.
•
Debt Securities Risk. The risks of investing in debt securities include (without limitation): (i) credit risk, e.g., the issuer or guarantor of a debt security may be unable or unwilling (or be perceived as unable or unwilling) to make timely principal and/or interest payments or otherwise honor its obligations; (ii) interest rate risk, e.g., when interest rates go up, the value of a debt security generally goes down, and when interest rates go down, the value of a debt security generally goes up; (iii) liquidity risk and valuation risk, e.g., debt securities generally do not trade on a securities exchange, making them generally less liquid and more difficult to value than common stock; (iv) call risk and income risk, e.g., during a period of falling interest rates, the issuer may redeem a security by repaying it early, which may reduce the Fund’s income if the proceeds are reinvested at lower interest rates; and (v) extension risk, e.g., if interest rates rise, repayments of debt securities may occur more slowly than anticipated by the market, which may drive the prices of these securities down because their interest rates are lower than the current interest rate and the securities remain outstanding longer. Debt securities most frequently trade in institutional round lot size transactions. If the Fund purchases bonds in amounts less than the institutional round lot size, which are frequently referred to as “odd” lots, the odd lot size positions may have more price volatility than institutional round lot size positions. The Fund uses a third-party pricing service to value bond holdings and the pricing service values bonds assuming orderly transactions of an institutional round lot size.
•
Equity Securities Risk. Investments in common stocks and other equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly
sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Holders of an issuer’s common stock may be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
•
Foreign Securities Risk. Investments in the securities of non-U.S. issuers involve risks beyond those associated with investments in U.S. securities. These additional risks include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Some countries and regions have experienced security concerns, war or threats of war and aggression, terrorism, economic uncertainty, natural and environmental disasters and/or systemic market dislocations that have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on the U.S. and world economies and markets generally. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing, financial reporting and record keeping than are U.S. issuers, and therefore not all material information will be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact the Fund’s ability to invest in foreign securities or may prevent the Fund from repatriating its investments. Less developed securities markets are more likely to experience problems with the clearing and settling of trades, as well as the holding of securities by local banks, agents and depositories. The less developed a country’s securities market is, the greater the likelihood of custody problems.
•
Interest Rate Risk. An increase in interest rates may cause the value of securities held by the Fund to decline. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, making them more volatile than securities with shorter durations or floating or adjustable interest rates. The negative impact on the Fund from potential interest rate increases could be swift and significant, including falling market values, increased redemptions and reduced liquidity. The Fund may be subject to a greater risk of rising interest rates than would normally be the case due to the current period of historically low rates and the effect of potential government fiscal policy initiatives and resulting market reaction to those initiatives.
When interest rates rise, certain obligations will be paid off by the issuer (or other obligated party) more slowly than anticipated, causing the value of these securities to fall. As a result, in a period of rising interest rates, securities may exhibit additional volatility and may lose value. The value of securities with longer maturities generally changes more in response to changes in interest rates than does the value of securities with shorter maturities.
During periods of falling interest rates, an issuer of a callable security held by the Fund may “call” or repay the security before its stated maturity, which may result in the Fund having to reinvest the proceeds in securities with lower yields, resulting in a decline in the Fund’s income, or in securities with greater risks or with other less favorable features.
The terms of floating rate notes and other instruments may be tied to the London Interbank Offered Rate (“LIBOR”), which functions as a reference rate or benchmark. It is anticipated that LIBOR will be discontinued at the end of 2021, which may cause increased volatility and illiquidity in the markets for instruments with terms tied to LIBOR or other adverse consequences, such as decreased yields and reduction in value, for these instruments. These events may adversely affect the Fund and its investments in such instruments.
•
Liquidity Risk. Liquidity risk exists when particular investments are difficult to purchase or sell. Certain investments may be subject to restrictions on resale, trade over-the-counter or in limited volume, or lack an active trading market. Accordingly, the Fund may not be able to sell or close out of such investments at favorable times or prices (or at all), or at the prices approximating those at which the Fund currently values them. Illiquid securities may trade at a discount from comparable, more liquid investments and may be subject to wide fluctuations in market value.
•
Real Estate Companies Risk. An investment in companies that invest in real estate (including REITs) exposes the Fund to the risks of the real estate market and the risks associated with the ownership of real estate. These risks can include fluctuations in the value of or destruction of underlying properties; realignment in tenant living and work habits (for example, movements to and from different parts of a nation, a region, a state or a city); tenant or borrower default; market saturation; changes in general
and local economic conditions; decreases in market rates for rents; increases in vacancies; competition; property taxes; capital expenditures or operating expenses; other economic or political events affecting the real estate industry including interest rates and government regulation; concentration in a limited number of properties, geographic regions or property types; and low quality and/or conflicted management. Real estate is generally a less liquid asset class and companies that hold real estate may not be able to liquidate or modify their holdings quickly in response to changes in economic or other market conditions. Additionally, such companies may utilize leverage, which increases investment risk and the potential for more volatility in the Fund’s returns.
•
Small- and/or Mid-Capitalization Companies Risk. Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies.
•
Valuation Risk. Independent market quotations for certain investments held by the Fund may not be readily available, and such investments may be fair valued or valued by a pricing service at an evaluated price. These valuations involve subjectivity and different market participants may assign different prices to the same investment. As a result, there is a risk that the Fund may not be able to sell an investment at the price assigned to the investment by the Fund. In addition, the value of the securities or other assets in the Fund’s portfolio may change on days or during time periods when shareholders will not be able to purchase or sell the Fund’s Shares.
•
Variable and Floating Rate Instruments Risk. Variable and floating rate instruments include debt securities issued by corporate and governmental entities, bank loans, mortgage-backed securities and asset-backed securities, preferred equity securities and derivative variable rate securities, such as inverse floaters. Variable and floating rate instruments are structured so that the instrument’s coupon rate fluctuates based upon the level of a reference rate. A variable or floating rate instrument’s coupon rate resets periodically according to its terms. Consequently, in a rising interest rate environment, variable and floating rate instruments with coupon rates that reset infrequently may lag behind the changes in market interest rates.
Performance Information
The bar chart that follows shows the annual total returns of the Fund for a full calendar year. The table that follows the bar chart shows the Fund’s average annual total returns, both before and after taxes. The bar chart and table provide an indication of the risks of investing in the Fund by comparing the Fund’s performance from year to year and by showing how the Fund’s average annual returns for one calendar year compared with its underlying index and another broad measure of market performance. The Barclays Capital U.S. Short Treasury Bond Index measures the performance of public obligations of the U.S. Treasury that have a remaining maturity of between 1 and 12 months.
All returns assume reinvestment of dividends and distributions. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Performance reflects fee waivers and/or expense reimbursement in effect, if such waivers or reimbursements were not in place, the Fund’s performance would be reduced. Fund performance current to the most recent month-end is available by calling 1-888-474-7725 or by visiting newyorklifeinvestments.com.
The Fund’s year-to-date total return as of June 30, 2021 was 0.33%.
Best and Worst Quarter Returns (for the period reflected in the bar chart above)
| | | Return | | | Quarter/Year | |
Highest Return | | | | | 3.60% | | | | | | 1Q/2019 | | |
Lowest Return | | | | | -5.76% | | | | | | 1Q/2020 | | |
Average Annual Total Returns as of December 31, 2020
| | | 1 Year | | | 5 Years | | | 10 Years | |
Returns before taxes | | | | | -1.42% | | | | | | 1.71% | | | | | | 1.30% | | |
Returns after taxes on distributions(1) | | | | | -1.81% | | | | | | 1.30% | | | | | | 1.08% | | |
Returns after taxes on distributions and sale of Fund Shares(1) | | | | | -0.84% | | | | | | 1.16% | | | | | | 0.92% | | |
IQ Real Return Index (reflects no deduction for fees, expenses or taxes) | | | | | -1.31% | | | | | | 1.94% | | | | | | 1.65% | | |
Bloomberg Barclays U.S. Short Treasury Bond Index (reflects no deduction for fees, expenses or taxes) | | | | | 0.95% | | | | | | 1.32% | | | | | | 0.73% | | |
(1)
Investment Advisor
IndexIQ Advisors LLC is the investment advisor to the Fund.
Portfolio Manager
The professionals jointly and primarily responsible for the day-to-day management of the Fund are Greg Barrato and James Harrison. Mr. Barrato, Senior Vice President of the Advisor, has been a portfolio manager of the Fund since February 2011 and Mr. Harrison, Vice President of the Advisor, has been a portfolio manager of the Fund since April 2018.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units. ” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
Overview
The Trust is an investment company consisting of a number of separate investment portfolios (each, a “Fund” and together, the “Funds”) that are structured as exchange-traded funds (“ETFs”). Each share of a Fund represents an ownership interest in the securities and other instruments comprising a Fund’s portfolio. Unlike shares of a mutual fund, which can be bought and redeemed from the issuing fund by all shareholders at a price based on net asset value (“NAV”), shares of an ETF (such as the Funds) are listed on a national securities exchange and trade in the secondary market at market prices that change throughout the day, and may differ from a Fund’s NAV. IndexIQ Advisors LLC (the “Advisor”) is the investment advisor to each Fund.
Each Fund has a distinct investment objective and policies. Each of the policies described herein, including the investment objective of each Fund, constitutes a non-fundamental policy that may be changed by the Board of Trustees of the Trust (the “Board”) without shareholder approval. Certain fundamental policies of the Funds are set forth in the Funds’ Statement of Additional Information (the “SAI”) under “Investment Restrictions.” There can be no assurance that a Fund’s objective will be achieved.
Description of the Principal Investment Strategies of the Funds
Each Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index (each, an “Underlying Index”). Each Underlying Index consists of a number of components (“Underlying Index Components”) selected in accordance with each Underlying Index’s rules-based methodology. Each Fund employs a “passive management” — or indexing — investment approach designed to track the performance of its Underlying Index. Under normal circumstances, each Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the components that make up its Underlying Index or in depositary receipts based on the securities in its Underlying Index. In determining a Fund’s net assets for the purposes of this 80% threshold, accounting practices do not include collateral held under a Fund’s securities lending program, as such collateral does not represent a true asset of a Fund.
Each Fund will generally invest in all of the constituents comprising its Underlying Index in proportion to its weightings in the Underlying Index; however, under various circumstances, it may not be possible or practicable to purchase all of the securities in the Underlying Index in those weightings. In those circumstances, a Fund may purchase a sample of the securities in its Underlying Index or utilize various combinations of other available investment techniques in seeking to replicate generally the performance of the Underlying Index as a whole. This is known as “representative sampling” and may be utilized by a Fund. A Fund using a representative sampling strategy generally will invest in a sample of securities that collectively has an investment profile similar to that of the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (including, but not limited to return variability, duration, maturity, credit ratings and yield) and liquidity measures similar to those of the Underlying Index. A Fund may also invest in credit default swaps and futures contracts to seek to track the Underlying Index.
There also may be instances in which the Advisor may choose to (i) overweight a security in the Underlying Index, (ii) purchase securities not contained in the Underlying Index that the Subadvisor believes are appropriate to substitute for certain securities in the Underlying Index, or (iii) utilize various combinations of other available investment techniques in seeking to track the Underlying Index. A Fund may sell securities that are represented in its Underlying Index in anticipation of their removal from the Underlying Index or purchase securities not represented in the Underlying Index in anticipation of their addition to the Underlying Index.
To the extent that a Fund’s Underlying Index concentrates (i.e., holds 25% or more of its total assets) in the securities of a particular industry or group of industries, the Fund will concentrate its investment to approximately the same extent as its Underlying Index.
Each Fund may invest up to 20% of its net assets in investments not included in its Underlying Index but which the Advisor believes will help the Fund track its Underlying Index. Such investments may include the use of one or more financial instruments, including but not limited to futures contracts and swap agreements (collectively, “Financial Instruments”). The Funds will not directly employ leverage in their investment strategies; nevertheless, a Fund may indirectly be leveraged if and to the extent the Fund invests in Financial Instruments to replicate an exposure to an inverse ETF that is leveraged.
Rule 35d-1 under the Investment Company Act of 1940 (the “1940 Act”) requires that funds with certain names adopt a policy that they will, under normal circumstances, invest at least 80% of the value of their assets (net assets plus the amount of any borrowings for investment purposes) in investments of the type suggested by the fund’s name. To the extent a Fund adopts such a policy, it will be “non-fundamental,” which means that it may be changed without the vote of a majority of the Fund’s outstanding shares as defined in the 1940 Act. Such policies generally provide a fund’s shareholders with at least 60 days’ prior notice of any changes in a fund’s non-fundamental investment policy with respect to investments of the type suggested by its name. A Fund may count investments in underlying funds toward various guideline tests (such as the 80% test required under Rule 35d-1 under the 1940 Act).
Each Fund’s investments are subject to certain requirements imposed by law and regulation, as well as a Fund’s investment strategy. These requirements are generally applied at the time a Fund invests its assets. If, subsequent to an investment by a Fund, this requirement is no longer met, the Fund’s future investments will be made in a manner that will bring the Fund into compliance with this requirement.
Additional Investment Strategies
In addition to its principal investment strategies, each Fund may also invest in money market instruments, including short-term debt instruments and repurchase agreements or other funds that invest exclusively in money market instruments (subject to applicable limitations under the 1940 Act, or exemptions therefrom), rather than Underlying Index Components, when it would be more efficient or less expensive for a Fund to do so, or as cover for Financial Instruments, for liquidity purposes, or to earn interest. Swaps and other Financial Instruments may be used by a Fund to seek performance that corresponds to its Underlying Index and to manage cash flows.
Borrowing Money
Each Fund may borrow money from a bank as permitted by the 1940 Act or the rules thereunder, or by the U.S. Securities and Exchange Commission (“SEC”) or other regulatory agency with authority over the Fund, but only for temporary or emergency purposes. The 1940 Act presently allows a fund to borrow from any bank (including pledging, mortgaging or hypothecating assets) in an amount up to 33 1/3% of its total assets (not including temporary borrowings not in excess of 5% of its total assets).
Securities Lending
A Fund may lend its portfolio securities. A securities lending program allows a Fund to receive a portion of the income generated by lending its securities and investing the respective collateral. In connection with such loans, a Fund receives liquid collateral equal to at least 102% (105% for foreign securities) of the value of the portfolio securities being lent. This collateral is marked to market on each trading day.
Description of the Principal Risks of the Funds
Investors in the Funds should carefully consider the risks of investing in the Funds as set forth in each Fund’s Summary Information section under “Principal Risks.” To the extent such risks apply, they are discussed hereunder in greater detail. Unless otherwise noted, the following risks apply to all of the Funds.
Authorized Participant Concentration Risk
Only an Authorized Participant may engage in creation or redemption transactions directly with a Fund. Each Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with a Fund and no other Authorized Participant is able to step forward to create or redeem Creation Units, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting. This risk may be heightened for ETFs that invest in non-U.S. securities because such securities often involve greater settlement and operational issues for Authorized Participants that may further limit the availability of Authorized Participants.
Counterparty Risk
The following risk applies to the IQ Hedge Multi-Strategy Tracker ETF, IQ Hedge Macro Tracker ETF, IQ Hedge Market Neutral Tracker ETF, IQ Hedge Long/Short Tracker ETF.
A counterparty (the other party to a transaction or an agreement or the party with whom a Fund executes transactions) to a transaction with a Fund may be unable or unwilling to make timely principal, interest, settlement or margin payments, fulfill the delivery conditions of the contract or transaction, or otherwise honor
its obligations. If a counterparty fails to meet its contractual obligations for any reason, including bankruptcy of the counterparty or its parent, a loss to the Fund may result. A Fund may experience significant delays in obtaining any recovery in an insolvency, bankruptcy, or other reorganization proceeding involving a counterparty (including recovery of any collateral posted by it) and may obtain only a limited recovery or may obtain no recovery in such circumstances. If a Fund holds collateral posted by its counterparty, it may be delayed or prevented from realizing on the collateral in the event of a bankruptcy or insolvency proceeding relating to the counterparty. Under applicable law or contractual provisions, including if a Fund enters into an investment or transaction with a financial institution and such financial institution (or an affiliate of the financial institution) experiences financial difficulties, then the Fund may in certain situations be prevented or delayed from exercising its rights to terminate the investment or transaction, or to realize on any collateral, which may result in the suspension of payment and delivery obligations of the parties under such investment or transactions or in another institution being substituted for that financial institution without the consent of the Fund. Further, a Fund may be subject to “bail-in” risk under applicable law whereby, if required by the financial institution’s authority, the financial institution’s liabilities could be written down, eliminated or converted into equity or an alternative instrument of ownership. A bail-in of a financial institution may result in a reduction in value of some or all of its securities and, if a Fund holds such securities or has entered into a transaction with such a financial security when a bail-in occurs, the Fund may also be similarly impacted.
Cyber Security Risk
The Funds are susceptible to operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a Fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. These risks typically are not covered by insurance. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber incidents include, but are not limited to, gaining unauthorized access to digital systems (e.g., through “hacking” or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data or causing operational disruption. Cyber attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make network services unavailable to intended users). Cyber security failures by or breaches of the systems of security issuers, the Advisor, distributor and other service providers (including, but not limited to, sub-advisors, index providers, fund accountants, custodians, transfer agents and administrators), market makers, Authorized Participants or the issuers of securities in which a Fund invests, have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with a Fund’s ability to calculate its NAV, disclosure of confidential trading information, impediments to trading, submission of erroneous trades or erroneous creation or redemption orders, the inability of a Fund or its service providers to transact business, violations of applicable privacy and other laws, regulatory fines and other penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs. Substantial costs may be incurred by a Fund in order to resolve or prevent cyber incidents in the future. While the Funds have established business continuity plans in the event of, and risk management systems to prevent, such cyber attacks, there are inherent limitations in such plans and systems, including the possibility that certain risks have not been identified and that prevention and remediation efforts will not be successful. Furthermore, the Funds cannot control the cyber security plans and systems put in place by service providers to the Funds, issuers in which the Funds invest, Authorized Participants or market makers. There is no guarantee that such preventative efforts will succeed, and the Funds and their shareholders could be negatively impacted as a result.
Derivatives Risk
Derivatives are investments whose value depends on (or is derived from) the value of an underlying instrument, such as a security, asset, reference rate or index and involve risks different from, and possibly greater than, the risks associated with other investments. These risks include: (i) the risk that the counterparty to a derivatives transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. Such prices are influenced by numerous factors that affect the markets, including, but not limited to, changing supply and demand relationships, government programs and policies, national and international political and economic events, changes in interest rates, inflation and deflation, and changes in supply and demand relationships. Unlike other investments, derivative contracts often have leverage inherent in their terms. This leverage creates
a disconnect between the initial amount of an investment relative to the risk assumed and introduces the possibility that a relatively small movement in the value of an underlying reference asset can result in an immediate and substantial loss to a party to a derivative contract. In general, the use of leveraged derivatives can magnify potential for gain or loss and, therefore, amplify the effects of market volatility on a Fund’s Share price. The effects of leverage may also cause a Fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations or to meet collateral segregation requirements. In the event of the bankruptcy or insolvency of a counterparty, a Fund could experience the loss of some or all of its investment in a derivative or experience delays in liquidating its positions, including declines in the value of its investment during the period in which the Fund seeks to enforce its rights, and an inability to realize any gains on its investment during such period. A Fund may also incur fees and expenses in enforcing its rights. Certain derivatives are subject to mandatory clearing. Central clearing is intended to reduce counterparty credit risk and increase liquidity, but central clearing does not make derivatives transactions risk-free.
Exchange Traded Products Risk
Unlike an investment in a mutual fund, the value of a Fund’s investment in other exchange-traded funds or exchange-traded investment products (“ETPs”) is based on its market price (rather than NAV) and the Fund could lose money due to premiums/discounts of the ETP (which could cause the Fund to buy shares at market prices that are higher than their value or sell shares at market prices that are lower than their value); the failure of an active trading market to develop or exchange trading halts or delistings. An investment in a Fund that holds ETPs will entail more costs and expenses than a direct investment in any Underlying ETPs. As a Fund’s allocations to Underlying ETPs changes, or the expense ratio of Underlying ETPs change, the operating expenses borne by such Fund from such investments may increase or decrease. Federal law prohibits a Fund from acquiring investment company shares, including shares of other registered investment companies (including ETFs), in excess of specific thresholds unless exempted by rule, regulation or exemptive order. These prohibitions may prevent a Fund from allocating its investment in an optimal manner.
Index Risk
There is no guarantee that a Fund’s investment results will have a high degree of correlation to those of its Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on a Fund’s ability to adjust its exposure to the required levels in order to track its Underlying Index. Errors in index data, index computations or the construction of an Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on a Fund and its shareholders. Apart from scheduled rebalances, an Underlying Index may undergo additional ad hoc rebalances in order, for example, to correct an error in the selection of index constituents. When a Fund’s Underlying Index is rebalanced and the Fund in turn rebalances its portfolio to attempt to increase the correlation between the Fund’s portfolio and the Underlying Index, any transaction costs and market exposure arising from such portfolio rebalancing will be borne directly by the Fund and its shareholders. Unscheduled rebalances to a Fund’s Underlying Index may expose the Fund to additional tracking error risk, which is the risk that the Fund’s returns may not track those of the Underlying Index. Therefore, index errors and additional ad hoc rebalances may increase the costs to and the tracking error risk of the Fund.
In constructing an Underlying Index, the index provider may utilize quantitative models or methodologies that may be proprietary or developed by third-parties. These models and methodologies are used to determine the composition of an Underlying Index and may not adequately take into account certain factors, resulting in a decline in the value of the Underlying Index and, therefore, a Fund. Models rely on accurate financial and market data inputs. If inaccurate data is entered into a model, the resulting information will be incorrect. In addition, the models used by be predictive and nature and such models may result in an incorrect assessment of future events. The models evaluate securities or securities markets based on certain assumptions concerning the interplay of market factors. The markets or prices of individual securities may be affected by factors not foreseen in developing the models. The historical correlations and relationships between individual securities or asset classes, upon which a model may be based, may not continue in the future.
Liquidity Risk
Liquidity risk exists when particular investments are difficult to purchase or sell. To the extent a Fund invests in illiquid securities or securities that become less liquid, such investments may have a negative effect on the returns of the Fund because the Fund may be unable to sell the illiquid securities at an advantageous time or price. Securities with substantial market and/or credit risk may be especially susceptible to liquidity risk. Liquidity
risk may be the result of, among other things, an investment being subject to restrictions on resale, trading over-the-counter or in limited volume, or lacking an active trading market. Liquid investments may become illiquid or less liquid after purchase by the Fund, particularly during periods of market turmoil or economic uncertainty. Illiquid and relatively less liquid investments may be harder to value, especially in changing markets. If a Fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or for other cash needs, the Fund may suffer a loss. This may be magnified in a rising interest rate environment or under other circumstances where redemptions from a Fund may be higher than normal. It may also be the case that other market participants may be attempting to liquidate similar holdings at the same time as a Fund, causing increased supply in the market and contributing to liquidity risk and downward pricing pressure. There can be no assurance that a security that is deemed to be liquid when purchased will continue to be liquid or as long as it is held by a Fund.
Long/Short Risk
The following risk applies to the IQ Hedge Multi-Strategy Tracker ETF, IQ Hedge Macro Tracker ETF, IQ Hedge Market Neutral Tracker ETF, IQ Hedge Long/Short Tracker ETF and IQ Hedge Event-Driven Tracker ETF.
Each Fund seeks long exposure to certain securities and may seek short exposure to certain other securities. There is no guarantee that the returns on a Fund’s long or short positions will produce high, or even positive, returns, and a Fund could lose money if either or both of such Fund’s long and short positions produce negative returns. In addition, a Fund may gain enhanced long exposure to certain securities (i.e., obtain investment exposure that exceeds the amount directly invested in those assets, a form of leverage) and, under such circumstances, will lose more money in market environments that are adverse to its long positions than funds that do not employ such leverage. As a result, such investments may give rise to losses that exceed the amount invested in those assets.
Market Risk
The value of a Fund’s investments may fluctuate and/or decline because of changes in the markets in which the Fund invests, which could cause the Fund to underperform other funds with similar investment objectives and strategies. Security markets are volatile and may decline significantly in response to adverse issuer, regulatory, political, or economic developments. Different sectors of the market and different security types may react differently to such developments. Changes in these markets may be rapid and unpredictable. Fluctuations in the markets generally or in a specific industry or sector may impact the securities in which a Fund invests. From time to time, markets may experience periods of stress for potentially prolonged periods that may result in: (i) increased market volatility; (ii) reduced market liquidity; and (iii) increased redemptions of Fund shares. Such conditions may add significantly to the risk of volatility in the net asset value of a Fund’s shares and the market prices at which shares of a Fund trade on a securities exchange. During periods of market stress shares of a Fund may also experience significantly wider “bid/ask” spreads and premiums and discounts between a Fund’s net asset value and market price.
Market changes may impact equity and fixed income securities in different and, at times, conflicting manners. A Fund potentially will be prevented from executing investment decisions at an advantageous time or price as a result of any domestic or global market disruptions, particularly disruptions causing heightened market volatility and reduced market liquidity, as well as increased or changing regulations or market closures. Thus, investments that the Advisor or Subadvisor believes best enable a Fund to track the performance of its Underlying Index may be unavailable entirely or in the specific quantities sought by the Advisor or Subadvisor and the Fund may need to obtain the exposure through less advantageous or indirect investments or forgo the investment at the time. Securities and investments included as components of an Underlying Index may be susceptible to declines in value, including declines in value that are not believed to be representative of the issuer’s value or fundamentals, due to investor reactions to such events. In response to market volatility and disruption, an Underlying Index may delay rebalancing, implement temporary or permanent modifications to its methodology or take other actions.
Political and diplomatic events within the United States and abroad, such as the U.S. budget and deficit reduction plans, protectionist measures, trade tensions central bank policy and government intervention in the economy, has in the past resulted, and may in the future result, in developments that present additional risks to a Fund’s investments and operations. Geopolitical and other events, such as war, acts of terrorism, natural disasters, the spread of infectious illnesses, epidemics and pandemics, environmental and other public health issues, recessions or other events, and governments’ reactions to such events, may lead to increased market volatility and instability in world economies and markets generally and may have adverse effects on the
performance of the Fund and its investments. Additional and/or prolonged geopolitical or other events may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. Any such market, economic and other disruptions could also prevent a Fund from executing its investment strategies and processes in a timely manner.
An investment in a Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. When you sell your Shares, they could be worth less than what you paid for them.
Market Disruption Risk and Recent Market Events
Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on a Fund and its investments. Market disruptions could cause a Fund to lose money, experience significant redemptions and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets. Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant restrictions, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. A Fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in a Fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.
Operational Risk
Each Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund, Advisor and Subadvisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Funds are not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
Each Fund invests in the securities included in, or representative of, its Underlying Index. The provider of an Underlying Index or an index calculation agent may make errors. An index provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in a Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track an Underlying Index’s performance, a Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of its Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in a Fund’s portfolio and those included in an Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and a Fund’s valuation of a security at the time of calculation of a Fund’s NAV), differences in transaction costs, a Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to an Underlying Index or the costs to the Fund of complying with various new
or existing regulatory requirements. Tracking error also may result because a Fund incurs fees and expenses, while an Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
Each Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) its Underlying Index.
Portfolio Turnover Risk
The following risk applies to the IQ Hedge Multi-Strategy Tracker ETF, IQ Hedge Macro Tracker ETF, IQ Hedge Market Neutral Tracker ETF and IQ Real Return ETF.
A Fund’s strategy may frequently involve buying and selling portfolio securities to rebalance the Fund’s investment exposures. High portfolio turnover may result in the Fund paying higher levels of transaction costs and generating greater tax liabilities for shareholders. Portfolio turnover risk may cause a Fund’s performance to be less than expected.
Secondary Market Trading Risk
Although each Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. The trading of Shares on securities exchanges is subject to the risk of irregular trading activity. Additionally, market makers are under no obligation to make a market in a Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in a Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, such Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value.
Buying or selling Shares on an exchange involves two types of costs that apply to all securities transactions. When buying or selling Shares through a broker, you will likely incur a brokerage commission and other charges. In addition, you may incur the cost of the “spread” — the difference between what investors are willing to pay for Shares (the “bid” price) and the price at which they are willing to sell Fund shares (the “ask” price). The spread, which varies over time for Shares based on trading volume and market liquidity, is generally narrower if the Fund has more trading volume and market liquidity and wider if the Fund has less trading volume and market liquidity. The risk of wide bid and ask spreads may be especially pronounced for smaller funds. In addition, increased market volatility may cause wider spreads. There may also be regulatory and other charges that are incurred as a result of trading activity. Because of the costs inherent in buying or selling Shares, frequent trading may detract significantly from investment results and an investment in Shares may not be advisable for investors who anticipate regularly making small investments through a brokerage account.
Securities exchanges have requirements that must be met in order for Shares to be listed. There can be no assurance that the requirements of an exchange necessary to maintain the listing of Shares will continue to be met. This risk is particularly acute for funds that fail to attract a large number of shareholders. Pursuant to an exchange’s “circuit breaker” rules, trading in a Fund’s Shares may be halted due to extraordinary market volatility.
Short Sales Risk
The following risk applies to the IQ Hedge Multi-Strategy Tracker ETF, IQ Hedge Macro Tracker ETF, IQ Hedge Market Neutral Tracker ETF, IQ Hedge Long/Short Tracker ETF and IQ Hedge Event-Driven Tracker ETF.
In order to achieve its investment objective, a Fund may engage in short sales, which are designed to provide the Fund gains when the price of a particular security, basket of securities or index declines. When a Fund shorts a security, it borrows shares of that security, which it then sells. A Fund closes out a short sale by purchasing the security that it has sold short and returning that security to the entity that lent the security. A Fund may also seek inverse or “short” exposure through the use of derivatives such as swap agreements or futures contracts, which will expose the Fund to certain risks such as an increase in volatility or decrease in the liquidity of the securities of the underlying short position. A short position subjects a Fund to the risk that instead of declining, the price of the security or reference asset to which the Fund has short exposure will rise. If the price of the security or reference
asset increases between the date of the short sale and the date on which a Fund replaces the security or otherwise closes out its short position, such Fund will experience a loss, which is theoretically unlimited since there is a theoretically unlimited potential for the market price of a security or other instrument sold short to increase.
Swap Agreements Risk
The following risk applies to the IQ Hedge Multi-Strategy Tracker ETF, IQ Hedge Macro Tracker ETF, IQ Hedge Market Neutral Tracker ETF, IQ Hedge Long/Short Tracker ETF and IQ Hedge Event-Driven Tracker ETF.
Swap agreements are two-party contracts entered into for a set period of time in which the parties agree to exchange payments based on some underlying reference or asset (such as interest rates). The use of swaps is a highly specialized activity that involves investment techniques, risk analyses and tax planning different from those associated with ordinary portfolio securities transactions. These transactions can result in sizeable realized and unrealized capital gains and losses relative to the gains and losses from a Fund’s direct investments in the reference assets. Transactions in swaps can involve greater risks than if a Fund had invested directly in the reference asset since, in addition to general market risks, swaps may be leveraged and are also subject to credit risk, counterparty risk, liquidity risk and valuation risk. Because they are two-party contracts and may have terms of greater than seven days, certain swap transactions may be considered illiquid. Moreover, a Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap counterparty. Some swaps may be complex and difficult to value. Swaps may also be subject to pricing or “basis” risk, which exists when a particular swap becomes extraordinarily expensive relative to historical prices or the price of corresponding cash market instruments. Under certain market conditions it may not be economically feasible to initiate a transaction or liquidate a position in time to avoid a loss or take advantage of an opportunity. If a swap transaction is particularly large or if the relevant market is illiquid, it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price, which may result in significant losses. The prices of swaps can be very volatile, and a variance in the degree of volatility or in the direction of the price of the reference asset from the portfolio managers’ expectations may produce significant losses in a Fund’s investments in swaps. In addition, a perfect correlation between a swap and an investment position may be impossible to achieve. As a result, a Fund’s use of swaps may not be effective in fulfilling such Fund’s investment strategies and may contribute to losses that would not have been incurred otherwise. Certain swaps are not bilateral agreements but are centrally cleared and are exchange-traded. Central clearing tends to decrease credit risk and improve liquidity but many regulations regarding centrally cleared swaps have not been fully implemented and the scope of the risks remain unclear. As central clearing does not make the agreements risk-free and there is no guarantee that a Fund would consider all centrally cleared or exchange-traded swaps to be liquid.
Trading Price Risk
Shares of a Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of a Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of a Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the Fund’s NAV. As a result, the trading prices of a Fund’s Shares may deviate significantly from NAV during periods of market volatility. The market price of a Fund’s 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 Shares. In times of severe market disruption, the bid/ask spread can increase significantly. At those times, Shares are most likely to be traded at a discount to NAV, and the discount is likely to be greatest when the price of Shares is falling fastest, which may be the time that an investor most wants to sell their Shares. Although it is generally expected that the market price of a Fund’s Shares will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares. While the creation/redemption feature is designed to make it more likely that a Fund’s Shares normally will trade on securities exchanges at prices close to the Fund’s next calculated NAV, exchange prices are not expected to correlate exactly with the Fund’s NAV due to timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions at market makers, Authorized Participants, or other market participants, and during periods of significant market volatility, may result in trading prices for Shares of a Fund that differ significantly from its NAV. Authorized Participants may be less willing to create or redeem Shares if there is a lack of an active market for such Shares or its underlying investments, which may contribute to the Fund’s Shares trading at a premium or discount to NAV. Additionally, similar to shares of other issuers listed on a securities
exchange, a Fund’s Shares may be sold short and are therefore subject to the risk of increased volatility and price decreases associated with being sold short. Any of these factors, among others, may lead to a Fund’s Shares trading at a premium or discount to NAV.
Risks of Underlying ETPs
Investments in each Fund are subject to the risks associated with an investment in the Underlying ETPs. In addition to the risks described above, the following risks should also be considered when making an investment in a Fund. See also the section on “Additional Risks” for other risk factors. There is a risk that IndexIQ’s evaluations and assumptions regarding the broad asset classes represented in the Underlying Indexes may be incorrect based on actual market conditions. In addition, at times certain of the segments of the market represented by the Underlying ETPs may be out of favor and underperform other segments.
•
Asset-Backed Securities Risk. Asset-backed securities are securities that represent interests in, and whose values and payments are based on, a “pool” of underlying assets, which may include, among others, lower-rated debt securities and corporate loans, consumer loans or mortgages and leases of property. Asset-backed securities include collateralized debt obligations, collateralized bond obligations, and collateralized loan obligations and other similarly structured vehicles. As with other debt securities, asset-backed securities are subject to credit risk, extension risk, interest rate risk, liquidity risk and valuation risk. Certain asset-backed securities do not have the benefit of the same security interest in the related collateral as do mortgage-backed securities, nor are they provided government guarantees of repayment. Credit card receivables are generally unsecured, and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. In addition, some issuers of automobile receivables permit the servicers to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the related automobile receivables. The impairment of the value of collateral or other assets underlying an asset-backed security, such as a result of non-payment of loans or non-performance of underlying assets, may result in a reduction in the value of such asset-backed securities and losses to a Fund.
Investments in mortgage-related securities make an investor more susceptible to adverse economic, political or regulatory events that affect the value of real estate. Mortgage-related securities are also significantly affected by the rate of prepayments and modifications of the mortgage loans underlying those securities, as well as by other factors such as borrower defaults, delinquencies, realized or liquidation losses and other shortfalls. Mortgage-related securities are particularly sensitive to prepayment risk, given that the term to maturity for mortgage loans is generally substantially longer than the expected lives of those securities. As the timing and amount of prepayments cannot be accurately predicted, the timing of changes in the rate of prepayments of the mortgage loans may significantly affect a Fund’s actual yield to maturity on any mortgage-related securities. Along with prepayment risk, mortgage-related securities are significantly affected by interest rate risk. In a low interest rate environment, mortgage loan prepayments would generally be expected to increase due to factors such as refinancings and loan modifications at lower interest rates. In contrast, if prevailing interest rates rise, prepayments of mortgage loans would generally be expected to decline and therefore extend the weighted average lives of mortgage-related securities held or acquired by a Fund. Fund investments in mortgage-backed securities issued by Ginnie Mae are backed by the full faith and credit of the U.S. government. Fund investments in mortgage-backed securities issued by Fannie Mae and Freddie Mac are not backed by the full faith and credit of the U.S. government, and there can be no assurance that the U.S. government would provide financial support to its agencies or instrumentalities where it is not obligated to do so. Impairment of the underlying obligations or collateral, such as by non-payment, will reduce a mortgage-related security’s value. Enforcing rights against such collateral in events of default may be difficult or insufficient. These securities may have a structure that makes their reaction to interest rate changes and other factors difficult to predict, making their value highly volatile.
•
Commodities Risk. Exposure to the commodities markets may subject the Fund to greater volatility than investments in traditional securities, and exposure to commodities, directly or through other securities, can cause the value of the Fund’s assets to decline or fluctuate in a rapid and unpredictable manner. The value of commodities may be affected by changes in overall market movements, real or perceived inflationary trends, commodity index volatility, changes in interest rates or currency exchange rates,
population growth and changing demographics, international economic, political and regulatory developments, and factors affecting a particular region, industry or commodity, such as drought, floods, or other weather conditions, livestock disease, changes in storage costs, trade embargoes, competition from substitute products, transportation bottlenecks or shortages, fluctuations in supply and demand, and tariffs.
•
Convertible Securities Risk. Convertible securities are bonds, debentures, notes, preferred stocks or other securities that may be converted or exchanged (by the holder or by the issuer, depending on the terms of the securities) into shares of the underlying common stock (or cash or securities of equivalent value) at a stated exchange ratio. If a convertible security held by a Fund is called for redemption or conversion, such Fund could be required to tender it for redemption, convert it into the underlying equity security or sell it to a third party, which may have an adverse effect on the Fund’s ability to achieve its investment objective. The market values of convertible securities tend to decline as interest rates increase. However, a convertible security’s market value also tends to reflect the market price of the equity security of the issuing company, particularly when the price of the equity security is greater than the convertible security’s conversion price (i.e., the predetermined price or exchange ratio at which the convertible security can be converted or exchanged for the underlying equity security). Convertible securities are also exposed to the risk that an issuer will be unable to meet its obligation to make dividend or principal payments when due as a result of changing financial or market conditions. Convertible debt securities generally offer lower interest or dividend yields than non-convertible debt securities of similar credit quality because of their potential for capital appreciation. Moreover, there can be no assurance that convertible securities will provide current income prior to conversion because the issuers of the convertible securities may default on their obligations. If the convertible security has a conversion or call feature that allows the issuer to redeem the security before the conversion date, the potential for capital appreciation may be diminished. In the event that convertible securities are not optional but mandatory based upon the price of the underlying common stock, a Fund may be subject to additional exposure to loss of income in situations where it would prefer to hold debt.
•
Credit Risk. Credit risk is the risk that the issuer or guarantor of a debt instrument or the counterparty to a derivatives contract, repurchase agreement or loan of portfolio securities will be unable or unwilling to make its timely interest and/or principal payments when due or otherwise honor its obligations. Changes in an issuer’s or counterparty’s credit rating or the market’s perception of an issuer’s or counterparty’s creditworthiness may also adversely affect the value of the Fund’s investment in that issuer. The degree of credit risk depends on an issuer’s or counterparty’s financial condition and on the terms of an obligation.
•
Currency Risk. Investments directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign (non-U.S.) currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including national debt levels and trade deficits, changes in balances of payments and trade, domestic and foreign interest and inflation rates, global or regional political, economic or financial events, monetary policies of governments, actual or potential government intervention and global energy prices. Political instability, the possibility of government intervention and restrictive or opaque business and investment policies may also reduce the value of a country’s currency. Government monetary policies and the buying or selling of currency by a country’s government may also influence exchange rates. As a result, a Fund’s investments in foreign currency denominated securities may reduce the return of such Fund. Because a Fund’s NAV is determined on the basis of U.S. dollars, the Fund’s NAV may decrease if the value of the non-U.S. currency to which the Fund has exposure depreciates in value relative to the U.S. dollar. This may occur even if the value of the underlying non-U.S. securities increases. Conversely, a Fund’s NAV may increase if the value of a non-U.S. currency appreciates relative to the U.S. dollar.
•
Debt Securities Risk. The risks of investing in debt securities include (without limitation): (i) credit risk, e.g., the issuer or guarantor of a debt security may be unable or unwilling (or be perceived as unable or unwilling) to make timely principal and/or interest payments or otherwise honor its obligations; (ii) interest rate risk, e.g., when interest rates go up, the value of a debt security generally goes down, and when interest rates go down, the value of a debt security generally goes up; (iii) liquidity risk and valuation risk, e.g., debt securities generally do not trade on a securities exchange, making them generally less liquid
and more difficult to value than common stock; (iv) call risk and income risk, e.g., during a period of falling interest rates, the issuer may redeem a security by repaying it early, which may reduce a Fund’s income if the proceeds are reinvested at lower interest rates; and (v) extension risk, e.g., if interest rates rise, repayments of debt securities may occur more slowly than anticipated by the market, which may drive the prices of these securities down because their interest rates are lower than the current interest rate and the securities remain outstanding longer. Debt securities most frequently trade in institutional round lot size transactions. If the Fund purchases bonds in amounts less than the institutional round lot size, which are frequently referred to as “odd” lots, the odd lot size positions may have more price volatility than institutional round lot size positions. The Fund uses a third-party pricing service to value bond holdings and the pricing service values bonds assuming orderly transactions of an institutional round lot size.
•
Emerging Markets Securities Risk. Securities of issuers based in countries with developing economies (emerging market countries) may present market, credit, currency, liquidity, legal, political and other risks different from, or greater than, the risks of investing in developed market countries and are generally considered speculative in nature. Emerging market countries are subject to greater market volatility, lower trading volume, political and economic instability, uncertainty regarding the existence of trading markets, rapid inflation, possible repatriation of investment income and capital, currency convertibility issues, less uniform accounting standards and more governmental limitations on foreign investment than more developed markets. Laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder rights may change quickly and unpredictably. In addition, the enforcement of systems of taxation at federal, regional and local levels in emerging market countries may be inconsistent and subject to sudden change.
•
Emerging Market Sovereign Debt Risk. Government obligors in emerging market countries are among the world’s largest debtors to commercial banks, other governments, international financial organizations and other financial institutions. Historically, certain issuers of the government debt securities in which an Underlying ETP may invest have experienced substantial difficulties in meeting their external debt obligations, resulting in defaults on certain obligations and the restructuring of certain indebtedness. Such restructuring arrangements have included obtaining additional credit to finance outstanding obligations and the reduction and rescheduling of payments of interest and principal through the negotiation of new or amended credit agreements. As a holder of government debt securities, the Fund may be asked to participate in the restructuring of such obligations and to extend further loans to their issuers. There can be no assurance that the securities in which the Fund will invest will not be subject to restructuring arrangements or to requests for additional credit. In addition, certain participants in the secondary market for such debt may be directly involved in negotiating the terms of these arrangements and may therefore have access to information not available to other market participants, such as an Underlying ETP.
•
Equity Securities Risk. The value of equity securities held by a Fund may fall due to general market and economic conditions, perceptions regarding the industries in which the issuers of securities held by the Fund participate or factors relating to specific companies in which the Fund invests. For example, an adverse event, such as an unfavorable earnings report, may depress the value of equity securities of an issuer held by a Fund; the price of common stock of an issuer may be particularly sensitive to general movements in the stock market; or a drop in the stock market may depress the price of most or all of the common stocks and other equity securities held by a Fund. In addition, common stock of an issuer in a Fund’s portfolio may decline in price if the issuer fails to make anticipated dividend payments because, among other reasons, the issuer of the security experiences a decline in its financial condition. Holders of an issuer’s common stock may also be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
•
Foreign Securities Risk. Investments in the securities of non-U.S. issuers involve risks beyond those associated with investments in U.S. securities. These additional risks include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Some countries and regions have experienced security concerns, war or threats of war and aggression, terrorism, economic uncertainty, natural and environmental disasters and/or systemic market dislocations that have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects
on the U.S. and world economies and markets generally. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing, custody, financial reporting and record keeping than are U.S. issuers, and therefore not all material information will be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact a Fund’s ability to invest in foreign securities or may prevent a Fund from repatriating its investments. Non-U.S. transaction costs, such as brokerage commissions and custody costs, may be higher than in the United States. In some non-U.S. markets, custody arrangements for securities provide significantly less protection than custody arrangements in U.S. markets. Prevailing custody and trade settlement practices (e.g., the requirement to pay for securities prior to receipt) could similarly expose a Fund to credit and other risks it does not have in the United States with respect to participating brokers, custodians, clearing banks or other clearing agents, escrow agents and issuers. In addition, a Fund may not receive shareholder communications or be permitted to vote the securities it holds, as the issuers may be under no legal obligation to distribute them.
Less developed securities markets are more likely to experience problems with the clearing and settling of trades, as well as the holding of securities by local banks, agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle, and governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. Local agents are held only to the standards of care of their local markets. The less developed a country’s securities market is, the greater the likelihood of custody problems.
•
High Yield Securities Risk. A Fund’s investment in high yield securities, or “junk” bonds, may entail increased credit risks and the risk that the value of the Fund’s assets will decline, and may decline precipitously, with increases in interest rates. High yield securities are, under most circumstances, subject to greater market fluctuations and risk of loss of income and principal than are investments in lower-yielding, higher-rated debt securities. As interest rates rise, the value of high yield securities may decline precipitously. Increased rates may also indicate a slowdown in the economy, which may adversely affect the credit of issuers of high yield securities and result in a higher incidence of defaults among such issuers. A slowdown in the economy, or a development adversely affecting an issuer’s creditworthiness, may result in the issuer being unable to maintain earnings or sell assets at the rate and at the prices, respectively, that are required to produce sufficient cash flow to meet its interest and principal requirements. A Fund’s portfolio managers cannot predict future economic policies or their consequences or, therefore, the course or extent of any similar market fluctuations in the future. In addition, high yield securities are generally less liquid than investment grade securities.
•
Income Risk. A Fund’s income may decline when interest rates fall or if there are defaults in its portfolio. This decline can occur because a Fund may subsequently invest in lower-yielding securities when securities in its portfolio mature or the Fund otherwise needs to purchase additional securities.
•
Interest Rate Risk. An increase in interest rates may cause the value of certain fixed income securities held by a Fund to decline. Many factors can cause interest rates to rise, such as central bank monetary policies, inflation rates, general economic conditions and expectations about the foregoing. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, making them more volatile than securities with shorter durations or floating or adjustable interest rates. The negative impact on a Fund from potential interest rate increases could be swift and significant, including falling market values, increased redemptions and reduced liquidity. Substantial shareholder redemptions may worsen this impact. An increase in interest rates could also cause principal payments on a fixed income security to be repaid at a slower rate than expected. This risk is particularly prevalent for a callable debt security where an increase in interest rates could cause the issuer of that security to not redeem the security as anticipated on the call date, effectively lengthening the security’s expected maturity, in turn making that security more vulnerable to interest rate risk and reducing its market value. A Fund may be subject to a greater risk of rising interest rates than would normally be the case due to the current period of historically low rates and the effect of potential government fiscal policy initiatives and resulting market reaction to those initiatives.
When interest rates rise, certain obligations will be paid off by the issuer (or other obligated party) more slowly than anticipated, causing the value of these securities to fall. Rising interest rates tend to extend the duration of fixed income securities, making their market value more sensitive to changes in interest
rates. As a result, in a period of rising interest rates, securities may exhibit additional volatility and may lose value. The value of securities with longer maturities generally changes more in response to changes in interest rates than does the value of securities with shorter maturities. Extension risk is particularly prevalent for a callable fixed income security where an increase in interest rates could result in the issuer of that security choosing not to redeem the security as anticipated on the security’s call date. Such a decision by the issuer could have the effect of lengthening the security’s expected maturity, making it more vulnerable to interest rate risk and reducing its market value.
Some securities may be redeemed at the option of the issuer, or “called,” before their stated maturity date. In general, an issuer will call its debt securities if they can be refinanced by issuing new debt securities which bear a lower interest rate. A Fund is subject to the possibility that during periods of falling interest rates an issuer will call its high-yielding debt securities. A Fund may then be forced to invest the unanticipated proceeds in securities with lower yields, resulting in a decline in the Fund’s income, or in securities with greater risks or with other less favorable features. Such redemptions and subsequent reinvestments would also increase a Fund’s portfolio turnover. If a called debt security was purchased by a Fund at a premium, the value of the premium may be lost in the event of a redemption.
The terms of floating rate notes and other instruments may be tied to the London Interbank Offered Rate (“LIBOR”), which functions as a reference rate or benchmark. It is anticipated that LIBOR will be discontinued at the end of 2021, which may cause increased volatility and illiquidity in the markets for instruments with terms tied to LIBOR or other adverse consequences, such as decreased yields and reduction in value, for these instruments. These events may adversely affect the Fund and its investments in such instruments. For more information on the risks associated with the discontinuation and transition of LIBOR, please see “LIBOR Replacement Risk.”
•
Large-Capitalization Companies Risk. Large-capitalization companies may be unable to respond quickly to new competitive challenges such as changes in technology and consumer tastes. Larger companies also may not be able to attain the high growth rates of successful smaller companies, especially during periods of economic expansion. Large capitalization companies may go in and out of favor based on market and economic conditions. Although the securities of larger companies may, on average, be less volatile than those of companies with smaller market capitalizations, during different market cycles, the performance of large-capitalization companies has trailed the overall performance of the broader securities markets and the securities of smaller companies.
•
Liquidity Risk. Liquidity risk exists when particular investments are difficult to purchase or sell. To the extent a Fund invests in illiquid securities or securities that become less liquid, such investments may have a negative effect on the returns of the Fund because the Fund may be unable to sell the illiquid securities at an advantageous time or price. Securities with substantial market and/or credit risk may be especially susceptible to liquidity risk. Liquidity risk may be the result of, among other things, an investment being subject to restrictions on resale, trading over-the-counter or in limited volume, or lacking an active trading market. Liquid investments may become illiquid or less liquid after purchase by the Fund, particularly during periods of market turmoil or economic uncertainty. Illiquid and relatively less liquid investments may be harder to value, especially in changing markets. If a Fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or for other cash needs, the Fund may suffer a loss. This may be magnified in a rising interest rate environment or under other circumstances where redemptions from a Fund may be higher than normal. It may also be the case that other market participants may be attempting to liquidate similar holdings at the same time as a Fund, causing increased supply in the market and contributing to liquidity risk and downward pricing pressure. There can be no assurance that a security that is deemed to be liquid when purchased will continue to be liquid or as long as it is held by a Fund.
•
Market Risk. Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on a Fund and its investments. Market disruptions could
cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
•
Money Market/Short-Term Securities Risk. To the extent that a Fund invests in money market or short-term securities, the Fund may be subject to certain risks associated with such investments. An investment in a money market fund or short-term securities is not a bank deposit and is not insured or guaranteed by any bank, the Federal Deposit Insurance Corporation or any other government agency. It is possible for a Fund to lose money by investing in money market funds. A money market fund may not achieve its investment objective. Changes in government regulations may affect the value of an investment in a money market fund.
•
Municipal Bond Risk. Issuers, including governmental issuers, may be unable to pay their obligations as they come due. The values of Municipal Bonds that depend on a specific revenue source to fund their payment obligations may fluctuate as a result of actual or anticipated changes in the cash flows generated by the revenue source or changes in the priority of the municipal obligation to receive the cash flows generated by the revenue source. The values of Municipal Bonds held by the Fund may be adversely affected by local political and economic conditions and developments. Adverse conditions in an industry significant to a local economy could have a correspondingly adverse effect on the financial condition of local issuers. This risk would be heightened to the extent that the Fund invests a substantial portion of its assets in Municipal Bonds issued pursuant to similar projects or whose interest is paid solely from revenues of similar projects. In addition, income from Municipal Bonds held by the Fund could be declared taxable because of, among other things, unfavorable changes in tax laws, adverse interpretations by the Internal Revenue Service or state tax authorities, or noncompliant conduct of an issuer or other obligated party. Loss of tax-exempt status may cause interest received and distributed to shareholders by the Fund to be taxable and may result in a significant decline in the values of such municipal securities. There are various different types of Municipal Bonds, each with its own unique risk profile. Some of these risks include:
•
General Obligation Bonds Risk — timely payments depend on the issuer’s credit quality, ability to raise tax revenues and ability to maintain an adequate tax base;
•
Revenue Bonds (including Industrial Development Bonds) Risk — timely payments depend on the money earned by the particular facility or class of facilities, or the amount of revenues derived from another source, and may be negatively impacted by the general credit of the user of the facility;
•
Private Activity Bonds Risk — municipalities and other public authorities issue private activity bonds to finance development of industrial facilities for use by a private enterprise, which is solely responsible for paying the principal and interest on the bonds, and payment under these bonds depends on the private enterprise’s ability to do so;
•
Moral Obligation Bonds Risk — moral obligation bonds are generally issued by special purpose public authorities of a state or municipality. If the issuer is unable to meet its obligations, repayment of these bonds becomes a moral commitment, but not a legal obligation, of the state or municipality;
•
Municipal Notes Risk — municipal notes are shorter-term municipal debt obligations that pay interest that is, in the opinion of bond counsel for the issuer at the time of issuance, generally excludable from gross income for federal income tax purposes (except that the interest may be includable in taxable income for purposes of the federal alternative minimum tax) and that have a maturity that is generally one year or less. If there is a shortfall in the anticipated proceeds, the notes may not be fully repaid and the Fund may lose money; and
•
Municipal Lease Obligations Risk — in a municipal lease obligation, the issuer agrees to make payments when due on the lease obligation. Although the issuer does not pledge its unlimited taxing power for payment of the lease obligation, the lease obligation is secured by the leased property.
•
Preferred Securities Risk. Preferred securities combine some of the characteristics of both common stocks and bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms of priority to corporate income, subjecting them to greater credit risk than those debt securities. Preferred securities often include provisions that permit the issuer, at its discretion, to defer distributions for a stated period without any adverse consequences to the issuer. If a
Fund owns a preferred security that is deferring its distributions, the Fund may be required to report income for federal income tax purposes although it has not yet received such income in cash. Generally, holders of preferred securities have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may elect a number of directors to the issuer’s board of director. Generally, once the issuer pays all the arrearages, the preferred security holders no longer have voting rights. In certain circumstances, an issuer of preferred securities may redeem the securities prior to a specified date. For instance, for certain types of preferred securities, a redemption may be triggered by a change in federal income tax or securities laws or a change in regulatory trademark. As with redemption provisions of debt securities, a special redemption by the issuer may negatively impact the return of the preferred security held by a Fund. Preferred securities may also be substantially less liquid than other securities, including common stock.
•
Real Estate Companies Risk. An investment in companies that invest in real estate (including REITs) exposes the Fund to the risks of the real estate market and the risks associated with the ownership of real estate. These risks can include fluctuations in the value of or destruction of underlying properties; realignment in tenant living and work habits (for example, movements to and from different parts of a nation, a region, a state or a city); tenant or borrower default; market saturation; changes in general and local economic conditions; decreases in market rates for rents; increases in vacancies; competition; property taxes; capital expenditures or operating expenses; other economic or political events affecting the real estate industry including interest rates and government regulation; concentration in a limited number of properties, geographic regions or property types; and low quality and/or conflicted management. Real estate is generally a less liquid asset class and companies that hold real estate may not be able to liquidate or modify their holdings quickly in response to changes in economic or other market conditions. Additionally, such companies may utilize leverage, which increases investment risk and the potential for more volatility in the Fund’s returns.
•
Risks of Investing in Loans. Investments in loans are subject to the same risks as investments in other types of debt securities, including credit risk, interest rate risk, liquidity risk and valuation risk that may be heightened because of the limited public information available regarding loans and because loan borrowers may be leveraged and tend to be more adversely affected by changes in market or economic conditions. Default in the payment of interest or principal on a loan will result in a reduction in the value of the loan and consequently a reduction in the value of an investment in that loan. If an investor holds a loan through another financial institution or relies on a financial institution to administer the loan, its receipt of principal and interest on the loan may be subject to the credit risk of that financial institution. It is possible that any collateral securing a loan may be insufficient or unavailable to the investor, and that the investor’s rights to collateral may be limited by bankruptcy or insolvency laws. Additionally, there is no central clearinghouse for loan trades and the loan market has not established enforceable settlement standards or remedies for failure to settle. Consequently, the secondary market for loans may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods (in some cases longer than 7 days), which may cause an investor to be unable to realize the full value of its investment. In addition, loans are generally not registered with the SEC under the Securities Act of 1933 and may not be considered “securities,” and an investor may not be entitled to rely on the anti-fraud protections of the federal securities laws. An investment in loans generally, or an investment in loans made to non-U.S. borrowers, may be affected by political and social instability, changes in economic or taxation policies, difficulties in enforcing obligations, decreased liquidity and increased volatility. Foreign borrowers may be subject to less regulation, resulting in less publicly available information about the borrowers.
The loan market has seen a significant increase in loans with weaker lender protections including, but not limited to, limited financial maintenance covenants or, in some cases, no financial maintenance covenants (i.e., “covenant-lite loans”) that would typically be included in a traditional loan agreement and general weakening of other restrictive covenants applicable to the borrower such as limitations on incurrence of additional debt, restrictions on payments of junior debt or restrictions on dividends and distributions. Weaker lender protections such as the absence of financial maintenance covenants in a loan agreement and the inclusion of “borrower-favorable” terms may impact recovery values and/or trading levels of loans in the future. The absence of financial maintenance covenants in a loan agreement generally means that the lender may not be able to declare a default if financial
performance deteriorates. This may hinder an investor’s ability to reprice credit risk associated with a particular borrower and reduce the investor’s ability to restructure a problematic loan and mitigate potential loss. As a result, an investor’s exposure to losses on investments in loans may be increased, especially during a downturn in the credit cycle or changes in market or economic conditions.
•
Small- and/or Mid-Capitalization Companies Risk. Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies as a result of several factors, including narrower markets for their goods and/or services, more limited managerial and financial resources, limited product lines, services, markets, financial resources or are dependent on a small management group. Because these stocks may not be well known to the investing public, do not have significant institutional ownership and are followed by relatively few security analysts, there will normally be less publicly available information concerning these securities compared to what is available for the securities of larger companies. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, can decrease the value and liquidity of securities held by the Fund, resulting in more volatile performance. Accordingly, such companies are generally subject to greater market risk than larger, more established companies.
•
Variable and Floating Rate Instruments Risk. Variable and floating rate instruments include debt securities issued by corporate and governmental entities, bank loans, mortgage-backed securities and asset-backed securities, preferred equity securities and derivative variable rate securities, such as inverse floaters. Variable and floating rate instruments are structured so that the instrument’s coupon rate fluctuates based upon the level of a reference rate. Most commonly, the coupon rate of a variable or floating rate instrument is set at the level of a widely followed interest rate, plus a fixed spread. As a result, the coupon on a variable or floating rate instrument will generally decline in a falling interest rate environment, causing an Underlying ETP to experience a reduction in the income it receives from the instrument. A variable or floating rate instrument’s coupon rate resets periodically according to its terms. Consequently, in a rising interest rate environment, variable and floating rate instruments with coupon rates that reset infrequently may lag behind the changes in market interest rates. Variable and floating rate instruments may also contain terms that impose a maximum coupon rate the issuer will pay, regardless of the level of the reference rate. The coupon rate of many variable and floating rate instruments is set based upon LIBOR. In 2017, the head of the United Kingdom’s Financial Conduct Authority announced a desire to phase out the use of LIBOR by the end of 2021. There remains uncertainty regarding the future utilization of LIBOR and the nature of any replacement rate. The potential effect of a transition away from LIBOR cannot yet be determined but may result in disruption to the markets for debt securities and instruments and decreased demand or liquidity for debt securities and instruments that reference LIBOR or new replacement rates.
Valuation Risk
The following risk applies to the IQ Hedge Multi-Strategy Tracker ETF, IQ Hedge Macro Tracker ETF, IQ Hedge Market Neutral Tracker ETF, IQ Hedge Long/Short Tracker ETF and IQ Hedge Event-Driven Tracker ETF.
Independent market quotations for certain investments held by a Fund may not be readily available, and such investments may be fair valued or valued by a pricing service at an evaluated price. These valuations involve subjectivity and different market participants may assign different prices to the same investment. As a result, there is a risk that a Fund may not be able to sell an investment at the price assigned to the investment by the Fund. In addition, the value of the securities or other assets in a Fund’s portfolio may change on days or during time periods when shareholders will not be able to purchase or sell the Fund’s Shares. Authorized Participants who purchase or redeem Shares on days when a Fund is holding fair-valued securities may receive fewer or more shares, or lower or higher redemption proceeds, than they would have received had the Fund not fair-valued securities or used a different valuation methodology. A Fund’s ability to value investments may be impacted by technological issues or errors by pricing services or other third-party service providers.
VIX Exposure Risk
The following risk applies to the IQ Hedge Multi-Strategy Tracker ETF and IQ Hedge Long/Short Tracker ETF.
The Funds may invest in investment products whose value is linked to the performance of the VIX Index. The VIX Index seeks to measure the 30-day expected volatility of the S&P 500 Index, as calculated based on the prices of certain put and call options on the S&P 500 Index. Volatility is the characteristic of a security, an index or a market to fluctuate significantly in price within a short time period. Products providing exposure to the VIX Index are not able to invest directly in the components of the VIX Index, but rather generally gain exposure to the VIX Index’s performance by purchasing or selling futures contracts on the VIX Index. The level of the S&P 500 Index, the prices of options on the S&P 500 Index, the level of the VIX Index itself and the value of futures contracts on the VIX Index may change suddenly and unpredictably, and may negatively affect the value of the Fund’s investments in VIX Index-linked products. Several factors may affect the price of the VIX Index, including, but not limited to: market prices and forward volatility levels; expectations that volatility as measured by the VIX Index will fluctuate; supply and demand of VIX Index futures and listed and over-the-counter equity derivative markets; international or domestic political, economic, geographic or financial events; natural disasters; and changes in legal and regulatory regimes in the United States. It is possible that the Fund’s investments in VIX Index-linked products may not fully replicate the changes in the level of the VIX Index, due to disruptions in the markets for VIX Index futures, the imposition of position accountability by a futures exchange or the creation and imposition of new speculative position limits or due to other extraordinary circumstances.
Additional Risks
Large Investments Risk
From time to time, a Fund may receive large purchase or redemption orders from affiliated or unaffiliated funds or other investors. In addition, any third-party investor, investment adviser affiliate, authorized participant, lead market maker or other entity may make a large investment in a Fund and hold its investment for any number of reasons, including to facilitate such Fund’s commencement of operations or to facilitate the Fund’s achieving a specified size or scale. There can be no assurance that any large shareholder would not sell or redeem its investment at any given time, either in a single transaction or over time. These large transactions, and particularly redemptions, could have adverse effects on a Fund, including: (i) negative impacts to performance if the Fund were required to sell securities, invest cash or hold significant cash at times when it otherwise would not do so; (ii) wider price spreads or greater premiums/discounts that could materialize as a result of lower secondary market volume of shares; and (iii) negative federal income tax consequences if this activity accelerated the realization of capital gains.
LIBOR Replacement Risk
The terms of floating rate loans, financings or other transactions in the U.S. and globally have been historically tied to LIBOR, which functions as a reference rate or benchmark for various commercial and financial contracts. LIBOR may be a significant factor in determining payment obligations under derivatives transactions, the cost of financing of a Fund’s investments or the value or return on certain other Fund investments. As a result, LIBOR may be relevant to, and directly affect, a Fund’s performance. The Financial Conduct Authority, the United Kingdom’s financial regulatory body and regulator of LIBOR, has announced that after 2021 it will cease its active encouragement of banks to provide the quotations needed to sustain LIBOR due to the absence of an active market for interbank unsecured lending and other reasons. However, it is possible that certain LIBOR tenors may continue beyond 2021 and the most widely used LIBOR tenors may continue until mid-2023. As a result, it is anticipated that LIBOR will be discontinued or will no longer be sufficiently robust to be representative of its underlying market around that time. Various financial industry groups have begun planning for that transition and certain regulators and industry groups have taken actions to establish alternative reference rates (e.g., the Secured Overnight Financing Rate, which measures the cost of overnight borrowings through repurchase agreement transactions collateralized with U.S. Treasury securities and is intended to replace U.S. dollar LIBOR with certain adjustments). However, there are challenges to converting certain contracts and transactions to a new benchmark and neither the full effects of the transition process nor its ultimate outcome is known.
The transition process might lead to increased volatility and illiquidity in markets for instruments with terms tied to LIBOR. It could also lead to a reduction in the interest rates on, and the value of, some LIBOR-based investments and reduce the effectiveness of hedges mitigating risk in connection with LIBOR-based investments. Although some LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available by providing for
an alternative rate-setting methodology and/or increased costs for certain LIBOR-related instruments or financing transactions, others may not have such provisions and there may be significant uncertainty regarding the effectiveness of any such alternative methodologies. Instruments that include robust fallback provisions to facilitate the transition from LIBOR to an alternative reference rate may also include adjustments that do not adequately compensate the holder for the different characteristics of the alternative reference rate. The result may be that the fallback provision results in a value transfer from one party to the instrument to the counterparty. Additionally, because such provisions may differ across instruments (e.g., hedges versus cash positions hedged), LIBOR’s cessation may give rise to basis risk and render hedges less effective. As the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects and related adverse conditions could occur prior to the end of 2021 with respect to certain LIBOR tenors or mid-2023 for the remaining LIBOR tenors. There also remains uncertainty and risk regarding the willingness and ability of issuers to include enhanced provisions in new and existing contracts or instruments, notwithstanding significant efforts by the industry to develop robust LIBOR replacement clauses. The effect of any changes to, or discontinuation of, LIBOR on a Fund will vary depending, among other things, on (1) existing fallback or termination provisions in individual contracts and the possible renegotiation of existing contracts and (2) whether, how, and when industry participants develop and adopt new reference rates and fallbacks for both legacy and new products and instruments. A Fund’s investments may also be tied to other interbank offered rates and currencies, which also will likely face similar issues. In many cases, in the event that an instrument falls back to an alternative reference rate, including the Secured Overnight Financing Rate, the alternative reference rate will not perform the same as LIBOR because the alternative reference rate does not include a credit sensitive component in the calculation of the rate. Alternative reference rates generally reflect the performance of the market for U.S. treasury securities, which are secured by the U.S. treasury, and not the inter-bank lending markets. In the event of a credit crisis, floating rate instruments using certain alternative reference rates could therefore perform differently than those instruments using a rate indexed to the inter-bank lending market.
Various pending legislation, including in the U.S. Congress and the New York state legislature, may affect the transition of LIBOR-based instruments as well by permitting trustees and calculation agents to transition instruments with no LIBOR transition language to an alternative reference rate selected by such agents. Those legislative proposals include safe harbors from liability, which may limit the recourse a Fund may have if the alternative reference rate does not fully compensate the Fund for the transition of an instrument from LIBOR. It is uncertain whether such legislative proposals will be signed into law.
These developments could negatively impact financial markets in general and present heightened risks, including with respect to a Fund’s investments. As a result of this uncertainty and developments relating to the transition process, a Fund and its investments may be adversely affected.
Securities Lending Risk
Securities lending involves the risk that the borrower of the loaned securities fails to return the securities in a timely manner or at all. A Fund could also lose money due to a decline in the value of collateral provided for loaned securities or any investments made with cash collateral. These events could also trigger adverse tax consequences for a Fund. To the extent the collateral provided or investments made with cash collateral differ from securities included in a Fund’s Underlying Index, such collateral or investments may have a greater risk of loss than the securities included in the Underlying Index.
Underinvestment Risk
If certain aggregate ownership thresholds are reached either through the actions of the Advisor and its affiliates or a Fund, or as a result of third-party transactions, the ability of the Advisor on behalf of clients (including a Fund) to purchase or dispose of investments, or exercise rights or undertake business transactions, may be restricted by regulation or otherwise impaired. The capacity of the Fund to make investments in certain securities may be affected by the relevant limits, and such limitations may have adverse effects on the liquidity and performance of a Fund’s portfolio holdings compared to the performance of the Underlying Index. This may increase the risk of the Fund being underinvested to the Underlying Index and increase the risk of tracking error.
U.S. Tax Risks
To qualify for the favorable U.S. federal income tax treatment accorded to regulated investment companies, a Fund must satisfy certain income, asset diversification and distribution requirements. If for any taxable year, a Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) for that year would be subject to tax at regular corporate rates without any deduction for distributions to
its shareholders, and such distributions would be taxable to its shareholders as dividend income to the extent of a Fund’s current and accumulated earnings and profits. To the extent a Fund engages in derivatives transactions, the tax treatment such derivatives transactions is unclear for purposes of determining a Fund’s tax status. To the extent a Fund engages in transactions in financial instruments, including, but not limited to, options, futures contracts, hedging transactions, forward contracts and swap contracts, the Fund will be subject to special tax rules (which may include mark-to-market, constructive sale, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund’s securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could, therefore, affect the amount, timing and character of distributions to a Fund’s shareholders. A Fund’s use of such transactions may result in the Fund realizing more short-term capital gains and ordinary income, in each case subject to U.S. federal income tax at higher ordinary income tax rates, than it would if it did not engage in such transactions.
Please refer to the SAI for a more complete discussion of the risks of investing in the Funds’ Shares.
Buying and Selling Shares in the Secondary Market
Most investors will buy and sell Shares of each Fund in Secondary Market transactions through brokers. Shares of each Fund will be listed for trading on the Secondary Market on the NYSE Arca. Shares can be bought and sold throughout the trading day like other publicly-traded shares. Unless imposed by your broker or dealer, there is no minimum dollar amount you must invest and no minimum number of Shares you must buy in the Secondary Market. 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 spread between the bid and the offered price in the Secondary Market on each leg of a round trip (purchase and sale) transaction. In addition, because transactions in the Secondary Market occur at market prices, you may pay more than NAV when you buy Shares and receive less than NAV when you sell those Shares.
Share prices are reported in dollars and cents per Share. For information about buying and selling Shares in the Secondary Market, please contact your broker or dealer.
Book Entry
Shares of each Fund are held in book-entry form and no stock certificates are issued. DTC, through its nominee Cede & Co., 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. Participants in DTC 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 securities that you hold in book entry or “street name” form for any publicly-traded company. Specifically, in the case of a shareholder meeting of a Fund, DTC assigns applicable Cede & Co. voting rights to its participants that have Shares credited to their accounts on the record date, issues an omnibus proxy and forwards the omnibus proxy to the Fund. The omnibus proxy transfers the voting authority from Cede & Co. to the DTC participant. This gives the DTC participant through whom you own Shares (namely, your broker, dealer, bank, trust company or other nominee) authority to vote the shares, and, in turn, the DTC participant is obligated to follow the voting instructions you provide.
Management
The Board is responsible for the general supervision of the Funds. The Board appoints officers who are responsible for the day-to-day operations of the Funds.
Investment Advisor
The Advisor has been registered as an investment advisor with the SEC since August 2007, has provided investment advisory services to registered investment companies since June 2008, and is a wholly-owned indirect subsidiary of New York Life Investment Management Holdings LLC. The Advisor’s principal office is located at 51 Madison Avenue, New York, New York 10010. As of June 30, 2021, the Advisor had approximately $4.7 billion in assets under management.
The Advisor has overall responsibility for the general management and administration of the Trust. The Advisor provides an investment program for the Funds. The Advisor has arranged for custody, fund administration, transfer agency and all other non-distribution related services necessary for the Funds to operate.
As compensation for its services and its assumption of certain expenses, each Fund pays the Advisor a management fee equal to a percentage of a Fund’s average daily net assets that is calculated daily and paid monthly, as follows:
Fund Name | | | Management Fee | |
IQ Hedge Multi-Strategy Tracker ETF | | | | | 0.75% | | |
IQ Hedge Macro Tracker ETF | | | | | 0.75% | | |
IQ Hedge Market Neutral Tracker ETF | | | | | 0.75% | | |
IQ Hedge Long/Short Tracker ETF | | | | | 0.75% | | |
IQ Hedge Event-Driven Tracker ETF | | | | | 0.75% | | |
IQ Real Return ETF | | | | | 0.48% | | |
The Advisor may voluntarily waive any portion of its advisory fee from time to time, and may discontinue or modify any such voluntary limitations in the future at its discretion.
Fee Waiver Agreement
The Advisor has entered into Fee Waiver Agreements with the Funds under which it has contractually agreed to waive a portion of its management fee equal a percentage of the average daily net assets of such Funds until August 31, 2022, as follows:
Fund Name | | | Management Fee Waiver | |
IQ Hedge Multi-Strategy Tracker ETF | | | | | 0.22% | | |
IQ Hedge Macro Tracker ETF | | | | | 0.35% | | |
IQ Hedge Market Neutral Tracker ETF | | | | | 0.35% | | |
IQ Hedge Long/Short Tracker ETF | | | | | 0.35% | | |
IQ Hedge Event-Driven Tracker ETF | | | | | 0.35% | | |
IQ Real Return ETF | | | | | 0.28% | | |
The Advisor serves as advisor to each Fund pursuant to an Investment Advisory Agreement (the “Advisory Agreement”). The Advisory Agreement was approved by the Independent Trustees of the Trust. The basis for the Board’s approval of the Advisory Agreement is available in the Trust’s Annual or Semiannual Report to Shareholders.
Under the Advisory Agreement, the Advisor agrees to pay all expenses of the Trust, except brokerage and other transaction expenses; extraordinary legal fees or expenses, such as those for litigation or arbitration; compensation and expenses of the Independent Trustees, counsel to the Independent Trustees, and the Trust’s chief compliance officer; extraordinary expenses; distribution fees and expenses paid by the Trust under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act; and the advisory fee payable to the Advisor hereunder.
The Advisor and its affiliates deal, trade and invest for their own accounts in the types of securities in which the Funds also may invest. The Advisor does not use inside information in making investment decisions on behalf of the Funds.
Section 15(a) of the 1940 Act requires that all contracts pursuant to which persons serve as investment advisors to investment companies be approved by shareholders. As interpreted, this requirement also applies to the appointment of subadvisors to the Funds. The Advisor and the Trust have obtained an exemptive order (the “Order”) from the SEC permitting the Advisor, on behalf of the Funds and subject to the approval of the Board, including a majority of the Independent Trustees, to hire or terminate unaffiliated subadvisors and to modify any existing or future subadvisory agreement with unaffiliated subadvisors without shareholder approval. This authority is subject to certain conditions. A Fund will notify shareholders and provide them with certain
information required by the Order within 90 days of hiring a new subadvisor. A Fund’s sole shareholder has approved the use of the Order. Please see the SAI for more information on the Order. The Advisor and its affiliates deal, trade and invest for their own accounts in the types of securities in which the Funds also may invest. The Advisor does not use inside information in making investment decisions on behalf of the Funds.
Portfolio Management
The portfolio managers who are currently responsible for the day-to-day management of the Funds’ portfolios are Greg Barrato and James Harrison.
Greg Barrato joined the Advisor as Vice President in November 2010 and has been a Senior Vice President of the Advisor since August 2013 and portfolio manager of the Funds since February 2011. Prior to joining the Advisor, Mr. Barrato served as Head Global Equity Trader and Trader at Lucerne Capital Management, LLC from 2008 to 2010 and as Assistant Trader and Operations Manager at ReachCapital Management, LP from 2004 to 2008. Mr. Barrato is a graduate of University of Connecticut.
James Harrison has been a member of the portfolio management team of the Advisor since 2015 and a portfolio manager of the Funds since April 2018. Prior to joining the Advisor, Mr. Harrison served as a New York Stock Exchange member Floor Broker and Equity Sales Trader for Cuttone and Company from 2010 to 2015. Mr. Harrison is a graduate of St. Lawrence University.
For more information about the portfolio managers’ compensation, other accounts managed by the portfolio managers and the portfolio managers’ ownership of securities in the Funds, see the SAI.
Other Service Providers
Index Provider
IndexIQ, located at 51 Madison Avenue, New York, NY 10010, is the index provider for the Funds. IndexIQ is in the business of developing and maintaining financial indexes, including the Underlying Indexes. Presently, IndexIQ has developed and is maintaining a number of indexes in addition to the Underlying Indexes, of which 13 are currently being used by registered investment companies. IndexIQ has entered into an index licensing agreement (the “Licensing Agreement”) with the Advisor to allow the Advisor’s use of the Underlying Indexes for the operation of the Funds. The Advisor pays licensing fees to IndexIQ from the Advisor’s management fees or other resources. The Advisor has, in turn, entered into a sub-licensing agreement (the “Sub-Licensing Agreement”) with the Trust to allow the Funds to utilize the Underlying Indexes. The Funds pay no fees to IndexIQ or the Advisor under the Sub-Licensing Agreement.
Fund Administrator, Custodian, Transfer Agent and Securities Lending Agent
The Bank of New York Mellon (“BNY Mellon”), located at 240 Greenwich Street, New York, New York 10286, serves as the Funds’ Administrator, Custodian, Transfer Agent and Securities Lending Agent. BNY Mellon is the principal operating subsidiary of The Bank of New York Mellon Corporation.
Under the Fund Administration and Accounting Agreement (the “Administration Agreement”), BNY Mellon serves as Administrator for the Funds. Under the Administration Agreement, BNY Mellon provides necessary administrative, legal, tax, accounting services, and financial reporting for the maintenance and operations of the Trust. In addition, BNY Mellon makes available the office space, equipment, personnel and facilities required to provide such services.
BNY Mellon supervises the overall administration of the Trust, including, among other responsibilities, assisting in the preparation and filing of documents required for compliance by the Funds with applicable laws and regulations and arranging for the maintenance of books and records of the Funds. BNY Mellon provides persons satisfactory to the Board to serve as officers of the Trust.
Distributor
ALPS Distributors, Inc. (“ALPS” or the “Distributor”), located at 1290 Broadway, Suite 1100, Denver, Colorado 80203, serves as the Distributor of Creation Units for the Funds on an agency basis. The Distributor does not maintain a Secondary Market in the Funds’ Shares. NYLIFE Distributors LLC has entered into a Services Agreement with ALPS to market the Funds.
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP, located at 300 Madison Avenue, New York, NY 10017, serves as the independent registered public accounting firm for the Trust.
Legal Counsel
Chapman and Cutler LLP, located at 1717 Rhode Island Avenue, N.W., Washington, D.C. 20036, serves as counsel to the Trust and the Funds.
Frequent Trading
The Board has not adopted policies and procedures with respect to frequent purchases and redemptions of Shares by Fund shareholders (“market timing”). In determining not to adopt market timing policies and procedures, the Board noted that the Funds are expected to be attractive to active institutional and retail investors interested in buying and selling Shares on a short-term basis. In addition, the Board considered that, unlike traditional mutual funds, Shares can only be purchased and redeemed directly from the Fund in Creation Units by Authorized Participants, and that the vast majority of trading in Shares occurs on the Secondary Market. Because Secondary Market trades do not involve a Fund directly, it is unlikely those trades would cause many of the harmful effects of market timing, including dilution, disruption of portfolio management, increases in a Fund’s trading costs and the realization of capital gains. With respect to trades directly with the Funds, to the extent effected in-kind (namely, for securities), those trades do not cause any of the harmful effects that may result from frequent cash trades. To the extent trades are effected in whole or in part in cash, the Board noted that those trades could result in dilution of a Fund and increased transaction costs (a Fund may impose higher transaction fees to offset these increased costs, which could negatively impact a Fund’s ability to achieve its investment objective. However, the Board also noted that direct trading on a short-term basis by Authorized Participants is critical to ensuring that Shares trade at or close to NAV. Given this structure, the Board determined that it is not necessary to adopt market timing policies and procedures. Each Fund reserves the right to reject any purchase order at any time and reserves the right to impose restrictions on disruptive or excessive trading in Creation Units.
The Board has instructed the officers of the Trust to review reports of purchases and redemptions of Creation Units on a regular basis to determine if there is any unusual trading in the Funds. The officers of the Trust will report to the Board any such unusual trading in Creation Units that is disruptive to the Funds. In such event, the Board may reconsider its decision not to adopt market timing policies and procedures.
Distribution and Service Plan
The Board has adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with its Rule 12b-1 plan, each Fund is authorized to pay an amount up to 0.10% of its average daily net assets each year to finance activities primarily intended to result in the sale of Creation Units of each Fund or the provision of investor services. No Rule 12b-1 fees are currently paid by the Funds and there are no plans to impose these fees. However, in the event Rule 12b-1 fees are charged in the future, they will be paid out of the respective Fund’s assets, and over time these fees will increase the cost of your investment and they may cost you more than certain other types of sales charges.
The Advisor and its affiliates may, out of their own resources, pay amounts (“Payments”) to third-parties for distribution or marketing services on behalf of the Funds. The making of these payments could create a conflict of interest for a financial intermediary receiving such payments. The Advisor may make Payments for such third-parties to organize or participate in activities that are designed to make registered representatives, other professionals and individual investors more knowledgeable about ETFs, including ETFs advised by the Advisor, or for other activities, such as participation in marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems. The Advisor also may make Payments to third-parties to help defray costs typically covered by a trading commission, such as certain printing, publishing and mailing costs or materials relating to the marketing of services related to exchange-traded products (such as commission-free trading platforms) or exchange-traded products in general.
Determination of Net Asset Value (NAV)
The NAV of the Shares for a Fund is equal to the Fund’s total assets minus its total liabilities divided by the total number of Shares outstanding. Interest and investment income on a Fund’s assets accrue daily and are included in the Fund’s total assets. Expenses and fees (including investment advisory, management, administration and distribution fees, if any) accrue daily and are included in the applicable Fund’s total liabilities. The NAV that is published is rounded to the nearest cent; however, for purposes of determining the
price of Creation Units, the NAV is calculated to eight decimal places. The NAV is calculated by the Administrator and Custodian and determined each day the NYSE Arca is open for trading as of the close of regular trading on the NYSE Arca (ordinarily 4:00 p.m. Eastern time).
In calculating NAV, each Fund’s investments are valued using market quotations when available. Equity securities are generally valued at the closing price of the security on the security’s primary exchange. The primary exchanges for a Fund’s foreign equity securities may close for trading at various times prior to close of regular trading on the NYSE Arca, and the value of such securities used in computing the Fund’s NAV are generally determined as of such times. A Fund’s foreign securities may trade on weekends or other days when Shares do not trade. Consequently, the value of portfolio securities of a Fund may change on days when Shares of the Fund cannot be purchased or sold.
When market quotations are not readily available or are deemed unreliable or not representative of an investment’s fair value, investments are valued using fair value pricing as determined in good faith by the Advisor under procedures established by and under the general supervision and responsibility of the Board. Investments that may be valued using fair value pricing include, but are not limited to: (1) securities that are not actively traded, including “restricted” securities and securities received in private placements for which there is no public market; (2) securities of an issuer that becomes bankrupt or enters into a restructuring; (3) securities whose trading has been halted or suspended; and (4) foreign securities traded on exchanges that close before each Fund’s NAV is calculated.
The frequency with which the Funds’ investments are valued using fair value pricing is primarily a function of the types of securities and other assets in which the respective Fund invests pursuant to its investment objective, strategies and limitations. If the Funds invest in other open-end management investment companies registered under the 1940 Act, they may rely on the NAVs of those companies to value the shares they hold of them. Those companies may also use fair value pricing under some circumstances.
Valuing each Fund’s investments using fair value pricing results in using prices for those investments that may differ from current market valuations. Accordingly, fair value pricing could result in a difference between the prices used to calculate NAV and the prices used to determine each Fund’s Indicative Intra-Day Value (“IIV”), which could result in the market prices for Shares deviating from NAV.
Premium/Discount Information
Information regarding the extent and frequency with which market prices of Shares have tracked the relevant Fund’s NAV for the most recently completed calendar year and the quarters since that year is available without charge on the Funds’ website at newyorklifeinvestments.com.
Indicative Intra-Day Value
The approximate value of a Fund’s investments on a per-Share basis, the Indicative Intra-Day Value, or IIV, is disseminated every 15 seconds during hours of trading on the NYSE Arca. The IIV should not be viewed as a “real-time” update of NAV because the IIV may not be calculated in the same manner as NAV, which is computed once per day.
Solactive AG, an independent third party calculator calculates the IIV for each Fund during hours of trading on the NYSE Arca by dividing the “Estimated Fund Value” as of the time of the calculation by the total number of outstanding Shares of that Fund. “Estimated Fund Value” is the sum of the estimated amount of cash held in a Fund’s portfolio, the estimated amount of accrued interest owed to the Fund and the estimated value of the securities held in the Fund’s portfolio, minus the estimated amount of the Fund’s liabilities. The IIV will be calculated based on the same portfolio holdings disclosed on the Trust’s website.
Each Fund provides the independent third party calculator with information to calculate the IIV, but the Funds are not involved the actual calculation of the IIV and is not responsible for the calculation or dissemination of the IIV. The Funds make no warranty as to the accuracy of the IIV.
Dividends, Distributions and Taxes
Net Investment Income and Capital Gains
As a Fund shareholder, you are entitled to your share of the Fund’s distributions of net investment income and net realized capital gains on its investments. The Funds pay out substantially all of their net earnings to their shareholders as “distributions.”
The Funds typically earn dividends from stocks and interest from debt securities. These amounts, net of expenses, typically are passed along to Fund shareholders as dividends from net investment income. The Funds realize capital gains or losses whenever they sell securities. Net capital gains typically are passed along to shareholders as “capital gain distributions.” Net investment income and net capital gains typically are distributed to shareholders at least annually. Dividends may be declared and paid more frequently to improve index tracking or to comply with the distribution requirements of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). In addition, the Funds may decide to distribute at least annually amounts representing the full dividend yield net of expenses on the underlying investment securities, as if the Funds owned the underlying investment securities for the entire dividend period, in which case some portion of each distribution may result in a return of capital. You will be notified regarding the portion of a distribution that represents a return of capital.
Distributions in cash may be reinvested automatically in additional Shares of a Fund only if the broker through which you purchased Shares makes such option available. Distributions which are reinvested nevertheless will be subject to U.S. federal income tax to the same extent as if such distributions had not been reinvested.
U.S. Federal Income Taxation
The following is a summary of certain U.S. federal income tax considerations applicable to an investment in Shares of a Fund. The summary is based on the Code, U.S. Treasury Department regulations promulgated thereunder, and judicial and administrative interpretations thereof, all as in effect on the date of this Prospectus and all of which are subject to change, possibly with retroactive effect. In addition, this summary assumes that a Fund shareholder holds Shares as capital assets within the meaning of the Code and does not hold Shares in connection with a trade or business. This summary does not address all potential U.S. federal income tax considerations possibly applicable to an investment in Shares of a Fund, and does not address the consequences to Fund shareholders subject to special tax rules, including, but not limited to, partnerships and the partners therein, tax-exempt shareholders, regulated investment companies (“RICs”), real estate investment trusts (“REITs”), real estate mortgage investment conduits (“REMICs”), those who hold Shares through an IRA, 401(k) plan or other tax-advantaged account, and, except to the extent discussed below, “non-U.S. shareholders” (as defined below). This discussion does not discuss any aspect of U.S. state, local, estate and gift, or non-U.S., tax law. Furthermore, this discussion is not intended or written to be legal or tax advice to any shareholder in a Fund or other person and is not intended or written to be used or relied on, and cannot be used or relied on, by any such person for the purpose of avoiding any U.S. federal tax penalties that may be imposed on such person. Prospective Fund shareholders are urged to consult their own tax advisors with respect to the specific U.S. federal, state and local, and non-U.S., tax consequences of investing in Shares, based on their particular circumstances.
The Funds have not requested and will not request an advance ruling from the U.S. Internal Revenue Service (the “IRS”) as to the U.S. federal income tax matters described below. The IRS could adopt positions contrary to those discussed below and such positions could be sustained. Prospective investors should consult their own tax advisors with regard to the U.S. federal tax consequences of the purchase, ownership and disposition of Shares, as well as the tax consequences arising under the laws of any state, locality, non-U.S. country or other taxing jurisdiction. The following information supplements, and should be read in conjunction with, the section in the SAI entitled “U.S. Federal Income Taxation.”
Tax Treatment of a Fund
Each Fund intends to qualify and elect to be treated as a separate RIC under the Code. To qualify and remain eligible for the special tax treatment accorded to RICs, each Fund must meet certain annual income and quarterly asset diversification requirements and must distribute annually at least 90% of the sum of (i) its “investment company taxable income” (which includes dividends, interest and net short-term capital gains) and (ii) certain net tax-exempt income, if any.
As a RIC, a Fund generally will not be required to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes to its shareholders. If a Fund fails to qualify as a RIC for any year (subject to certain curative measures allowed by the Code), the Fund will be subject to regular corporate-level U.S. federal income tax in that year on all of its taxable income, regardless of whether the Fund makes any distributions to its shareholders. In addition, in such case, distributions will be taxable to a Fund’s shareholders generally as ordinary dividends to the extent of the Fund’s current and accumulated earnings and profits. The remainder of this discussion assumes that the Funds will qualify for the special tax treatment accorded to RICs.
A Fund generally will be subject to a 4% excise tax on certain undistributed income if the Fund does not distribute to its shareholders in each calendar year an amount at least equal to the sum of 98% of its ordinary income for the calendar year (taking into account certain deferrals and elections), 98.2% of its capital gain net income (adjusted for certain ordinary losses) for the twelve months ended October 31 of such year (or later if the Fund is permitted to elect and so elects), plus 100% of any undistributed amounts from prior years. For these purposes, a Fund will be treated as having distributed any amount on which it has been subject to U.S. corporate income tax for the taxable year ending within the calendar year. Each Fund intends to make distributions necessary to avoid this 4% excise tax, although there can be no assurance that it will be able to do so.
A Fund may be required to recognize taxable income in advance of receiving the related cash payment. For example, if a Fund invests in original issue discount obligations (such as zero coupon debt instruments or debt instruments with payment-in-kind interest), the Fund will be required to include in income each year a portion of the original issue discount that accrues over the term of the obligation, even if the related cash payment is not received by the Fund until a later year. Under the “wash sale” rules, a Fund may not be able to deduct currently a loss on a disposition of a portfolio security. As a result, a Fund may be required to make an annual income distribution greater than the total cash actually received during the year. Such distribution may be made from the existing cash assets of the Fund or cash generated from selling portfolio securities. The Fund may realize gains or losses from such sales, in which event its shareholders may receive a larger capital gain distribution than they would in the absence of such transactions.
Tax Treatment of Fund Shareholders
Taxation of U.S. Shareholders
The following is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Shares applicable to “U.S. shareholders.” For purposes of this discussion, a “U.S. shareholder” is a beneficial owner of Shares who, for U.S. federal income tax purposes, is (i) an individual who is a citizen or resident of the United States; (ii) a corporation (or an entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, or of any state thereof, or the District of Columbia; (iii) an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or (iv) a trust, if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (2) the trust has a valid election in place to be treated as a U.S. person.
Fund Distributions. In general, Fund distributions are subject to U.S. federal income tax when paid, regardless of whether they consist of cash or property, and regardless of whether they are re-invested in Shares. However, any Fund distribution declared in October, November or December of any calendar year and payable to shareholders of record on a specified date during such month will be deemed to have been received by each Fund shareholder on December 31 of such calendar year, provided such dividend is actually paid during January of the following calendar year.
Distributions of a Fund’s net investment income and net short-term capital gains in excess of net long-term capital losses (collectively referred to as “ordinary income dividends”) are taxable as ordinary income to the extent of the Fund’s current and accumulated earnings and profits (subject to an exception for distributions of “qualified dividend income,” as discussed below). To the extent designated as capital gain dividends by a Fund, distributions of a Fund’s net long-term capital gains in excess of net short-term capital losses (“net capital gain”) are taxable at long-term capital gain tax rates to the extent of the Fund’s current and accumulated earnings and profits, regardless of a Fund shareholder’s holding period in the Fund’s Shares. Distributions of “qualified dividend income” (defined below) are, to the extent of a Fund’s current and accumulated earnings and profits, taxed to certain non-corporate Fund shareholders at the rates generally applicable to long-term capital gain, provided that the Fund shareholder meets certain holding period and other requirements with respect to the distributing Fund’s Shares and the distributing Fund meets certain holding period and other requirements with respect to its dividend-paying stocks. For this purpose, “qualified dividend income” generally means income from dividends received by a Fund from U.S. corporations and qualified non-U.S. corporations. Substitute payments received on Shares that are lent out will be ineligible for being reported as qualified dividend income. Certain investment strategies, such as a long/short strategy or other strategy in which the Fund obtains offsetting positions, may reduce the amount of dividend from the Fund that are eligible to be “qualified dividend income.” If a Fund pays a dividend that would be “qualified” dividend income for individuals, corporate shareholders may be entitled to a dividends received deduction.
Each Fund intends to distribute its net capital gain at least annually. However, by providing written notice to its shareholders no later than 60 days after its year-end, a Fund may elect to retain some or all of its net capital gain and designate the retained amount as a “deemed distribution.” In that event, the Fund pays U.S. federal income tax on the retained net capital gain, and each Fund shareholder recognizes a proportionate share of the Fund’s undistributed net capital gain. In addition, each Fund shareholder can claim a tax credit or refund for the shareholder’s proportionate share of the Fund’s U.S. federal income taxes paid on the undistributed net capital gain and increase the shareholder’s tax basis in the Shares by an amount equal to the shareholder’s proportionate share of the Fund’s undistributed net capital gain, reduced by the amount of the shareholder’s tax credit or refund.
Distributions in excess of a Fund’s current and accumulated earnings and profits will, as to each shareholder, be treated as a tax-free return of capital to the extent of the shareholder’s tax basis in its Shares of the Fund, and generally as capital gain thereafter. Any such distribution will reduce the shareholder’s tax basis in the Shares, and thus will increase the shareholder’s capital gain, or decrease the capital loss, recognized upon a sale or exchange of Shares.
In addition, individuals with adjusted gross incomes above certain threshold amounts (and certain trusts and estates) generally are subject to a 3.8% Medicare tax on “net investment income” in addition to otherwise applicable U.S. federal income tax. “Net investment income” generally will include dividends (including capital gain dividends) received from a Fund and net gains from the redemption or other disposition of Shares. Please consult your tax advisor regarding this tax.
If a Fund is a “qualified fund of funds” (i.e., a RIC at least 50% of the value of the total assets of which, at the close of each quarter of the taxable year, is represented by interests in other RICs) or more than 50% of a Fund’s total assets at the end of a taxable year consist of non-U.S. stock or securities, the Fund may elect to “pass through” to its shareholders certain non-U.S. income taxes paid by the Fund. This means that each shareholder will be required to (i) include in gross income, even though not actually received, the shareholder’s pro rata share of the Fund’s non-U.S. income taxes, and (ii) either take a corresponding deduction (in calculating U.S. federal taxable income) or credit (in calculating U.S. federal income tax), subject to certain limitations.
Investors considering buying Shares just prior to a distribution should be aware that, although the price of the Shares purchased at such time may reflect the forthcoming distribution, such distribution nevertheless may be taxable (as opposed to a non-taxable return of capital).
Sales or Exchanges of Shares. Any capital gain or loss realized upon a sale or exchange of Shares (including an exchange of Shares of one Fund for Shares of another Fund) generally is treated as a long-term gain or loss if the Shares have been held for more than one year. Any capital gain or loss realized upon a sale or exchange of Shares held for one year or less generally is treated as a short-term gain or loss, except that any capital loss on the sale or exchange of Shares held for six months or less is treated as long-term capital loss to the extent that capital gain dividends were paid (or deemed to be paid) with respect to the Shares.
Creation Unit Issues and Redemptions. On an issue of Shares of a Fund as part of a Creation Unit where the creation is conducted in-kind, an Authorized Participant generally recognizes capital gain or loss equal to the difference between (i) the fair market value (at issue) of the issued Shares (plus any cash received by the Authorized Participant as part of the issue) and (ii) the Authorized Participant’s aggregate basis in the exchanged securities (plus any cash paid by the Authorized Participant as part of the issue). On a redemption of Shares as part of a Creation Unit where the redemption is conducted in-kind, an Authorized Participant generally recognizes capital gain or loss equal to the difference between (i) the fair market value (at redemption) of the securities received (plus any cash received by the Authorized Participant as part of the redemption) and (ii) the Authorized Participant’s basis in the redeemed Shares (plus any cash paid by the Authorized Participant as part of the redemption). However, the IRS may assert, under the “wash sale” rules or on the basis that there has been no significant change in the Authorized Participant’s economic position, that any loss on creation or redemption of Creation Units cannot be deducted currently.
In general, any capital gain or loss recognized upon the issue or redemption of Shares (as components of a Creation Unit) is treated either as long-term capital gain or loss, if the deposited securities (in the case of an issue) or the Shares (in the case of a redemption) have been held for more than one year, or otherwise as short-term capital gain or loss. However, any capital loss on a redemption of Shares held for six months or less is treated as long-term capital loss to the extent that capital gain dividends were paid (or deemed to be paid) with respect to such Shares.
Back-Up Withholding.
A Fund (or a financial intermediary such as a broker through which a shareholder holds Shares in a Fund) may be required to report certain information on a Fund shareholder to the IRS and withhold U.S. federal income tax (“backup withholding”) at a current rate of 24% from taxable distributions and redemption or sale proceeds payable to the Fund shareholder if (i) the Fund shareholder fails to provide the Fund with a correct taxpayer identification number or make required certifications, or if the IRS notifies the Fund that the Fund shareholder is otherwise subject to backup withholding, and (ii) the Fund shareholder is not otherwise exempt from backup withholding. Non-U.S. shareholders can qualify for exemption from backup withholding by submitting a properly completed IRS Form W-8BEN or W-8BEN-E. Backup withholding is not an additional tax and any amount withheld may be credited against a Fund shareholder’s U.S. federal income tax liability.
Taxation of Non-U.S. Shareholders
The following is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Shares applicable to “non-U.S. shareholders.” For purposes of this discussion, a “non-U.S. shareholder” is a beneficial owner of Shares that is not a U.S. shareholder (as defined above) and is not an entity or arrangement treated as a partnership for U.S. federal income tax purposes. The following discussion is based on current law and is for general information only. It addresses only selected, and not all, aspects of U.S. federal income taxation applicable to non-U.S. shareholders.
With respect to non-U.S. shareholders of a Fund, the Fund’s ordinary income dividends generally will be subject to U.S. federal withholding tax at a rate of 30% (or at a lower rate established under an applicable tax treaty), subject to certain exceptions for “interest-related dividends” and “short-term capital gain dividends” discussed below. The Funds will not pay any additional amounts to shareholders in respect of any amounts withheld. U.S. federal withholding tax generally will not apply to any gain realized by a non-U.S. shareholder in respect of a Fund’s net capital gain. Special rules (not discussed herein) apply with respect to dividends of a Fund that are attributable to gain from the sale or exchange of “U.S. real property interests.”
In general, all “interest-related dividends” and “short-term capital gain dividends” (each defined below) will not be subject to U.S. federal withholding tax, provided that, among other requirements, the non-U.S. shareholder furnished the Fund with a completed IRS Form W-8BEN or W-8BEN-E, as applicable, (or acceptable substitute documentation) establishing the non-U.S. shareholder’s non-U.S. status and the Fund does not have actual knowledge or reason to know that the non-U.S. shareholder would be subject to such withholding tax if the non-U.S. shareholder were to receive the related amounts directly rather than as dividends from the Fund. “Interest-related dividends” generally means dividends designated by a Fund as attributable to such Fund’s U.S.-source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which such Fund is at least a 10% shareholder, reduced by expenses that are allocable to such income. “Short-term capital gain dividends” generally means dividends designated by a Fund as attributable to the excess of such Fund’s net short-term capital gain over its net long-term capital loss. Depending on its circumstances, a Fund may treat such dividends, in whole or in part, as ineligible for these exemptions from withholding.
In general, subject to certain exceptions, non-U.S. shareholders will not be subject to U.S. federal income or withholding tax in respect of a sale or other disposition of Shares of a Fund.
To claim a credit or refund for any Fund-level taxes on any undistributed net capital gain (as discussed above) or any taxes collected through back-up withholding (discussed below), a non-U.S. shareholder must obtain a U.S. taxpayer identification number and file a U.S. federal income tax return even if the non-U.S. shareholder would not otherwise be required to do so.
Foreign Account Tax Compliance Act
The U.S. Foreign Account Tax Compliance Act (“FATCA”) generally imposes a 30% withholding tax on “withholdable payments” (defined below) made to (i) a “foreign financial institution” (“FFI”), unless the FFI enters into an agreement with the IRS to provide information regarding certain of its direct and indirect U.S. account holders and satisfy certain due diligence and other specified requirements, and (ii) a “non-financial foreign entity” (“NFFE”) unless such NFFE provides certain information about its direct and indirect “substantial U.S. owners” to the withholding agent or certifies that it has no such U.S. owners. The beneficial owner of a “withholdable payment” may be eligible for a refund or credit of the withheld tax. The U.S. government also has entered into intergovernmental agreements with other jurisdictions to provide an alternative, and generally
easier, approach for FFIs to comply with FATCA. If the shareholder is a tax resident in a jurisdiction that has entered into an intergovernmental agreement with the U.S. government, the shareholder will be required to provide information about the shareholder’s classification and compliance with the intergovernmental agreement.
“Withholdable payments” generally include, among other items, U.S.-source interest and dividends, and gross proceeds from the sale or disposition of property of a type that can produce U.S.-source interest or dividends. However, proposed regulations may eliminate the requirement to withhold on payments of gross proceeds from dispositions.
A Fund or a shareholder’s broker may be required to impose a 30% withholding tax on withholdable payments to a shareholder if the shareholder fails to provide the Fund with the information, certifications or documentation required under FATCA, including information, certification or documentation necessary for the Fund to determine if the shareholder is a non-U.S. shareholder or a U.S. shareholder and, if it is a non-U.S. shareholder, if the non-U.S. shareholder has “substantial U.S. owners” and/or is in compliance with (or meets an exception from) FATCA requirements. A Fund will not pay any additional amounts to shareholders in respect of any amounts withheld. The Fund may disclose any shareholder information, certifications or documentation to the IRS or other parties as necessary to comply with FATCA.
The requirements of, and exceptions from, FATCA are complex. All prospective shareholders are urged to consult their own tax advisors regarding the potential application of FATCA with respect to their own situation.
For a more detailed tax discussion regarding an investment in the Funds, please see the section of the SAI entitled “U.S. Federal Income Taxation.”
Code of Ethics
The Trust, Advisor and Distributor each have adopted a code of ethics under Rule 17j-1 of the 1940 Act that is designed to prevent affiliated persons of the Trust, the Advisor and the Distributor from engaging in deceptive, manipulative or fraudulent activities in connection with securities held or to be acquired by the Funds (which may also be held by persons subject to a code). There can be no assurance that the codes will be effective in preventing such activities. The codes permit personnel subject to them to invest in securities, including securities that may be held or purchased by the Funds. The codes are on file with the SEC and are available to the public.
Fund Website and Disclosure of Portfolio Holdings
The Advisor maintains a website for the Funds at newyorklifeinvestments.com The website for the Funds contains the following information, on a per-Share basis, for each Fund: (1) the prior Business Day’s NAV; (2) the reported midpoint of the bid-ask spread at the time of NAV calculation (the “Bid-Ask Price”); (3) a calculation of the premium or discount of the Bid-Ask Price against such NAV; and (4) data in chart format displaying the frequency distribution of discounts and premiums of the Bid-Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters (or for the life of a Fund if, shorter). In addition, on each Business Day, before the commencement of trading in Shares on the NYSE Arca, each Fund will disclose on its website (newyorklifeinvestments.com) the identities and quantities of the portfolio securities and other assets held by each Fund that will form the basis for the calculation of NAV at the end of the Business Day.
A description of each Fund’s policies and procedures with respect to the disclosure of the Fund’s portfolio securities is available in the SAI.
Other Information
The Funds are not sponsored, endorsed, sold or promoted by the NYSE Arca. The NYSE Arca makes 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 Funds particularly or the ability of the Funds to achieve their objectives. The NYSE Arca has no obligation or liability in connection with the administration, marketing or trading of the Funds.
For purposes of the 1940 Act, the Funds are RICs, and the acquisition of Shares by other RICs and companies relying on exemption from registration as investment companies under Section 3(c)(1) or 3(c)(7) of the 1940 Act is subject to the restrictions of Section 12(d)(1) of the 1940 Act, except as permitted by an exemptive order that permits RICs to invest in the Funds beyond those limitations.
Financial Highlights
Selected Data for a Share of Capital Stock Outstanding
The financial highlights tables are intended to help you understand the Funds’ financial performance for the past five fiscal years or, if shorter, the period of the Funds’ operations. Certain information reflects financial results for a single Fund Share. The total returns in the tables represent the rate that an investor would have earned (or lost) on an investment in the respective Fund (assuming reinvestment of all dividends and distributions). This information has been audited by PricewaterhouseCoopers LLP, whose report, along with each Fund’s financial statements, is included in the Funds’ Annual Report, which is available upon request.
Financial Highlights
Selected Data for a Share of Capital Stock Outstanding
| | | IQ Hedge Multi-Strategy Tracker ETF | |
| | | For the Year Ended April 30, | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
Net asset value, beginning of year | | | | $ | 29.41 | | | | | $ | 30.29 | | | | | $ | 30.39 | | | | | $ | 29.15 | | | | | $ | 29.03 | | |
Income from Investment Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income(a)(b) | | | | | 0.42 | | | | | | 0.75 | | | | | | 0.72 | | | | | | 0.56 | | | | | | 0.50 | | |
Net realized and unrealized gain(loss) | | | | | 2.79 | | | | | | (1.04) | | | | | | (0.27) | | | | | | 0.68 | | | | | | (0.38) | | |
Distributions of net realized gains from investments in other investment companies | | | | | 0.03 | | | | | | 0.00(c) | | | | | | — | | | | | | 0.00(c) | | | | | | 0.00(c) | | |
Net increase (decrease) in net assets resulting from investment operations | | | | | 3.24 | | | | | | (0.29) | | | | | | 0.45 | | | | | | 1.24 | | | | | | 0.12 | | |
Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | | | (0.63) | | | | | | (0.59) | | | | | | (0.55) | | | | | | — | | | | | | (0.00)(d) | | |
Net asset value, end of year | | | | $ | 32.02 | | | | | $ | 29.41 | | | | | $ | 30.29 | | | | | $ | 30.39 | | | | | $ | 29.15 | | |
Market price, end of year | | | | $ | 32.01 | | | | | $ | 29.34 | | | | | $ | 30.28 | | | | | $ | 30.38 | | | | | $ | 29.15 | | |
Total Return | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value(e) | | | | | 11.01% | | | | | | (1.04)% | | | | | | 1.56% | | | | | | 4.24% | | | | | | 0.42% | | |
Total investment return based on market price(f) | | | | | 11.26% | | | | | | (1.26)% | | | | | | 1.56% | | | | | | 4.22% | | | | | | 0.31% | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets, end of year (000’s omitted) | | | | $ | 795,577 | | | | | $ | 739,660 | | | | | $ | 993,422 | | | | | $ | 1,124,278 | | | | | $ | 1,062,579 | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses net of waivers/reimbursements(g) | | | | | 0.54% | | | | | | 0.54% | | | | | | 0.54% | | | | | | 0.64% | | | | | | 0.76% | | |
Expenses excluding waivers/reimbursements(g) | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | |
Net investment income (loss)(b) | | | | | 1.35% | | | | | | 2.49% | | | | | | 2.40% | | | | | | 1.87% | | | | | | 1.72% | | |
Portfolio turnover rate(h) | | | | | 163% | | | | | | 166% | | | | | | 137% | | | | | | 164% | | | | | | 285% | | |
(a)
Based on average shares outstanding.
(b)
Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the investment companies in which the Fund invests.
(c)
Less than $0.005 per share.
(d)
Greater than $(0.005) per share.
(e)
Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, if any, at net asset value during the period, and redemption on the last day of the period.
(f)
The market price returns are calculated using the mean between the last bid and ask prices.
(g)
In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a prorated share of the fees and expenses of the underlying funds in which it invests. Such indirect expenses are not included in the above expense ratios.
(h)
Portfolio turnover rate is not annualized and excludes the value of portfolio securities received or delivered as in-kind creations or redemptions in connection with the Fund’s capital share transactions.
Financial Highlights (continued)
Selected Data for a Share of Capital Stock Outstanding
| | | IQ Hedge Macro Tracker ETF | |
| | | For the Year Ended April 30, | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
Net asset value, beginning of year | | | | $ | 25.52 | | | | | $ | 26.26 | | | | | $ | 26.35 | | | | | $ | 25.46 | | | | | $ | 24.66 | | |
Income from Investment Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income(a)(b) | | | | | 0.34 | | | | | | 0.56 | | | | | | 0.44 | | | | | | 0.39 | | | | | | 0.37 | | |
Net realized and unrealized gain(loss) | | | | | 3.30 | | | | | | (0.94) | | | | | | (0.25) | | | | | | 0.50 | | | | | | 0.43 | | |
Distributions of net realized gains from investments in other investment companies | | | | | 0.03 | | | | | | — | | | | | | — | | | | | | 0.00(c) | | | | | | 0.00(c) | | |
Net increase (decrease) in net assets resulting from investment operations | | | | | 3.67 | | | | | | (0.38) | | | | | | 0.19 | | | | | | 0.89 | | | | | | 0.80 | | |
Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | | | (0.71) | | | | | | (0.36) | | | | | | (0.28) | | | | | | — | | | | | | — | | |
Net asset value, end of year | | | | $ | 28.48 | | | | | $ | 25.52 | | | | | $ | 26.26 | | | | | $ | 26.35 | | | | | $ | 25.46 | | |
Market price, end of year | | | | $ | 28.48 | | | | | $ | 25.36 | | | | | $ | 26.24 | | | | | $ | 26.34 | | | | | $ | 25.44 | | |
Total Return | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value(d) | | | | | 14.44% | | | | | | (1.51)% | | | | | | 0.77% | | | | | | 3.50% | | | | | | 3.25% | | |
Total investment return based on market price(e) | | | | | 15.13% | | | | | | (2.04)% | | | | | | 0.74% | | | | | | 3.54% | | | | | | 2.58% | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets, end of year (000’s omitted) | | | | $ | 4,272 | | | | | $ | 3,827 | | | | | $ | 5,251 | | | | | $ | 6,588 | | | | | $ | 6,365 | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses net of waivers/reimbursements(f) | | | | | 0.41% | | | | | | 0.54% | | | | | | 0.76% | | | | | | 0.75% | | | | | | 0.76% | | |
Expenses excluding waivers/reimbursements(f) | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.75% | | | | | | 0.76% | | |
Net investment income (loss)(b) | | | | | 1.23% | | | | | | 2.13% | | | | | | 1.70% | | | | | | 1.47% | | | | | | 1.50% | | |
Portfolio turnover rate(g) | | | | | 104% | | | | | | 104% | | | | | | 82% | | | | | | 152% | | | | | | 68% | | |
(a)
Based on average shares outstanding.
(b)
Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the investment companies in which the Fund invests.
(c)
Less than $0.005 per share.
(d)
Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, if any, at net asset value during the period, and redemption on the last day of the period.
(e)
The market price returns are calculated using the mean between the last bid and ask prices.
(f)
In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a prorated share of the fees and expenses of the underlying funds in which it invests. Such indirect expenses are not included in the above expense ratios.
(g)
Portfolio turnover rate is not annualized and excludes the value of portfolio securities received or delivered as in-kind creations or redemptions in connection with the Fund’s capital share transactions.
Financial Highlights (continued)
Selected Data for a Share of Capital Stock Outstanding
| | | IQ Hedge Market Neutral Tracker ETF | |
| | | For the Year Ended April 30, | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
Net asset value, beginning of year | | | | $ | 25.65 | | | | | $ | 26.23 | | | | | $ | 25.58 | | | | | $ | 25.25 | | | | | $ | 25.49 | | |
Income from Investment Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income(a)(b) | | | | | 0.40 | | | | | | 0.62 | | | | | | 0.55 | | | | | | 0.41 | | | | | | 0.36 | | |
Net realized and unrealized gain(loss) | | | | | 1.79 | | | | | | (0.76) | | | | | | 0.10 | | | | | | (0.08) | | | | | | (0.25) | | |
Distributions of net realized gains from investments in other investment companies | | | | | 0.03 | | | | | | — | | | | | | — | | | | | | — | | | | | | 0.00(c) | | |
Net increase (decrease) in net assets resulting from investment operations | | | | | 2.22 | | | | | | (0.14) | | | | | | 0.65 | | | | | | 0.33 | | | | | | 0.11 | | |
Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | | | (0.57) | | | | | | (0.44) | | | | | | — | | | | | | — | | | | | | (0.35) | | |
Net asset value, end of year | | | | $ | 27.30 | | | | | $ | 25.65 | | | | | $ | 26.23 | | | | | $ | 25.58 | | | | | $ | 25.25 | | |
Market price, end of year | | | | $ | 27.30 | | | | | $ | 25.63 | | | | | $ | 26.23 | | | | | $ | 25.58 | | | | | $ | 25.25 | | |
Total Return | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value(d) | | | | | 8.65% | | | | | | (0.62)% | | | | | | 2.56% | | | | | | 1.29% | | | | | | 0.44% | | |
Total investment return based on market price(e) | | | | | 8.74% | | | | | | (0.69)% | | | | | | 2.54% | | | | | | 1.31% | | | | | | 0.67% | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets, end of year (000’s omitted) | | | | $ | 17,745 | | | | | $ | 17,956 | | | | | $ | 15,741 | | | | | $ | 12,790 | | | | | $ | 11,364 | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses net of waivers/reimbursements(f) | | | | | 0.41% | | | | | | 0.53% | | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | |
Expenses excluding waivers/reimbursements(f) | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | |
Net investment income (loss)(b) | | | | | 1.51% | | | | | | 2.36% | | | | | | 2.15% | | | | | | 1.61% | | | | | | 1.40% | | |
Portfolio turnover rate(g) | | | | | 116% | | | | | | 77% | | | | | | 107% | | | | | | 165% | | | | | | 99% | | |
(a)
Based on average shares outstanding.
(b)
Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the investment companies in which the Fund invests.
(c)
Less than $0.005 per share.
(d)
Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, if any, at net asset value during the period, and redemption on the last day of the period.
(e)
The market price returns are calculated using the mean between the last bid and ask prices.
(f)
In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a prorated share of the fees and expenses of the underlying funds in which it invests. Such indirect expenses are not included in the above expense ratios.
(g)
Portfolio turnover rate is not annualized and excludes the value of portfolio securities received or delivered as in-kind creations or redemptions in connection with the Fund’s capital share transactions.
Financial Highlights (continued)
Selected Data for a Share of Capital Stock Outstanding
| | | IQ Hedge Long/Short Tracker ETF | |
| | | For the Year Ended April 30, | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
Net asset value, beginning of year | | | | $ | 21.40 | | | | | $ | 21.53 | | | | | $ | 21.91 | | | | | $ | 20.36 | | | | | $ | 18.88 | | |
Income from Investment Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income(a)(b) | | | | | 0.44 | | | | | | 0.51 | | | | | | 0.44 | | | | | | 0.41 | | | | | | 0.35 | | |
Net realized and unrealized gain(loss) | | | | | 5.19 | | | | | | (0.29) | | | | | | 0.13 | | | | | | 1.22 | | | | | | 1.19 | | |
Distributions of net realized gains from investments in other investment companies | | | | | 0.01 | | | | | | — | | | | | | — | | | | | | 0.00(c) | | | | | | 0.00(c) | | |
Net increase (decrease) in net assets resulting from investment operations | | | | | 5.64 | | | | | | 0.22 | | | | | | 0.57 | | | | | | 1.63 | | | | | | 1.54 | | |
Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | | | (0.52) | | | | | | (0.35) | | | | | | (0.95) | | | | | | (0.08) | | | | | | (0.06) | | |
Net asset value, end of year | | | | $ | 26.52 | | | | | $ | 21.40 | | | | | $ | 21.53 | | | | | $ | 21.91 | | | | | $ | 20.36 | | |
Market price, end of year | | | | $ | 26.53 | | | | | $ | 21.52 | | | | | $ | 21.54 | | | | | $ | 21.93 | | | | | $ | 20.34 | | |
Total Return | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value(d) | | | | | 26.42% | | | | | | 0.93% | | | | | | 3.07% | | | | | | 8.02% | | | | | | 8.18% | | |
Total investment return based on market price(e) | | | | | 25.76% | | | | | | 1.46% | | | | | | 2.91% | | | | | | 8.23% | | | | | | 8.98% | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets, end of year (000’s omitted) | | | | $ | 9,282 | | | | | $ | 10,699 | | | | | $ | 6,459 | | | | | $ | 8,764 | | | | | $ | 4,072 | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses net of waivers/reimbursements(f) | | | | | 0.41% | | | | | | 0.51% | | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.77% | | |
Expenses excluding waivers/reimbursements(f) | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.77% | | |
Net investment income (loss)(b) | | | | | 1.80% | | | | | | 2.35% | | | | | | 2.06% | | | | | | 1.89% | | | | | | 1.78% | | |
Portfolio turnover rate(g) | | | | | 156% | | | | | | 136% | | | | | | 95% | | | | | | 77% | | | | | | 147% | | |
(a)
Based on average shares outstanding.
(b)
Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the investment companies in which the Fund invests.
(c)
Less than $0.005 per share.
(d)
Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, if any, at net asset value during the period, and redemption on the last day of the period.
(e)
The market price returns are calculated using the mean between the last bid and ask prices.
(f)
In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a prorated share of the fees and expenses of the underlying funds in which it invests. Such indirect expenses are not included in the above expense ratios.
(g)
Portfolio turnover rate is not annualized and excludes the value of portfolio securities received or delivered as in-kind creations or redemptions in connection with the Fund’s capital share transactions.
Financial Highlights (continued)
Selected Data for a Share of Capital Stock Outstanding
| | | IQ Hedge Event-Driven Tracker ETF | |
| | | For the Year Ended April 30, | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
Net asset value, beginning of year | | | | $ | 20.88 | | | | | $ | 21.26 | | | | | $ | 20.93 | | | | | $ | 20.59 | | | | | $ | 19.40 | | |
Income from Investment Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income(a)(b) | | | | | 0.50 | | | | | | 0.73 | | | | | | 0.74 | | | | | | 0.55 | | | | | | 0.56 | | |
Net realized and unrealized gain(loss) | | | | | 3.39 | | | | | | (0.66) | | | | | | 0.46 | | | | | | 0.26 | | | | | | 1.09 | | |
Distributions of net realized gains from investments in other investment companies | | | | | 0.00(c) | | | | | | — | | | | | | — | | | | | | — | | | | | | 0.00(c) | | |
Net increase (decrease) in net assets resulting from investment operations | | | | | 3.89 | | | | | | 0.07 | | | | | | 1.20 | | | | | | 0.81 | | | | | | 1.65 | | |
Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | | | (1.05) | | | | | | (0.45) | | | | | | (0.87) | | | | | | (0.47) | | | | | | (0.46) | | |
Net asset value, end of year | | | | $ | 23.72 | | | | | $ | 20.88 | | | | | $ | 21.26 | | | | | $ | 20.93 | | | | | $ | 20.59 | | |
Market price, end of year | | | | $ | 23.73 | | | | | $ | 20.86 | | | | | $ | 21.27 | | | | | $ | 20.93 | | | | | $ | 20.59 | | |
Total Return | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value(d) | | | | | 18.65% | | | | | | 0.25% | | | | | | 6.12% | | | | | | 3.93% | | | | | | 8.58% | | |
Total investment return based on market price(e) | | | | | 18.86% | | | | | | 0.11% | | | | | | 6.13% | | | | | | 3.94% | | | | | | 8.44% | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets, end of year (000’s omitted) | | | | $ | 9,487 | | | | | $ | 8,354 | | | | | $ | 4,253 | | | | | $ | 3,139 | | | | | $ | 3,088 | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses net of waivers/reimbursements(f) | | | | | 0.41% | | | | | | 0.50% | | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | |
Expenses excluding waivers/reimbursements(f) | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | |
Net investment income (loss)(b) | | | | | 2.19% | | | | | | 3.48% | | | | | | 3.54% | | | | | | 2.64% | | | | | | 2.80% | | |
Portfolio turnover rate(g) | | | | | 69% | | | | | | 77% | | | | | | 34% | | | | | | 41% | | | | | | 68% | | |
(a)
Based on average shares outstanding.
(b)
Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the investment companies in which the Fund invests.
(c)
Less than $0.005 per share.
(d)
Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, if any, at net asset value during the period, and redemption on the last day of the period.
(e)
The market price returns are calculated using the mean between the last bid and ask prices.
(f)
In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a prorated share of the fees and expenses of the underlying funds in which it invests. Such indirect expenses are not included in the above expense ratios.
(g)
Portfolio turnover rate is not annualized and excludes the value of portfolio securities received or delivered as in-kind creations or redemptions in connection with the Fund’s capital share transactions.
Financial Highlights (continued)
Selected Data for a Share of Capital Stock Outstanding
| | | IQ Real Return ETF | |
| | | For the Year Ended April 30, | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
Net asset value, beginning of year | | | | $ | 26.94 | | | | | $ | 27.83 | | | | | $ | 27.47 | | | | | $ | 27.25 | | | | | $ | 26.73 | | |
Income from Investment Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income(a)(b) | | | | | 0.15 | | | | | | 0.54 | | | | | | 0.49 | | | | | | 0.30 | | | | | | 0.22 | | |
Net realized and unrealized gain(loss) | | | | | 0.44 | | | | | | (0.84) | | | | | | 0.22 | | | | | | 0.21 | | | | | | 0.30 | | |
Distributions of net realized gains from investments in other investment companies | | | | | 0.04 | | | | | | 0.00(c) | | | | | | — | | | | | | 0.00(c) | | | | | | 0.00(c) | | |
Net increase (decrease) in net assets resulting from investment operations | | | | | 0.63 | | | | | | (0.30) | | | | | | 0.71 | | | | | | 0.51 | | | | | | 0.52 | | |
Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | | | (0.27) | | | | | | (0.59) | | | | | | (0.35) | | | | | | (0.29) | | | | | | — | | |
Net asset value, end of year | | | | $ | 27.30 | | | | | $ | 26.94 | | | | | $ | 27.83 | | | | | $ | 27.47 | | | | | $ | 27.25 | | |
Market price, end of year | | | | $ | 27.29 | | | | | $ | 26.86 | | | | | $ | 27.80 | | | | | $ | 27.47 | | | | | $ | 27.27 | | |
Total Return | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value(d) | | | | | 2.33% | | | | | | (1.13)% | | | | | | 2.64% | | | | | | 1.89% | | | | | | 1.94% | | |
Total investment return based on market price(e) | | | | | 2.60% | | | | | | (1.33)% | | | | | | 2.53% | | | | | | 1.81% | | | | | | 2.06% | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets, end of year (000’s omitted) | | | | $ | 53,235 | | | | | $ | 51,188 | | | | | $ | 57,046 | | | | | $ | 45,319 | | | | | $ | 28,608 | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses net of waivers/reimbursements(f) | | | | | 0.21% | | | | | | 0.21% | | | | | | 0.37% | | | | | | 0.49% | | | | | | 0.49% | | |
Expenses excluding waivers/reimbursements(f) | | | | | 0.49% | | | | | | 0.49% | | | | | | 0.49% | | | | | | 0.49% | | | | | | 0.49% | | |
Net investment income (loss)(b) | | | | | 0.56% | | | | | | 1.95% | | | | | | 1.77% | | | | | | 1.10% | | | | | | 0.82% | | |
Portfolio turnover rate(g) | | | | | 66% | | | | | | 68% | | | | | | 97% | | | | | | 101% | | | | | | 71% | | |
(a)
Based on average shares outstanding.
(b)
Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the investment companies in which the Fund invests.
(c)
Less than $0.005 per share.
(d)
Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, if any, at net asset value during the period, and redemption on the last day of the period.
(e)
The market price returns are calculated using the mean between the last bid and ask prices.
(f)
In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a prorated share of the fees and expenses of the underlying funds in which it invests. Such indirect expenses are not included in the above expense ratios.
(g)
Portfolio turnover rate is not annualized and excludes the value of portfolio securities received or delivered as in-kind creations or redemptions in connection with the Fund’s capital share transactions.
Privacy Policy
The following notice does not constitute part of the Prospectus, nor is it incorporated into the Prospectus.
The Trust is committed to respecting the privacy of personal information you entrust to us in the course of doing business with us.
The Trust may collect non-public personal information from various sources. The Trust uses such information provided by you or your representative to process transactions, to respond to inquiries from you, to deliver reports, products, and services, and to fulfill legal and regulatory requirements.
We do not disclose any non-public personal information about our customers to anyone unless permitted by law or approved by the customer. We may share this information within the Trust’s family of companies in the course of providing services and products to best meet your investing needs. We may share information with certain third-parties who are not affiliated with the Trust to perform marketing services, to process or service a transaction at your request or as permitted by law. For example, sharing information with companies that maintain or service customer accounts for the Trust is essential. We may also share information with companies that perform administrative or marketing services for the Trust, including research firms. When we enter into such a relationship, we restrict the companies’ use of our customers’ information and prohibit them from sharing it or using it for any purposes other than those for which they were hired.
We maintain physical, electronic, and procedural safeguards to protect your personal information. Within the Trust, we restrict access to personal information to those employees who require access to that information in order to provide products or services to our customers such as handling inquiries. Our employment policies restrict the use of customer information and require that it be held in strict confidence.
We will adhere to the policies and practices described in this notice for both current and former customers of the Trust.
Frequently Used Terms
| Trust | | | IndexIQ ETF Trust, a registered open-end investment company | |
| Funds | | | The investment portfolios of the Trust | |
| Shares | | | Shares of the Funds offered to investors | |
| Advisor | | | IndexIQ Advisors LLC | |
| Custodian | | | The Bank of New York Mellon, the custodian of the Funds’ assets | |
| Distributor | | | ALPS Distributors, Inc., the distributor to the Funds | |
| AP or Authorized Participant | | | Certain large institutional investors such as brokers, dealers, banks or other entities that have entered into authorized participant agreements with the Distributor | |
| NYSE Arca | | | NYSE Arca, Inc., the primary market on which Shares are listed for trading | |
| IIV | | | The Indicative Intra-Day Value, an appropriate per-Share value based on a Fund’s portfolio | |
| 1940 Act | | | Investment Company Act of 1940 | |
| NAV | | | Net asset value | |
| SAI | | | Statement of Additional Information | |
| SEC | | | Securities and Exchange Commission | |
| Secondary Market | | | A national securities exchange, national securities association or over-the counter trading system where Shares may trade from time to time | |
| Securities Act | | | Securities Act of 1933 | |
IndexIQ ETF Trust
Mailing Address
51 Madison Avenue
New York, New York 10010
1-888-474-7725
newyorklifeinvestments.com
IndexIQ ETF Trust
PROSPECTUS | AUGUST 31, 2021
FOR MORE INFORMATION
If you would like more information about the Trust, the Funds and the Shares, the following documents are available free upon request:
Annual/Semi-annual Report
Additional information about a Fund’s investments is available in the Fund’s annual and semi-annual reports to shareholders (once available). In the Fund’s annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund’s performance during the last fiscal year.
Statement of Additional Information
Additional information about the Funds and their policies is also available in the Funds’ SAI. The SAI is incorporated by reference into this Prospectus (and is legally considered part of this Prospectus). The Funds’ annual and semi-annual reports (once available) and the SAI are available free upon request by calling IndexIQ at 1-888-474-7725. You can also access and download the annual and semi-annual reports (once available) and the SAI at the Funds’ website: newyorklifeinvestments.com.
To obtain other information and for shareholder inquiries:
By telephone: 1-888-474-7725
By mail: IndexIQ ETF Trust
c/o IndexIQ
51 Madison Avenue
New York, NY 10010
On the Internet: SEC Edgar database: http://www.sec.gov; or newyorklifeinvestments.com
You may review and obtain copies of Fund documents (including the SAI) by visiting the SEC’s public reference room in Washington, D.C. You may also obtain copies of Fund documents, after paying a duplicating fee, by writing to the SEC’s Public Reference Section, Washington, D.C. 20549-0102 or by electronic request to: publicinfo@sec.gov. Information on the operation of the public reference room may be obtained by calling the SEC at (202) 551-8090.
No person is authorized to give any information or to make any representations about the Funds and their Shares not contained in this Prospectus and you should not rely on any other information. Read and keep the Prospectus for future reference.
Dealers effecting transactions in the Funds’ Shares, whether or not participating in this distribution, may be generally required to deliver a Prospectus. This is in addition to any obligation dealers have to deliver a Prospectus when acting as underwriters.
“New York Life Investments” is both a servicemark, and the common trade name, of certain investment advisors affiliated with New York Life Insurance Company.
IQ® and IndexIQ® are registered servicemarks of New York Life Insurance Company.
The Trust’s investment company registration number is 811-22227.
IndexIQ ETF Trust
PROSPECTUS
AUGUST 31, 2021
| IQ Merger Arbitrage ETF (MNA) IQ Global Resources ETF (GRES) IQ U.S. Real Estate Small Cap ETF (ROOF) IQ Chaikin U.S. Dividend Achievers ETF (CDVA) IQ Chaikin U.S. Large Cap ETF (CLRG) IQ Chaikin U.S. Small Cap ETF (CSML) | | | IQ 50 Percent Hedged FTSE International ETF (HFXI) IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF (PRHD) IQ 500 International ETF (IQIN) | |
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
As permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Funds’ shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you hold accounts through a financial intermediary, you may contact your financial intermediary to enroll in electronic delivery. Please note that not all financial intermediaries may offer this service.
You may elect to receive all future reports in paper free of charge. If you hold accounts through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held with your financial intermediary.
Not FDIC Insured | May Lose Value | No Bank Guarantee
IndexIQ ETF Trust (the “Trust”) is a registered investment company that consists of separate investment portfolios called “Funds.” This Prospectus relates to the following Funds:
Fund Name | | | CUSIP | | | Symbol | |
IQ Merger Arbitrage ETF | | | 45409B800 | | | MNA | |
IQ Global Resources ETF | | | 45409B883 | | | GRES | |
IQ U.S. Real Estate Small Cap ETF | | | 45409B628 | | | ROOF | |
IQ Chaikin U.S. Dividend Achievers ETF | | | 45409B370 | | | CDVA | |
IQ Chaikin U.S. Large Cap ETF | | | 45409B388 | | | CLRG | |
IQ Chaikin U.S. Small Cap ETF | | | 45409B396 | | | CSML | |
IQ 50 Percent Hedged FTSE International ETF | | | 45409B560 | | | HFXI | |
IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF | | | 45409B347 | | | PRHD | |
IQ 500 International ETF | | | 45409B362 | | | IQIN | |
Each Fund is an exchange-traded fund (“ETF”). This means that shares of the Funds are listed on a national securities exchange, such as The NASDAQ Stock Market LLC (“Nasdaq”) or the NYSE Arca, Inc. (“NYSE Arca”), and trade at market prices. The market price for a Fund’s shares may be different from its net asset value per share (the “NAV”). Each Fund has its own CUSIP number and exchange trading symbol.
| | | | | | 4 | | |
| | | | | | 12 | | |
| | | | | | 19 | | |
| | | | | | 25 | | |
| | | | | | 31 | | |
| | | | | | 38 | | |
| | | | | | 45 | | |
| | | | | | 54 | | |
| | | | | | 60 | | |
| | | | | | 68 | | |
| | | | | | 68 | | |
| | | | | | 69 | | |
| | | | | | 70 | | |
| | | | | | 87 | | |
| | | | | | 88 | | |
| | | | | | 88 | | |
| | | | | | 90 | | |
| | | | | | 92 | | |
| | | | | | 93 | | |
| | | | | | 93 | | |
| | | | | | 94 | | |
| | | | | | 94 | | |
| | | | | | 94 | | |
| | | | | | 99 | | |
| | | | | | 99 | | |
| | | | | | 99 | | |
| | | | | | 100 | | |
| | | | | | 107 | | |
| | | | | | 108 | | |
IQ Merger Arbitrage ETF
Investment Objective
The Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index, the IQ Merger Arbitrage Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy, sell or hold shares of the Fund (“Shares”). Investors may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee | | | | | 0.75% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses | | | | | 0.01% | | |
| Acquired Fund Fees & Expenses(a) | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses(a) | | | | | 0.77% | | |
(a)
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$79 |
|
|
$246 |
|
|
$428 |
|
|
$954 |
|
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 313% of the average value of its portfolio. This rate excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Fund’s Shares.
Principal Investment Strategies
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the Underlying Index, which was developed by IndexIQ LLC (“IndexIQ”), an affiliate of IndexIQ Advisors LLC, the Fund’s investment advisor (the “Advisor”). The Underlying Index seeks to employ a systematic investment process designed to identify opportunities in companies whose equity securities trade in developed markets, including the U.S., and which are involved in announced mergers, acquisitions and other buyout-related transactions. The Underlying Index seeks to capitalize on the spread between the current market price of the target company’s stock and the price received by the holder of that stock upon consummation of the buyout-related transaction. In addition, the Underlying Index includes short exposure to the U.S. and non-U.S. equity markets.
The Fund invests, under normal circumstances, at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the investments included in its Underlying Index (“Underlying Index Components”). The Underlying Index consists of a number of Underlying Index Components selected in accordance with IndexIQ’s rules-based methodology. Such Underlying Index Components will include primarily U.S. and non-U.S. equity securities. Under certain circumstances described below, the Underlying Index Components may also include U.S. Treasury bills. In addition, the Fund may invest up to 20% of its net assets in investments not included in its Underlying Index, but which the Advisor believes will help the Fund track the Underlying Index. The Fund may also invest in one or more financial instruments, including but not limited to futures contracts and swap agreements (collectively, “Financial Instruments”).
Pursuant to the Underlying Index’s rules, to the extent there are an insufficient number of target companies in which to invest, insufficient liquidity exists in such companies, or target companies are removed from the Underlying Index between monthly reconstitutions, the Underlying Index will allocate the available cash to one or more short-term fixed income ETFs and U.S. Treasury bills. In seeking to track the Underlying Index, the Fund may similarly invest in short-term fixed income ETFs and U.S. Treasury bills, but also may invest in cash and other similar investments including money market instruments, high quality short-term debt securities, or derivative securities thereon. To the extent the Fund invests in cash and cash equivalents, the Fund will not be pursuing a merger arbitrage strategy. During periods of market turbulence, natural disasters, health emergencies and other market or political or regulatory conditions that reduce or limit merger, acquisition and buyout activity, there may be fewer target companies eligible for inclusion in the Underlying Index and the Underlying Index and Fund may have significant investments in cash and other similar investments.
The Underlying Index may include as a component one or more ETFs advised by the Advisor (“Affiliated ETFs”) and the Fund will typically invest in any Affiliated ETF included in the Underlying Index. The Fund also may invest in Affiliated ETFs that are not components of the index if such an investment will help the Fund track the Underlying Index.
Principal Risks
As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program. An investment in the Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, the Advisor or any of its affiliates. You should consider carefully the following risks before investing in the Fund.
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Currency Risk
Investments directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign (non-U.S.) currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Debt Securities Risk
The risks of investing in debt securities include (without limitation): (i) credit risk, e.g., the issuer or guarantor of a debt security may be unable or unwilling (or be perceived as unable or unwilling) to make timely principal and/or interest payments or otherwise honor its obligations; (ii) interest rate risk, e.g., when interest rates go up, the value of a debt security generally goes down, and when interest rates go down, the value of a debt security generally goes up; (iii) liquidity risk and valuation risk, e.g., debt securities generally do not trade on a securities exchange, making them generally less liquid and more difficult to value than common stock; (iv) call risk and income risk, e.g., during a period of falling interest rates, the issuer may redeem a security by repaying it early, which may reduce the Fund’s income if the proceeds are reinvested at lower interest rates; and (v) extension risk, e.g., if interest rates rise, repayments of debt securities may occur more slowly than anticipated by the market, which may drive the prices of these securities down because their interest rates are lower than the current interest rate and the securities remain outstanding longer. Debt securities most frequently trade in institutional round lot size transactions. If the Fund purchases bonds in amounts less than the institutional round lot size, which are frequently referred to as “odd” lots, the odd lot size positions may have more price volatility than institutional round lot size positions. The Fund uses a third-party pricing service to value bond holdings and the pricing service values bonds assuming orderly transactions of an institutional round lot size.
Derivatives Risk
Derivatives are investments whose value depends on (or is derived from) the value of an underlying instrument, such as a security, asset, reference rate or index and involve risks different from, and possibly greater than, the risks associated with other investments. These risks include: (i) the risk that the counterparty to a derivatives transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. Such prices are influenced by numerous factors that affect the markets, including, but not limited to, changing supply and demand relationships, government programs and policies, national and international political and economic events, changes in interest rates, inflation and deflation, and changes in supply and demand relationships. Unlike other investments, derivative contracts often have leverage inherent in their terms. The use of leveraged derivatives can magnify potential for gain or loss and, therefore, amplify the effects of market volatility on the Fund’s Share price. The effects of leverage may also cause the Fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations or to meet collateral segregation requirements.
Equity Securities Risk
Investments in common stocks and other equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Holders of an issuer’s common stock may be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
Focused Investment Risk
To the extent that a Fund invests a large percentage of its assets in a single asset class or the securities of issuers within the same country, group of countries, region, industry, group of industries or sector, an adverse economic, market, political or regulatory development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. Different asset classes, countries, groups of countries, regions, industries, groups of industries or sectors tend to go through cycles of outperformance and underperformance in comparison to each other and to the general financial markets.
Foreign Securities Risk
Investments in the securities of non-U.S. issuers involve risks beyond those associated with investments in U.S. securities. These additional risks include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Some countries and regions have experienced security concerns, war or threats of war and aggression, terrorism, economic uncertainty, natural and environmental disasters and/or systemic market dislocations that have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on the U.S. and world economies and markets generally. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing, financial reporting and record keeping than are U.S. issuers, and therefore not all material information will be available. Securities exchanges
or foreign governments may adopt rules or regulations that may negatively impact the Fund’s ability to invest in foreign securities or may prevent the Fund from repatriating its investments. Less developed securities markets are more likely to experience problems with the clearing and settling of trades, as well as the holding of securities by local banks, agents and depositories. The less developed a country’s securities market is, the greater the likelihood of custody problems.
Foreign Securities Valuation Risk
The Fund’s value may be impacted by events that cause the fair value of foreign securities to materially change between the close of the local exchange on which they trade and the time at which the Fund prices its Shares. Additionally, because foreign exchanges on which securities held by the Fund may be open on days when the Fund does not price its Shares, the potential exists for the value of the securities in the Fund’s portfolio to change on days when shareholders will not be able to purchase or sell Shares. To the extent the Fund calculates its NAV based on fair value prices and the value of the Underlying Index is based on the securities’ closing price on foreign securities markets (i.e., the value of the Underlying Index is not based on fair value prices), the valuation of the Fund’s NAV may deviate from the calculation of the Underlying Index.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
Interest Rate Risk
An increase in interest rates may cause the value of securities held by the Fund to decline. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, making them more volatile than securities with shorter durations or floating or adjustable interest rates. The negative impact on the Fund from potential interest rate increases could be swift and significant, including falling market values, increased redemptions and reduced liquidity. The Fund may be subject to a greater risk of rising interest rates than would normally be the case due to the current period of historically low rates and the effect of potential government fiscal policy initiatives and resulting market reaction to those initiatives.
When interest rates rise, certain obligations will be paid off by the issuer (or other obligated party) more slowly than anticipated, causing the value of these securities to fall. As a result, in a period of rising interest rates, securities may exhibit additional volatility and may lose value. The value of securities with longer maturities generally change more in response to changes in interest rates than does the value of securities with shorter maturities.
During periods of falling interest rates, an issuer of a callable security held by the Fund may “call” or repay the security before its stated maturity, which may result in the Fund having to reinvest the proceeds in securities with lower yields, resulting in a decline in the Fund’s income or in securities with greater risks or with other less favorable features.
Issuer Risk
The performance of the Fund depends on the performance of individual securities to which the Fund has exposure. Changes to the financial condition or credit rating of an issuer of those securities may cause the value of the securities to decline.
Liquidity Risk
Liquidity risk exists when particular investments are difficult to purchase or sell. Certain investments may be subject to restrictions on resale, trade over-the-counter or in limited volume, or lack an active trading market. Accordingly, the Fund may not be able to sell or close out of such investments at favorable times or prices (or at all), or at the prices approximating those at which the Fund currently values them. Illiquid securities may trade at a discount from comparable, more liquid investments and may be subject to wide fluctuations in market value.
Market Risk
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value.
Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
Merger Arbitrage Risk
Investments in companies that are the subject of a publicly announced transaction carry the risk that the proposed or expected transaction may not be completed or may be completed on less favorable terms than originally expected, which may lower Fund performance. In the event an expected transaction is not completed, the share price of the target company may decline significantly. Announced transactions may be renegotiated or terminated or may take an unexpectedly long time to be completed. Investments in foreign companies involved in pending mergers, takeovers and other corporate reorganizations may entail political, cultural, regulatory, legal and tax risks different from those associated with comparable transactions in the United States. During market turbulence, natural disasters, health emergencies and geopolitical events, or as a result of political developments or changes in laws or regulation, there may be periods in which there is limited merger, acquisition and other buy-out activity. During periods in which there are a limited number of target companies eligible for inclusion in the Underlying Index, the Fund may have significant investments in cash and other similar investments. In such an environment, a significant portion of the Fund will not be pursuing a merger arbitrage strategy.
Money Market/Short-Term Securities Risk
To the extent the Fund holds cash or invests in money market or short-term securities, the Fund may be less likely to achieve its investment objective. In addition, it is possible that the Fund’s investments in these instruments could lose money.
Non-Diversified Risk
The Fund is classified as a “non-diversified” investment company under the Investment Company Act of 1940 (the “1940 Act”), which means it may invest a larger percentage of its assets in a smaller number of issuers than a diversified fund. To the extent the Fund invests its assets in a smaller number of issuers, the Fund will be more susceptible to negative events affecting those issuers than a diversified fund.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Index or the index calculation agent may make errors. The index provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of
calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Portfolio Turnover Risk
The Fund’s strategy may frequently involve buying and selling portfolio securities to rebalance the Fund’s investment exposures. High portfolio turnover may result in the Fund paying higher levels of transaction costs and generating greater tax liabilities for shareholders. Portfolio turnover risk may cause the Fund’s performance to be less than expected.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask” spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value.
Short Sales Risk
Short sales are transactions in which the Fund sells a security it does not own, or uses derivatives, such as futures or swaps, to effect short exposure to a particular reference asset. Such a position subjects the Fund to the risk that instead of declining, the price of the security or reference asset to which the Fund has short exposure will rise. If the price of the security or reference asset increases between the date of the short sale and the date on which the Fund replaces the security or otherwise closes out its short position, the Fund will experience a loss, which is theoretically unlimited since there is a theoretically unlimited potential for the market price of a security or other instrument sold short to increase.
Small- and/or Mid-Capitalization Companies Risk
Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies.
Swap Agreements Risk
Swap agreements may involve greater risks than direct investment in securities as they may be leveraged and are subject to credit risk, counterparty risk, liquidity risk and valuation risk. A swap agreement could result in losses if the underlying reference or asset does not perform as anticipated. In addition, many swaps trade over-the-counter and may be considered illiquid. It may not be possible for the Fund to liquidate a swap position at an advantageous time or price, which may result in significant losses.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a
premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Valuation Risk
Independent market quotations for certain investments held by the Fund may not be readily available, and such investments may be fair valued or valued by a pricing service at an evaluated price. These valuations involve subjectivity and different market participants may assign different prices to the same investment. As a result, there is a risk that the Fund may not be able to sell an investment at the price assigned to the investment by the Fund. In addition, the value of the securities or other assets in the Fund’s portfolio may change on days or during time periods when shareholders will not be able to purchase or sell the Fund’s Shares.
Performance Information
The bar chart that follows shows the annual total returns of the Fund for a full calendar year. The table that follows the bar chart shows the Fund’s average annual total returns, both before and after taxes. The bar chart and table provide an indication of the risks of investing in the Fund by comparing the Fund’s performance from year to year and by showing how the Fund’s average annual returns for one calendar year compared with its underlying index and additional broad measures of market performance. The HFRI ED: Merger Arbitrage Index is an equally weighted index of hedge funds primarily focused on opportunities in equity and equity related instruments of companies which are currently engaged in a corporate transaction. The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets (performance data assumes reinvestment of dividends, but it does not reflect management fees, transaction costs or other expenses). The S&P 500® Index is a broad-based unmanaged index of 500 stocks, which is designed to represent the equity market in general (performance data assumes reinvestment of dividends, but it does not reflect management fees, transaction costs or other expenses).
All returns assume reinvestment of dividends and distributions. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Fund performance current to the most recent month-end is available by calling 1-888-474-7725 or by visiting newyorklifeinvestments.com.
The Fund’s year-to-date total return as of June 30, 2021 was 0.44%.
Best and Worst Quarter Returns (for the period reflected in the bar chart above)
| | | Return | | | Quarter/Year | |
Highest Return | | | | | 6.94% | | | | | | 3Q/2020 | | |
Lowest Return | | | | | -8.62% | | | | | | 1Q/2020 | | |
Average Annual Total Returns as of December 31, 2020
| | | 1 Year | | | 5 Years | | | 10 Years | |
Returns before taxes | | | | | 2.87% | | | | | | 4.05% | | | | | | 3.43% | | |
Returns after taxes on distributions(1) | | | | | 2.02% | | | | | | 3.87% | | | | | | 3.28% | | |
Returns after taxes on distributions and sale of Fund Shares(1) | | | | | 1.79% | | | | | | 3.08% | | | | | | 2.65% | | |
IQ Merger Arbitrage Index (reflects no deduction for fees, expenses or taxes) | | | | | 3.45% | | | | | | 4.66% | | | | | | 4.26% | | |
HFRI ED: Merger Arbitrage Index(2) (reflects no deduction for fees, expenses or taxes) | | | | | 5.20% | | | | | | 4.64% | | | | | | 3.71% | | |
MSCI World Index (reflects no deduction for fees, expenses or taxes) | | | | | 15.90% | | | | | | 12.19% | | | | | | 9.87% | | |
S&P 500® Index (reflects no deduction for fees, expenses or taxes) | | | | | 17.75% | | | | | | 14.53% | | | | | | 13.18% | | |
(1)
(2)
Investment Advisor
IndexIQ Advisors LLC is the investment advisor to the Fund.
Portfolio Manager
The professionals jointly and primarily responsible for the day-to-day management of the Fund are Greg Barrato and James Harrison. Mr. Barrato, Senior Vice President of the Advisor, has been a portfolio manager of the Fund since February 2011 and Mr. Harrison, Vice President of the Advisor, has been a portfolio manager of the Fund since April 2018.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units.” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
IQ Global Resources ETF
Investment Objective
The Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index, the IQ Global Resources Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy, sell or hold shares of the Fund (“Shares”). Investors may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee(a) | | | | | 0.30% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses(a)(b) | | | | | 0.31% | | |
| Expense Waiver/Reimbursement(c) | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses After Waiver/Reimbursement | | | | | 0.30% | | |
(a)
(b)
(c)
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$31 |
|
|
$99 |
|
|
$173 |
|
|
$392 |
|
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 98% of the average value of its portfolio. This rate excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Fund’s Shares.
Principal Investment Strategies
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the Underlying Index, which was developed by IndexIQ LLC (“IndexIQ”), an affiliate of IndexIQ Advisors LLC, the Fund’s investment advisor (the “Advisor”). The Underlying Index seeks to employ a tiered
sector weighting approach designed to provide exposure to developed market companies involved in the production and distribution of commodities and commodities-related products and services across the Precious Metals, Grains, Food and Fiber, Energy, Industrial Metals, Timber and Water sectors.
The Fund invests, under normal circumstances, at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the investments included in the Underlying Index (“Underlying Index Components”). The Underlying Index consists of a number of Underlying Index Components selected in accordance with IndexIQ’s rules-based methodology. Such Underlying Index Components will include primarily U.S. and non-U.S. equity securities. In addition, the Fund may invest up to 20% of its net assets in investments not included in its Underlying Index, but which the Advisor believes will help the Fund track its Underlying Index.
The Underlying Index may include as a component one or more ETFs advised by the Advisor (“Affiliated ETFs”) and the Fund will typically invest in any Affiliated ETF included in the Underlying Index. The Fund also may invest in Affiliated ETFs that are not components of the index if such an investment will help the Fund track the Underlying Index.
Principal Risks
As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program. An investment in the Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, the Advisor or any of its affiliates. You should consider carefully the following risks before investing in the Fund.
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Commodities Risk
Exposure to the commodities markets may subject the Fund to greater volatility than investments in traditional securities, and exposure to commodities, directly or through other securities, can cause the value of the Fund’s assets to decline or fluctuate in a rapid and unpredictable manner. The value of commodities may be affected by changes in overall market movements, real or perceived inflationary trends, commodity index volatility, changes in interest rates or currency exchange rates, population growth and changing demographics, international economic, political and regulatory developments, and factors affecting a particular region, industry or commodity, such as drought, floods, or other weather conditions, livestock disease, changes in storage costs, trade embargoes, competition from substitute products, transportation bottlenecks or shortages, fluctuations in supply and demand, and tariffs.
Currency Risk
Investments directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign (non-U.S.) currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Equity Securities Risk
Investments in common stocks and other equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Holders of an issuer’s common stock may be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
Focused Investment Risk
To the extent that a Fund invests a large percentage of its assets in a single asset class or the securities of issuers within the same country, group of countries, region, industry, group of industries or sector, an adverse economic, market, political or regulatory development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. Different asset classes, countries, groups of countries, regions, industries, groups of industries or sectors tend to go through cycles of outperformance and underperformance in comparison to each other and to the general financial markets.
Foreign Securities Risk
Investments in the securities of non-U.S. issuers involve risks beyond those associated with investments in U.S. securities. These additional risks include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Some countries and regions have experienced security concerns, war or threats of war and aggression, terrorism, economic uncertainty, natural and environmental disasters and/or systemic market dislocations that have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on the U.S. and world economies and markets generally. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing, financial reporting and record keeping than are U.S. issuers, and therefore not all material information will be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact the Fund’s ability to invest in foreign securities or may prevent the Fund from repatriating its investments. Less developed securities markets are more likely to experience problems with the clearing and settling of trades, as well as the holding of securities by local banks, agents and depositories. The less developed a country’s securities market is, the greater the likelihood of custody problems.
Foreign Securities Valuation Risk
The Fund’s value may be impacted by events that cause the fair value of foreign securities to materially change between the close of the local exchange on which they trade and the time at which the Fund prices its Shares. Additionally, because foreign exchanges on which securities held by the Fund may be open on days when the Fund does not price its Shares, the potential exists for the value of the securities in the Fund’s portfolio to change on days when shareholders will not be able to purchase or sell Shares. To the extent the Fund calculates its NAV based on fair value prices and the value of the Underlying Index is based on the securities’ closing price on foreign securities markets (i.e., the value of the Underlying Index is not based on fair value prices), the valuation of the Fund’s NAV may deviate from the calculation of the Underlying Index.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
Industry/Sector Concentration Risk
The Fund’s investment of a large percentage of its assets in the securities of issuers within the same industry or sector means that an adverse economic, business or political development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. A concentration makes the Fund more susceptible to any single occurrence and may subject the Fund to greater market risk than a fund that is not so concentrated. The Fund will concentrate in the securities of issuers in the resources-related industries or sectors so identified.
Global Resources Sector Risk
Companies in the global resources sector may be adversely affected by, among other things, events occurring in nature, interest rates, prices of raw materials and other commodities, international economic developments, energy conservation, tax and other government regulations (both U.S. and non-U.S.) and inflationary pressures. Events occurring in nature (such as earthquakes or fires in prime natural resource areas) and political events (such as coups or military confrontations) can affect the overall supply of a resource and the value of companies involved in such resource. Political risks and other risks to which non-U.S. securities are subject may also affect the U.S. companies in which the Fund invests if such companies have significant operations or investments outside of the United States. In addition, may affect the supply of and demand for natural resources, which can affect the profitability and value of securities issued by global resources companies.
Liquidity Risk
Liquidity risk exists when particular investments are difficult to purchase or sell. Certain investments may be subject to restrictions on resale, trade over-the-counter or in limited volume, or lack an active trading market. Accordingly, the Fund may not be able to sell or close out of such investments at favorable times or prices (or at all), or at the prices approximating those at which the Fund currently values them. Illiquid securities may trade at a discount from comparable, more liquid investments and may be subject to wide fluctuations in market value.
Market Risk
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
Non-Diversified Risk
The Fund is classified as a “non-diversified” investment company under the Investment Company Act of 1940 (the “1940 Act”), which means it may invest a larger percentage of its assets in a smaller number of issuers than a diversified fund. To the extent the Fund invests its assets in a smaller number of issuers, the Fund will be more susceptible to negative events affecting those issuers than a diversified fund.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Index or the index calculation agent may make errors. The index provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur
because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Portfolio Turnover Risk
The Fund’s strategy may frequently involve buying and selling portfolio securities to rebalance the Fund’s investment exposures. High portfolio turnover may result in the Fund paying higher levels of transaction costs and generating greater tax liabilities for shareholders. Portfolio turnover risk may cause the Fund’s performance to be less than expected.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask” spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value.
Small- and/or Mid-Capitalization Companies Risk
Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Valuation Risk
Independent market quotations for certain investments held by the Fund may not be readily available, and such investments may be fair valued or valued by a pricing service at an evaluated price. These valuations involve subjectivity and different market participants may assign different prices to the same investment. As a result, there is a risk that the Fund may not be able to sell an investment at the price assigned to the investment by the Fund. In addition, the value of the securities or other assets in the Fund’s portfolio may change on days or during time periods when shareholders will not be able to purchase or sell the Fund’s Shares.
Performance Information
The bar chart that follows shows the annual total returns of the Fund for a full calendar year. The table that follows the bar chart shows the Fund’s average annual total returns, both before and after taxes. The bar chart and table provide an indication of the risks of investing in the Fund by comparing the Fund’s performance from year to year and by showing how the Fund’s average annual returns for one calendar year compared with its underlying index and additional broad measures of market performance. The S&P Global Natural Resources Index includes 90 of the largest publicly-traded companies in natural resources and commodities business that meet specific investability requirements, offering investors diversified and investable equity exposure across three primary commodity related sectors: agribusiness, energy, and metal & mining. The Bloomberg Commodity Spot Index measures the price movements of commodities included in the Bloomberg Commodity Index. The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.
All returns assume reinvestment of dividends and distributions. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Performance reflects fee waivers and/or expense reimbursement in effect, if such waivers or reimbursements were not in place, the Fund’s performance would be reduced. Fund performance current to the most recent month-end is available by calling 1-888-474-7725 or by visiting newyorklifeinvestments.com.
The Fund’s year-to-date total return as of June 30, 2021 was 11.07%.
Best and Worst Quarter Returns (for the period reflected in the bar chart above)
| | | Return | | | Quarter/Year | |
Highest Return | | | | | 13.58% | | | | | | 2Q/2020 | | |
Lowest Return | | | | | -19.77% | | | | | | 1Q/2020 | | |
Average Annual Total Returns as of December 31, 2020
| | | 1 Year | | | 5 Years | | | 10 Years | |
Returns before taxes | | | | | 4.07% | | | | | | 6.82% | | | | | | 0.06% | | |
Returns after taxes on distributions(1) | | | | | 2.38% | | | | | | 6.27% | | | | | | -0.34% | | |
Returns after taxes on distributions and sale of Fund Shares(1) | | | | | 4.54% | | | | | | 5.40% | | | | | | 0.09% | | |
IQ Global Resources Index (reflects no deduction for fees, expenses or taxes) | | | | | 5.12% | | | | | | 8.37% | | | | | | 1.13% | | |
S&P Global Natural Resources Index (reflects no deduction for fees, expenses or taxes) | | | | | 0.69% | | | | | | 10.85% | | | | | | 0.63% | | |
Bloomberg Commodity Spot Index (reflects no deduction for fees, expenses or taxes) | | | | | 11.83% | | | | | | 7.90% | | | | | | -1.47% | | |
MSCI World Index (reflects no deduction for fees, expenses or taxes) | | | | | 15.90% | | | | | | 12.19% | | | | | | 9.87% | | |
(1)
Investment Advisor
IndexIQ Advisors LLC is the investment advisor to the Fund.
Portfolio Manager
The professionals jointly and primarily responsible for the day-to-day management of the Fund are Greg Barrato and James Harrison. Mr. Barrato, Senior Vice President of the Advisor, has been a portfolio manager of the Fund since February 2011 and Mr. Harrison, Vice President of the Advisor, has been a portfolio manager of the Fund since April 2018.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units.” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
IQ U.S. Real Estate Small Cap ETF
Investment Objective
The Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index, the IQ U.S. Real Estate Small Cap Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy, sell or hold shares of the Fund (“Shares”). Investors may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee | | | | | 0.69% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses | | | | | 0.70% | | |
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$72 |
|
|
$224 |
|
|
$390 |
|
|
$871 |
|
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 38% of the average value of its portfolio. This rate excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Fund’s Shares.
Principal Investment Strategies
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the Underlying Index, which was developed by IndexIQ LLC (“IndexIQ”), an affiliate of IndexIQ Advisors LLC, the Fund’s investment advisor (the “Advisor”). The Underlying Index is a rules based, modified capitalization weighted, float adjusted index intended to give investors a means of tracking the overall performance of the small capitalization sector of publicly traded companies domiciled and primarily listed on an exchange in the United States (“U.S.”) and that invest in real estate, such as Real Estate Investment Trusts (“REITs”) or real estate holding companies (collectively, “Real Estate Companies”).
The components of the Underlying Index (the “Underlying Index Components”) that are eligible for inclusion in the Underlying Index include the following characteristics, measured as of each quarterly rebalance date:
•
Issuer engaged in the real estate investment industry, as determined by Standard Industrial Classification (“SIC”) code classifications;
•
Issuer domiciled in the U.S.;
•
Primary stock exchange listing in the U.S.;
•
Minimum average market capitalization of $150 million for the prior 90 days and as of the quarterly rebalance date;
•
Maximum average market capitalization equal to the bottom 10% ranking of Real Estate Companies in the U.S. based on market capitalization for the prior 90 days (the “Market Cap Ceiling”);
•
Minimum average daily trading volume of at least $1 million for the prior 90 days; and
•
Minimum monthly volume of 250,000 shares each month over the prior six months.
Securities of issuers with recent stock exchange listings (i.e., recent initial public offerings) may be added to the Underlying Index on a quarterly basis, provided that the companies meet all eligibility criteria and have been trading for more than ten trading days. Existing Underlying Index Components whose average market capitalization falls below $100 million or increases above the level 65% higher than the Market Cap Ceiling for the 90 days prior to any rebalancing date will no longer be eligible for inclusion.
The Underlying Index Components are selected quarterly in connection with the reconstitution of the Underlying Index. Their respective weights are rebalanced quarterly in connection with the rebalance of the Underlying Index.
As of June 30, 2021, the U.S. dollar-denominated market capitalizations of the Underlying Index Components ranged from approximately $197 million to approximately $3.9 billion.
The Fund invests, under normal circumstances, at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the investments included in its Underlying Index.
The Underlying Index may include as a component one or more ETFs advised by the Advisor (“Affiliated ETFs”) and the Fund will typically invest in any Affiliated ETF included in the Underlying Index. The Fund also may invest in Affiliated ETFs that are not components of the index if such an investment will help the Fund track the Underlying Index.
Principal Risks
As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program. An investment in the Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, the Advisor or any of its affiliates. You should consider carefully the following risks before investing in the Fund.
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Equity Securities Risk
Investments in common stocks and other equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Holders of an issuer’s common stock may be subject to
greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
Focused Investment Risk
To the extent that a Fund invests a large percentage of its assets in a single asset class or the securities of issuers within the same country, group of countries, region, industry, group of industries or sector, an adverse economic, market, political or regulatory development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. Different asset classes, countries, groups of countries, regions, industries, groups of industries or sectors tend to go through cycles of outperformance and underperformance in comparison to each other and to the general financial markets.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
Industry/Sector Concentration Risk
The Fund’s investment of a large percentage of its assets in the securities of issuers within the same industry or sector means that an adverse economic, business or political development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. A concentration makes the Fund more susceptible to any single occurrence and may subject the Fund to greater market risk than a fund that is not so concentrated. The Fund will concentrate in the securities of issuers in the real estate sector and may, to the extent its Underlying Index is so concentrated, be concentrated in the securities of issuers in one or more industries related to the real estate sector.
Real Estate Sector Risk. Companies in the real estate sector may be adversely affected by, among other things, general and local economic conditions, intense competition, overbuilding, supply and demand, interest rates, environmental liability, zoning laws, regulatory limitations on rents, property taxes, operating expenses and limited diversification. The real estate sector includes companies that invest in real estate, such as REITs or real estate holding companies, and other companies involved in the operation and development of residential and industrial real estate.
Market Risk
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
Non-Diversified Risk
The Fund is classified as a “non-diversified” investment company under the Investment Company Act of 1940 (the “1940 Act”), which means it may invest a larger percentage of its assets in a smaller number of issuers than a diversified fund. To the extent the Fund invests its assets in a smaller number of issuers, the Fund will be more susceptible to negative events affecting those issuers than a diversified fund.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Index or the index calculation agent may make errors. The index provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Real Estate Companies Risks
An investment in companies that invest in real estate (including REITs) exposes the Fund to the risks of the real estate market and the risks associated with the ownership of real estate. These risks can include fluctuations in the value of or destruction of underlying properties; realignment in tenant living and work habits (for example, movements to and from different parts of a nation, a region, a state or a city); tenant or borrower default; market saturation; changes in general and local economic conditions; decreases in market rates for rents; increases in vacancies; competition; property taxes; capital expenditures or operating expenses; other economic or political events affecting the real estate industry including interest rates and government regulation; concentration in a limited number of properties, geographic regions or property types; and low quality and/or conflicted management. Real estate is generally a less liquid asset class and companies that hold real estate may not be able to liquidate or modify their holdings quickly in response to changes in economic or other market conditions. Additionally, such companies may utilize leverage, which increases investment risk and the potential for more volatility in the Fund’s returns.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask” spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value.
Small- and/or Mid-Capitalization Companies Risk
Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Performance Information
The bar chart that follows shows the annual total returns of the Fund for a full calendar year. The table that follows the bar chart shows the Fund’s average annual total returns, both before and after taxes. The bar chart and table provide an indication of the risks of investing in the Fund by comparing the Fund’s performance from year to year and by showing how the Fund’s average annual returns for one calendar year compared with its underlying index and additional broad measures of market performance. The Dow Jones U.S. Real Estate Index measures the stock performance of REITs and real estate operating companies in the U.S.
All returns assume reinvestment of dividends and distributions. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Fund performance current to the most recent month-end is available by calling 1-888-474-7725 or by visiting newyorklifeinvestments.com.
The Fund’s year-to-date total return as of June 30, 2021 was 22.64%.
Best and Worst Quarter Returns (for the period reflected in the bar chart above)
| | | Return | | | Quarter/Year | |
Highest Return | | | | | 24.01% | | | | | | 4Q/2020 | | |
Lowest Return | | | | | -37.55% | | | | | | 1Q/2020 | | |
Average Annual Total Returns as of December 31, 2020
| | | 1 Year | | | 5 Years | | | Since Inception(1) | |
Returns before taxes | | | | | -12.54% | | | | | | 3.27% | | | | | | 6.67% | | |
Returns after taxes on distributions(2) | | | | | -13.15% | | | | | | 1.80% | | | | | | 4.99% | | |
Returns after taxes on distributions and sale of Fund Shares(2) | | | | | -7.38% | | | | | | 1.93% | | | | | | 4.55% | | |
IQ U.S. Real Estate Small Cap Index (reflects no deduction for fees, expenses or taxes) | | | | | -11.92% | | | | | | 4.03% | | | | | | 7.45% | | |
Dow Jones U.S. Real Estate Index (reflects no deduction for fees, expenses or taxes) | | | | | -5.29% | | | | | | 6.72% | | | | | | 8.49% | | |
(1)
(2)
After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those shown and are not relevant if you hold your Shares through tax-deferred arrangements, such as 401(k) plans or individual
retirement accounts. In some cases the return after taxes may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of Fund Shares at the end of the measurement period.
Investment Advisor
IndexIQ Advisors LLC is the investment advisor to the Fund.
Portfolio Manager
The professionals jointly and primarily responsible for the day-to-day management of the Fund are Greg Barrato and James Harrison. Mr. Barrato, Senior Vice President of the Advisor, has been a portfolio manager of the Fund since its inception and Mr. Harrison, Vice President of the Advisor, has been a portfolio manager of the Fund since April 2018.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units.” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
IQ Chaikin U.S. Dividend Achievers ETF
Investment Objective
The Fund seeks investment results that track (before fees and expenses) the price and yield performance of its underlying index, the Nasdaq Chaikin Power US Dividend Achievers Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy, sell or hold shares of the Fund (“Shares”). Investors may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee | | | | | 0.35% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses(a) | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses | | | | | 0.36% | | |
| Expense Waiver/Reimbursement(b) | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses After Waiver/Reimbursement | | | | | 0.35% | | |
(a)
(b)
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
$36 |
|
|
$115 |
|
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. As of the date of this Prospectus, the Fund had not yet commenced operations.
Principal Investment Strategies
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the Underlying Index, which has been developed by Nasdaq, Inc. (the “Index Provider”). The Underlying Index applies a shareholder yield model, an analysis of the price to sales ratio, and the Chaikin Power Gauge®, a quantitative multi-factor model that seeks to identify securities that are expected to outperform peers, to select securities from the Nasdaq US Broad Dividend Achievers Index (the “Parent Index”). The Parent Index is a modified capitalization-weighted index of U.S. securities with at least ten
consecutive years of increasing annual regular dividend payments. The Underlying Index is an equally weighted index of small-, mid and large-capitalization securities. As of June 30, 2021, the market capitalization range of the Underlying Index is approximately $1.4 billion to $377.9 billion. As of June 30, 2021, the primary sectors within the Underlying Index are financials, industrials, consumer staples and consumer discretionary. The composition of the Underlying Index may change over time.
The Underlying Index uses the Chaikin Power Gauge to select securities from the Parent Index. The Chaikin Power Gauge is a multi-factor model that evaluates four primary components:
•
Value component (35% of rating), which uses factors such as long term debt to equity ratio, price to book ratio, and free cash flow to identify companies that are priced at a discount relative to peers;
•
Growth component (20% of rating), which uses factors such as earnings growth, earnings trend, and earnings consistency to identify companies with higher growth potential;
•
Technical component (15% of rating), which uses factors such as price trend, price trend rate of change, and volume trend to identify stocks with strong momentum and price appreciation; and
•
Sentiment component (30% of rating), which uses factors such as earnings estimate trend, short interest, and industry relative strength to identify companies that are expected to outperform peers by informed Wall Street analysts and professionals.
The Chaikin Power Gauge seeks to identify each security’s current potential to outperform or underperform compared with peers.
The Underlying Index also applies a “Shareholder Yield Model” that analyzes dividends paid, net long-term debt issued, share buybacks and market capitalization to seek to identify companies that are positioned to continue delivering returns to shareholders through dividends and stock buybacks.
The security types eligible for inclusion in the Underlying Index include common stocks and real estate investment trusts (“REITS”). The Underlying Index rebalances and reconstitutes annually and typically consists of up to 50 to 65 securities based on the Chaikin Power Gauge ranking.
The Fund generally will invest in all of the securities that comprise its Underlying Index in proportion to their weightings in the Underlying Index. The Fund has adopted a policy to invest, under normal circumstances, at least 80% of the value of its assets (net assets plus the amount of any borrowings for investment purposes) in securities of dividend paying U.S. issuers.
The Fund may invest in one or more ETFs advised by the Advisor (“Affiliated ETFs”) that are not components of the index if such an investment will help the Fund track the Underlying Index.
Principal Risks
As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program. An investment in the Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, the Advisor or any of its affiliates. You should consider carefully the following risks before investing in the Fund.
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber
security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Dividend Paying Security Risk
Securities that pay high dividends can fall out of favor with investors and may underperform the broader market. There is no guarantee that issuers of securities held by the Fund will declare dividends in the future or that, if declared, they will remain at current levels or increase over time.
Equity Securities Risk
Investments in common stocks and other equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Holders of an issuer’s common stock may be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
Focused Investment Risk
To the extent that a Fund invests a large percentage of its assets in a single asset class or the securities of issuers within the same country, group of countries, region, industry, group of industries or sector, an adverse economic, market, political or regulatory development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. Different asset classes, countries, groups of countries, regions, industries, groups of industries or sectors tend to go through cycles of outperformance and underperformance in comparison to each other and to the general financial markets.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
Industry/Sector Concentration Risk
The Fund’s investment of a large percentage of its assets in the securities of issuers within the same industry or sector means that an adverse economic, business or political development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. A concentration makes the Fund more susceptible to any single occurrence and may subject the Fund to greater market risk than a fund that is not so concentrated. To the extent that the Underlying Index is concentrated in a particular industry, the Fund also will be concentrated in that industry.
Consumer Discretionary Sector Risk
Companies in the consumer discretionary sector may be adversely affected by, among other things, the performance of domestic and international economies, exchange and interest rates, worldwide demand, competition, consumer confidence, consumers’ disposable income levels, propensity to spend and consumer preferences, social trends and marketing campaigns.
Consumer Staples Sector Risk
Companies in the consumer staples sector may be adversely affected by, among other things, changes in domestic and international economies, exchange and interest rates, worldwide demand, competition, consumers’ disposable income levels, propensity to spend and consumer preferences, social trends and marketing campaigns. Companies in the consumer staples sector have historically been characterized as relatively cyclical and therefore more volatile in times of change.
Financials Sector Risk
Companies in the financials sector may be adversely affected by, among other things, government regulations, economic conditions, credit rating downgrades, changes in currency exchange rates, volatile interest rates, decreased liquidity in credit markets and competition from new entrants. Profitability of these companies is largely dependent on the availability and cost of capital and can fluctuate significantly when interest rates change. Credit losses resulting from financial difficulties of borrowers also can negatively impact the sector. These companies are often subject to substantial government regulation and
intervention, which may adversely impact the scope of their activities, the prices they can charge, the amount of capital they must maintain and, potentially, their size. The impact of more stringent capital requirements, or recent or future regulation in various countries on any individual financial company or on the financials sector as a whole cannot be predicted. The financials sector is also a target for cyber attacks and may experience technology malfunctions and disruptions.
These companies are often subject to substantial government regulation and intervention, which may adversely impact the scope of their activities, the prices they can charge, the amount of capital they must maintain and, potentially, their size. The impact of more stringent capital requirements, or recent or future regulation in various countries on any individual financial company or on the financials sector as a whole cannot be predicted. The financials sector is also a target for cyber attacks and may experience technology malfunctions and disruptions.
Industrials Sector Risk
Companies in the industrials sector may be affected by, among other things, worldwide economic growth, supply and demand for specific products and services, product obsolescence, environmental damages or product liability claims, rapid technological developments and government regulation. Government spending policies may impact the profitability of the industrials sector since industrials companies, especially aerospace and defense companies, often rely on government demand for their products and services.
Investment Style Risk
The Underlying Index seeks to allocate investment exposure based upon a particular style of investing. Different investment styles tend to shift in and out of favor depending upon market and economic conditions and investor sentiment. As a consequence, the Fund may underperform as compared to the market generally or to other funds that invest in similar asset classes but employ different investment styles. Further, there is no guarantee that the Underlying Index will accurately or optimally utilize the investment style or that it will successfully provide the desired investment exposure.
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
As a new fund, there can be no assurance that the Fund will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index or it could ultimately liquidate. Like other new funds, large inflows and outflows may impact the Fund’s market exposure for limited periods of time. This impact may be positive or negative, depending on the direction of market movement during the period affected.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Index or the index calculation agent may make errors. The index provider may include index
constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask” spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value.
Small- and/or Mid-Capitalization Companies Risk
Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Performance Information
As of the date of this Prospectus, the Fund has not yet commenced operations and therefore does not report its performance information.
Investment Advisor
IndexIQ Advisors LLC (the “Advisor”) is the investment advisor to the Fund.
Portfolio Manager
The professionals jointly and primarily responsible for the day-to-day management of the Fund are Greg Barrato, Senior Vice President of the Advisor and James Harrison, Vice President of the Advisor. Mr. Barrato and Mr. Harrison will each serve as a portfolio manager of the Fund upon its inception.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units.” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
IQ Chaikin U.S. Large Cap ETF
Investment Objective
The Fund seeks investment results that track (before fees and expenses) the price and yield performance of its underlying index, the Nasdaq Chaikin Power US Large Cap Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy, sell or hold shares of the Fund (“Shares”). Investors may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee | | | | | 0.25% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses | | | | | 0.26% | | |
| Expense Waiver/Reimbursement(a) | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses After Waiver/Reimbursement | | | | | 0.25% | | |
(a)
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$26 |
|
|
$83 |
|
|
$145 |
|
|
$330 |
|
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 68% of the average value of the portfolio. This rate excludes the value of the portfolio securities received or delivered as a result of in-kind creations or redemptions of the Fund’s Shares.
Principal Investment Strategies
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the Underlying Index, which has been developed by Nasdaq, Inc. (the “Index Provider”). The Underlying Index applies the Chaikin Power Gauge®, a quantitative multi-factor model that seeks to identify securities that are expected to outperform peers, to select securities from the Nasdaq US 300 Index (the “Parent Index”). The Parent Index is a modified capitalization-weighted index of U.S. large-capitalization securities. The Underlying Index is an equally weighted index of large-capitalization securities. As of June 30, 2021, the market
capitalization range of the Underlying Index is approximately $14.6 billion to $2,036.9 billion. As of June 30, 2021, the primary sectors within the Underlying Index are information technology, health care, financials, industrials and consumer discretionary. The composition of the Underlying Index may change over time.
The Underlying Index uses the Chaikin Power Gauge to select securities from the Parent Index. The Chaikin Power Gauge is a multi-factor model that evaluates four primary components:
•
Value component (35% of rating), which uses factors such as long term debt to equity ratio, price to book ratio, and free cash flow to identify companies that are priced at a discount relative to peers;
•
Growth component (20% of rating), which uses factors such as earnings growth, earnings trend, and earnings consistency to identify companies with higher growth potential;
•
Technical component (15% of rating), which uses factors such as price trend, price trend rate of change, and volume trend to identify stocks with strong momentum and price appreciation; and
•
Sentiment component (30% of rating), which uses factors such as earnings estimate trend, short interest, and industry relative strength to identify companies that are expected to outperform peers by informed Wall Street analysts and professionals.
The Chaikin Power Gauge seeks to identify each security’s current potential to outperform or underperform compared with peers.
To be selected for inclusion in the Underlying Index, a security must rank in the least volatile two-thirds of the Parent Index based on a calculation of its volatility over the prior year period and its sensitivity to the performance of the equity market (as measured by its beta) over the previous five year period.
The security types eligible for inclusion in the Underlying Index include common stocks and real estate investment trusts (“REITs”). The Underlying Index rebalances and reconstitutes annually and typically consists of up to 100 securities based on the Chaikin Power Gauge ranking. The Underlying Index selection criteria uses sector constraints to maintain exposure to the different sectors within a range of 80% to 120% of the weight of the sector in the Parent Index.
The Fund generally will invest in all of the securities that comprise its Underlying Index in proportion to their weightings in the Underlying Index. The Fund has adopted a policy to invest, under normal circumstances, at least 80% of the value of its assets (net assets plus the amount of any borrowings for investment purposes) in securities of large-capitalization U.S. issuers.
The Fund may invest in one or more ETFs advised by the Advisor (“Affiliated ETFs”) that are not components of the index if such an investment will help the Fund track the Underlying Index.
Principal Risks
As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program. An investment in the Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, the Advisor or any of its affiliates. You should consider carefully the following risks before investing in the Fund.
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Equity Securities Risk
Investments in common stocks and other equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Holders of an issuer’s common stock may be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
Focused Investment Risk
To the extent that a Fund invests a large percentage of its assets in a single asset class or the securities of issuers within the same country, group of countries, region, industry, group of industries or sector, an adverse economic, market, political or regulatory development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. Different asset classes, countries, groups of countries, regions, industries, groups of industries or sectors tend to go through cycles of outperformance and underperformance in comparison to each other and to the general financial markets.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
Industry/Sector Concentration Risk
The Fund’s investment of a large percentage of its assets in the securities of issuers within the same industry or sector means that an adverse economic, business or political development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. A concentration makes the Fund more susceptible to any single occurrence and may subject the Fund to greater market risk than a fund that is not so concentrated.
Consumer Discretionary Sector Risk
Companies in the consumer discretionary sector may be adversely affected by, among other things, the performance of domestic and international economies, exchange and interest rates, worldwide demand, competition, consumer confidence, consumers’ disposable income levels, propensity to spend and consumer preferences, social trends and marketing campaigns.
Financials Sector Risk
Companies in the financials sector may be adversely affected by, among other things, government regulations, economic conditions, credit rating downgrades, changes in currency exchange rates, volatile interest rates, decreased liquidity in credit markets and competition from new entrants. Profitability of these companies is largely dependent on the availability and cost of capital and can fluctuate significantly when interest rates change. Credit losses resulting from financial difficulties of borrowers also can negatively impact the sector. These companies are often subject to substantial government regulation and intervention, which may adversely impact the scope of their activities, the prices they can charge, the amount of capital they must maintain and, potentially, their size. The impact of more stringent capital requirements, or recent or future regulation in various countries on any individual financial company or on the financials sector as a whole cannot be predicted. The financials sector is also a target for cyber attacks and may experience technology malfunctions and disruptions.
These companies are often subject to substantial government regulation and intervention, which may adversely impact the scope of their activities, the prices they can charge, the amount of capital they must maintain and, potentially, their size. The impact of more stringent capital requirements, or recent or future regulation in various countries on any individual financial company or on the financials sector as a whole cannot be predicted. The financials sector is also a target for cyber attacks and may experience technology malfunctions and disruptions.
Health Care Sector Risk
Companies in the health care sector may be adversely affected by, among other things, extensive, costly and uncertain government regulation, restrictions on government reimbursement for medical expenses, product obsolescence, increased emphasis on outpatient services, limited number of products and
fluctuations in the costs of medical products. Many health care companies are heavily dependent on intellectual property protection, and the expiration of a company’s patent may impact that company’s profitability. Many health care companies are subject to extensive litigation based on product liability and similar claims. Health care companies are subject to competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting. Many new products in the health care sector may be subject to regulatory approvals. The process of obtaining such approvals may be long and costly with no guarantee that any product will come to market.
Industrials Sector Risk
Companies in the industrials sector may be affected by, among other things, worldwide economic growth, supply and demand for specific products and services, product obsolescence, environmental damages or product liability claims, rapid technological developments and government regulation. Government spending policies may impact the profitability of the industrials sector since industrials companies, especially aerospace and defense companies, often rely on government demand for their products and services.
Information Technology Sector Risk
Companies in the information technology sector may be adversely affected by, among other things, domestic and international market competition, obsolescence due to rapid technological developments, new product introduction, unpredictable growth rates and competition for qualified personnel. Aggressive pricing and reduced profit margins, intellectual property rights protections, cyclical market patterns and evolving industry standards and government regulations may also impact information technology companies. The market prices of information technology securities may exhibit a greater degree of market risk and more frequent, sharp price fluctuations than other types of securities. These securities may fall in and out of favor with investors rapidly, which may cause sudden selling and dramatically lower market prices.
Investment Style Risk
The Underlying Index seeks to allocate investment exposure based upon a particular style of investing. Different investment styles tend to shift in and out of favor depending upon market and economic conditions and investor sentiment. As a consequence, the Fund may underperform as compared to the market generally or to other funds that invest in similar asset classes but employ different investment styles. Further, there is no guarantee that the Underlying Index will accurately or optimally utilize the investment style or that it will successfully provide the desired investment exposure.
Large-Capitalization Companies Risk
Large-capitalization companies may be less able than smaller capitalization companies to adapt to changing market conditions. Large-capitalization companies may be more mature and subject to more limited growth potential compared with smaller capitalization companies. During different market cycles, the performance of large-capitalization companies has trailed the overall performance of the broader securities markets.
Market Risk
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Index or the index calculation agent may make errors. The index provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask” spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Performance Information
The bar chart that follows shows the annual total returns of the Fund for a full calendar year. The table that follows the bar chart shows the Fund’s average annual total return, both before and after taxes. The bar chart and table provide an indication of the risks of investing in the Fund by comparing the Fund’s performance from year to year and by showing how the Fund’s average annual returns for one calendar year compared with its underlying index and additional broad measures of market performance. The Nasdaq Chaikin US Large Cap Index is a rules-based, quantitative index, designed to enhance an existing index by selecting stocks with the
highest Chaikin Power Gauge rating. The S&P 500® Index is widely regarded as the standard index for measuring large-cap U.S. stock market performance. The NASDAQ US 300 Index includes up to the 300 largest securities in the NASDAQ US Large Cap Index, a float-adjusted market capitalization-weighted index, designed to track the performance of securities in NASDAQ US Benchmark Index that comprises the large-cap segment of companies.
All returns assume reinvestment of dividends and distributions. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Performance reflects fee waivers and/or expense reimbursement in effect, if such waivers or reimbursements were not in place, the Fund’s performance would be reduced. Fund performance current to the most recent month-end is available by calling 1-888-474-7725 or by visiting newyorklifeinvestments.com.
The Fund’s year-to-date total returns as of June 30, 2021 was 15.02%.
Best and Worst Quarter Returns (for the period reflected in the bar chart above)
| | | Return | | | Quarter/Year | |
Highest Return | | | | | 21.17% | | | | | | 2Q/2020 | | |
Lowest Return | | | | | -28.15% | | | | | | 1Q/2020 | | |
Average Annual Total Returns as of December 31, 2020
| | | 1 Year | | | Since Inception(1) | |
Returns before taxes | | | | | 10.04% | | | | | | 7.21% | | |
Returns after taxes on distributions(2) | | | | | 9.51% | | | | | | 6.57% | | |
Returns after taxes on distributions and sales of Fund Shares(2) | | | | | 6.16% | | | | | | 5.35% | | |
NASDAQ Chaikin Power US Large Cap Index (reflects no deduction for fees, expenses or taxes) | | | | | 10.33% | | | | | | 7.50% | | |
S&P 500 Total Return Index (reflects no deduction for fees, expenses or taxes) | | | | | 17.75% | | | | | | 13.42% | | |
NASDAQ US 300 Total Return Index (reflects no deduction for fees, expenses or taxes) | | | | | 21.74% | | | | | | 15.28% | | |
(1)
(2)
Investment Advisor
IndexIQ Advisors LLC (the “Advisor”) is the investment advisor to the Fund.
Portfolio Manager
The professionals jointly and primarily responsible for the day-to-day management of the Fund are Greg Barrato and James Harrison. Mr. Barrato, Senior Vice President of the Advisor, has been a portfolio manager of the Fund since its inception and Mr. Harrison, Vice President of the Advisor, has been a portfolio manager of the Fund since April 2018.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units.” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
IQ Chaikin U.S. Small Cap ETF
Investment Objective
The Fund seeks investment results that track (before fees and expenses) the price and yield performance of its underlying index, the Nasdaq Chaikin Power US Small Cap Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy, sell or hold shares of the Fund (“Shares”). Investors may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee | | | | | 0.35% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses | | | | | 0.36% | | |
| Expense Waiver/Reimbursement(a) | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses After Waiver/Reimbursement | | | | | 0.35% | | |
(a)
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$36 |
|
|
$115 |
|
|
$201 |
|
|
$455 |
|
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 76% of the average value of the portfolio. This rate excludes the value of the portfolio securities received or delivered as a result of in-kind creations or redemptions of the Fund’s Shares.
Principal Investment Strategies
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the Underlying Index, which has been developed by Nasdaq, Inc. (the “Index Provider”). The Underlying Index applies the Chaikin Power Gauge®, a quantitative multi-factor model that seeks to identify securities that are expected to outperform peers, to select securities from the Nasdaq US 1500 Index (the “Parent Index”). The Underlying Index is an equally weighted index of small-capitalization securities. As of June 30, 2021, the market capitalization range of the Underlying Index is approximately $108 million to
$10.9 billion. As of June 31, 2021, the primary sectors within the Underlying Index are financials, industrials, health care, consumer discretionary, and information technology. The composition of the Underlying Index may change over time.
The Underlying Index uses the Chaikin Power Gauge to select securities from the Parent Index. The Chaikin Power Gauge is a multi-factor model that evaluates four primary components:
•
Value component (35% of rating), which uses factors such as long term debt to equity ratio, price to book ratio, and free cash flow to identify companies that are priced at a discount relative to peers;
•
Growth component (20% of rating), which uses factors such as earnings growth, earnings trend, and earnings consistency to identify companies with higher growth potential;
•
Technical component (15% of rating), which uses factors such as price trend, price trend rate of change, and volume trend to identify stocks with strong momentum and price appreciation; and
•
Sentiment component (30% of rating), which uses factors such as earnings estimate trend, short interest, and industry relative strength to identify companies that are expected to outperform peers by informed Wall Street analysts and professionals.
The Chaikin Power Gauge seeks to identify each security’s current potential to outperform or underperform compared with peers.
To be selected for inclusion in the Underlying Index, a security must rank in the least volatile two-thirds of the Parent Index based on a calculation of its volatility over the prior year period and its sensitivity to the performance of the equity market (as measured by its beta) over the previous five year period.
The security types eligible for inclusion in the Underlying Index include common stocks and real estate investment trusts (REITs). The Underlying Index rebalances and reconstitutes annually and typically consists of up to 500 securities based on the Chaikin Power Gauge ranking. The Underlying Index selection criteria uses sector constraints to maintain exposure to the different sectors within a range of 80% to 120% of the weight of the sector in the Parent Index.
The Fund generally will invest in all of the securities that comprise its Underlying Index in proportion to their weightings in the Underlying Index. The Fund has adopted a policy to invest, under normal circumstances, at least 80% of the value of its assets (net assets plus the amount of any borrowings for investment purposes) in securities of small-capitalization U.S. issuers.
The Fund may invest in one or more ETFs advised by the Advisor (“Affiliated ETFs”) that are not components of the index if such an investment will help the Fund track the Underlying Index.
Principal Risks
As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program. An investment in the Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, the Advisor or any of its affiliates. You should consider carefully the following risks before investing in the Fund.
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Equity Securities Risk
Investments in common stocks and other equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Holders of an issuer’s common stock may be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
Focused Investment Risk
To the extent that a Fund invests a large percentage of its assets in a single asset class or the securities of issuers within the same country, group of countries, region, industry, group of industries or sector, an adverse economic, market, political or regulatory development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. Different asset classes, countries, groups of countries, regions, industries, groups of industries or sectors tend to go through cycles of outperformance and underperformance in comparison to each other and to the general financial markets.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
Industry/Sector Concentration Risk
The Fund’s investment of a large percentage of its assets in the securities of issuers within the same industry or sector means that an adverse economic, business or political development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. A concentration makes the Fund more susceptible to any single occurrence and may subject the Fund to greater market risk than a fund that is not so concentrated.
Consumer Discretionary Sector Risk
Companies in the consumer discretionary sector may be adversely affected by, among other things, the performance of domestic and international economies, exchange and interest rates, worldwide demand, competition, consumer confidence, consumers’ disposable income levels, propensity to spend and consumer preferences, social trends and marketing campaigns.
Financials Sector Risk
Companies in the financials sector may be adversely affected by, among other things, government regulations, economic conditions, credit rating downgrades, changes in currency exchange rates, volatile interest rates, decreased liquidity in credit markets and competition from new entrants. Profitability of these companies is largely dependent on the availability and cost of capital and can fluctuate significantly when interest rates change. Credit losses resulting from financial difficulties of borrowers also can negatively impact the sector.
These companies are often subject to substantial government regulation and intervention, which may adversely impact the scope of their activities, the prices they can charge, the amount of capital they must maintain and, potentially, their size. The impact of more stringent capital requirements, or recent or future regulation in various countries on any individual financial company or on the financials sector as a whole cannot be predicted. The financials sector is also a target for cyber attacks and may experience technology malfunctions and disruptions.
Health Care Sector Risk
Companies in the health care sector may be adversely affected by, among other things, extensive, costly and uncertain government regulation, restrictions on government reimbursement for medical expenses, product obsolescence, increased emphasis on outpatient services, limited number of products and fluctuations in the costs of medical products. Many health care companies are heavily dependent on intellectual property protection, and the expiration of a company’s patent may impact that company’s profitability. Many health care companies are subject to extensive litigation based on product liability and
similar claims. Health care companies are subject to competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting. Many new products in the health care sector may be subject to regulatory approvals. The process of obtaining such approvals may be long and costly with no guarantee that any product will come to market.
Industrials Sector Risk
Companies in the industrials sector may be affected by, among other things, worldwide economic growth, supply and demand for specific products and services, product obsolescence, environmental damages or product liability claims, rapid technological developments and government regulation. Government spending policies may impact the profitability of the industrials sector since industrials companies, especially aerospace and defense companies, often rely on government demand for their products and services.
Information Technology Sector Risk
Companies in the information technology sector may be adversely affected by, among other things, domestic and international market competition, obsolescence due to rapid technological developments, new product introduction, unpredictable growth rates and competition for qualified personnel. Aggressive pricing and reduced profit margins, intellectual property rights protections, cyclical market patterns and evolving industry standards and government regulations may also impact information technology companies. The market prices of information technology securities may exhibit a greater degree of market risk and more frequent, sharp price fluctuations than other types of securities. These securities may fall in and out of favor with investors rapidly, which may cause sudden selling and dramatically lower market prices.
Investment Style Risk
The Underlying Index seeks to allocate investment exposure based upon a particular style of investing. Different investment styles tend to shift in and out of favor depending upon market and economic conditions and investor sentiment. As a consequence, the Fund may underperform as compared to the market generally or to other funds that invest in similar asset classes but employ different investment styles. Further, there is no guarantee that the Underlying Index will accurately or optimally utilize the investment style or that it will successfully provide the desired investment exposure.
Market Risk
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Index or the index calculation agent may make errors. The index provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Portfolio Turnover Risk
The Fund’s strategy may frequently involve buying and selling portfolio securities to rebalance the Fund’s investment exposures. High portfolio turnover may result in the Fund paying higher levels of transaction costs and generating greater tax liabilities for shareholders. Portfolio turnover risk may cause the Fund’s performance to be less than expected.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask” spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value.
Small- and/or Mid-Capitalization Companies Risk
Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Performance Information
The bar chart that follows shows the annual total returns of the Fund for a full calendar year. The table that follows the bar chart shows the Fund’s average annual total return, both before and after taxes. The bar chart and table provide an indication of the risks of investing in the Fund by comparing the Fund’s performance from year to year and by showing how the Fund’s average annual returns for one calendar year compared with its underlying index and additional broad measures of market performance. The Nasdaq Chaikin US Small Cap Index is a rules-based, quantitative index, designed to enhance an existing index by selecting stocks with the
highest Chaikin Power Gauge rating. The Russell 2000 Index is a small cap market index of the bottom 2,000 stocks in the Russell 3000 Index. The NASDAQ 1500 Index includes up to the 1500 largest securities in the NASDAQ US Small Cap Index.
All returns assume reinvestment of dividends and distributions. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Performance reflects fee waivers and/or expense reimbursement in effect, if such waivers or reimbursements were not in place, the Fund’s performance would be reduced. Fund performance current to the most recent month-end is available by calling 1-888-474-7725 or by visiting newyorklifeinvestments.com.
The Fund’s year-to-date total returns as of June 30, 2021 was 22.66%.
Best and Worst Quarter Returns (for the period reflected in the bar chart above)
| | | Return | | | Quarter/Year | |
Highest Return | | | | | 32.16% | | | | | | 4Q/2020 | | |
Lowest Return | | | | | -36.78% | | | | | | 1Q/2020 | | |
Average Annual Total Returns as of December 31, 2020
| | | 1 Year | | | Since Inception(1) | |
Returns before taxes | | | | | 7.80% | | | | | | 5.24% | | |
Returns after taxes on distributions(2) | | | | | 7.48% | | | | | | 4.91% | | |
Returns after taxes on distributions and sales of Fund Shares(2) | | | | | 4.77% | | | | | | 3.94% | | |
NASDAQ Chaikin Power US Small Cap Index (reflects no deduction for fees, expenses or taxes) | | | | | 8.20% | | | | | | 5.71% | | |
Russell 2000 Index (reflects no deduction for fees, expenses or taxes) | | | | | 19.96% | | | | | | 11.58% | | |
NASDAQ 1500 Index (reflects no deduction for fees, expenses or taxes) | | | | | 22.69% | | | | | | 12.20% | | |
(1)
(2)
Investment Advisor
IndexIQ Advisors LLC (the “Advisor”) is the investment advisor to the Fund.
Portfolio Manager
The professionals jointly and primarily responsible for the day-to-day management of the Fund are Greg Barrato and James Harrison. Mr. Barrato, Senior Vice President of the Advisor, has been a portfolio manager of the Fund since its inception and Mr. Harrison, Vice President of the Advisor, has been a portfolio manager of the Fund since April 2018.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units.” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
IQ 50 Percent Hedged FTSE International ETF
Investment Objective
The Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index, the FTSE Developed ex North America 50% Hedged to USD Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy and hold shares of the Fund (“Shares”). Most investors will incur customary brokerage commissions when buying or selling Shares of the Fund, which are not reflected in the table set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee | | | | | 0.35% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses | | | | | 0.36% | | |
| Expense Waiver/Reimbursement(a) | | | | | 0.16% | | |
| Total Annual Fund Operating Expenses After Expense Waiver/Reimbursement | | | | | 0.20% | | |
(a)
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$20 |
|
|
$99 |
|
|
$186 |
|
|
$440 |
|
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 10% of the average value of its portfolio. This rate excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Fund’s Shares.
Principal Investment Strategies
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the Underlying Index, which was developed by FTSE International Ltd. (“FTSE”). The Underlying Index is an equity benchmark of international stocks from developed markets, with approximately half of the currency exposure of the securities included in the Underlying Index “hedged” against the U.S. dollar on a monthly basis. The Underlying Index includes stocks from Europe, Australasia, and the Far East and as of June 30, 2021, consisted of the following 24 developed market countries: Australia, Austria, Belgium, Denmark, Finland,
France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Singapore, South Korea, Spain, Sweden, Switzerland and the United Kingdom. The Underlying Index is a float-adjusted, market-capitalization-weighted index designed to measure equity market performance of developed international equity markets. The Underlying Index includes primarily large- and mid-capitalization companies. As of June 30, 2021, a significant portion of the Underlying Index is represented by securities of companies in the consumer discretionary, consumer staples, financials, health care and industrials. The composition of the Underlying Index may change over time.
The Underlying Index and the Fund’s NAV are denominated in U.S. dollars, while the component securities of the Underlying Index are generally denominated in foreign currencies. The Underlying Index is designed to reduce by approximately half the Fund’s exposure to fluctuations in the value of component currencies relative to the U.S. dollar. The Underlying Index applies a one month forward rate to approximately half of the value of the non-U.S. dollar denominated securities included in the Underlying Index to hedge against fluctuations for this portion of the Fund’s exposure to component securities relative to the U.S. dollar. The hedge is reset on a monthly basis.
The Fund invests, under normal circumstances, at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the securities and other instruments included in its Underlying Index.
The Fund is expected to have lower returns than a similar fund that does not hedge any of its currency exposure when the component currencies are rising relative to the U.S. dollar. The Fund is expected to have higher returns than a similar unhedged fund when the component currencies are falling relative to the U.S. dollar. In order to replicate the hedging component of the Underlying Index, the Fund intends to enter into foreign currency forward contracts and futures contracts designed to offset approximately half of the Fund’s exposure to the component currencies. A foreign currency forward contract is a contract between two parties to buy or sell a specified amount of a specific currency in the future at an agreed upon exchange rate. The Fund’s exposure to foreign currency forward contracts is based on approximately half of the Fund’s aggregate exposure to the component currencies.
The Fund may also invest its assets in cash and cash equivalents, as well as in shares of other investment companies, options and swaps. To the extent that the Underlying Index concentrates (i.e., holds 25% or more of its total assets) in the securities of a particular industry or group of industries, the Fund will concentrate its investment to approximately the same extent as the Underlying Index.
The Underlying Index is sponsored by an organization (the “Index Provider”) that is independent of the Fund and Advisor. The Index Provider determines the composition and relative weightings of the securities in the Underlying Index and publishes information regarding the market value of the Underlying Index. The Fund’s Index Provider is FTSE International LTD., a widely known global index provider that currently manages and calculates more than 120,000 indices daily.
The Fund may invest in one or more ETFs advised by the Advisor (“Affiliated ETFs”) that are not components of the index if such an investment will help the Fund track the Underlying Index.
Principal Risks
As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program. An investment in the Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, the Advisor or any of its affiliates. You should consider carefully the following risks before investing in the Fund.
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective
measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Currency Hedging Risk
The Fund uses various strategies to attempt to reduce the impact of changes in the value of a foreign currency against the U.S. dollar. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. Hedges are sometimes subject to imperfect matching between the hedging transaction and the risk sought to be hedged and there can be no assurance that the Fund’s hedging transactions will be successful. Currency exchange rates can be very volatile and can change quickly and unpredictably. Therefore, the value of an investment in the Fund may also go up or down quickly and unpredictably, and investors may lose money.
Currency Risk
Investments directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign (non-U.S.) currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad.
Depositary Receipts Risk
Sponsored and unsponsored depositary receipts involve risk not experienced when investing directly in the equity securities of an issuer. Depositary receipts may be less liquid than the underlying shares in their primary trading market. Any distributions paid to the holders of depositary receipts are usually subject to a fee charged by the depositary. Holders of depositary receipts may have limited voting rights, and investment restrictions in certain countries may adversely impact the value of depositary receipts.
Derivatives Risk
Derivatives are investments whose value depends on (or is derived from) the value of an underlying instrument, such as a security, asset, reference rate or index and involve risks different from, and possibly greater than, the risks associated with other investments. These risks include: (i) the risk that the counterparty to a derivatives transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. Such prices are influenced by numerous factors that affect the markets, including, but not limited to, changing supply and demand relationships, government programs and policies, national and international political and economic events, changes in interest rates, inflation and deflation, and changes in supply and demand relationships. Unlike other investments, derivative contracts often have leverage inherent in their terms. The use of leveraged derivatives can magnify potential for gain or loss and, therefore, amplify the effects of market volatility on the Fund’s Share price. The effects of leverage may also cause the Fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations or to meet collateral segregation requirements.
Equity Securities Risk
Investments in common stocks and other equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Holders of an issuer’s common stock may be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
Focused Investment Risk
To the extent that the Fund invests a large percentage of its assets in a single asset class or the securities of issuers within the same country, group of countries, region, industry, group of industries or sector, an adverse economic, market, political or regulatory development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. Different asset classes, countries, groups of countries, regions, industries, groups of industries or sectors tend to go through cycles of outperformance and underperformance in comparison to each other and to the general financial markets.
Foreign Currency Forward Contracts Risk
When trading in foreign currency forward contracts, the Fund will contract with a foreign or domestic bank, or a foreign or domestic securities dealer, to make or take future delivery of a specified amount of a particular currency. There are no limitations on daily price moves in such forward contracts, and banks and dealers are not required to continue to make markets in such contracts. Governmental imposition of credit controls might limit any such forward contract trading. Foreign currency forward contracts involve certain risks, including the risk of failure of the counterparty to perform its obligations under the contract and the risk that the use of forward contracts may not serve as a complete hedge because of an imperfect correlation between movements in the prices of the contracts and the prices of the currencies hedged.
Foreign Securities Risk
Investments in the securities of non-U.S. issuers involve risks beyond those associated with investments in U.S. securities. These additional risks include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Some countries and regions have experienced security concerns, war or threats of war and aggression, terrorism, economic uncertainty, natural and environmental disasters and/or systemic market dislocations that have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on the U.S. and world economies and markets generally. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing, financial reporting and record keeping than are U.S. issuers, and therefore not all material information will be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact the Fund’s ability to invest in foreign securities or may prevent the Fund from repatriating its investments. Less developed securities markets are more likely to experience problems with the clearing and settling of trades, as well as the holding of securities by local banks, agents and depositories. The less developed a country’s securities market is, the greater the likelihood of custody problems.
Foreign Securities Valuation Risk
The Fund’s value may be impacted by events that cause the fair value of foreign securities to materially change between the close of the local exchange on which they trade and the time at which the Fund prices its Shares. Additionally, because foreign exchanges on which securities held by the Fund may be open on days when the Fund does not price its Shares, the potential exists for the value of the securities in the Fund’s portfolio to change on days when shareholders will not be able to purchase or sell Shares. To the extent the Fund calculates its NAV based on fair value prices and the value of the Underlying Index is based on the securities’ closing price on foreign securities markets (i.e., the value of the Underlying Index is not based on fair value prices), the valuation of the Fund’s NAV may deviate from the calculation of the Underlying Index.
Geographic Concentration Risk
The Fund may invest a substantial amount of its assets in securities of issuers located in a single country or geographic region. As a result, any changes to the regulatory, political, social or economic conditions in such country or geographic region will generally have greater impact on the Fund than such changes would have on a more geographically diversified fund and may result in increased volatility and greater losses. This risk may be especially pronounced to the extent the Fund invests in countries and regions experiencing, or likely to experience, security concerns, war, threats of war, terrorism, economic uncertainty and natural disasters.
•
Europe Concentration Risk. Most developed countries in Western Europe are members of the European Union (“EU”), and many are also members of the European Monetary Union (“EMU”), which requires compliance with restrictions on inflation rates, deficits and debt levels. Unemployment in certain European nations is historically high and several countries face significant debt problems. These conditions can significantly affect every country in Europe. The euro is the official currency of the EU and, accordingly, the Fund’s investment in European securities may lead to significant exposure to the euro and events affecting it. Recent market events affecting several EU member countries have adversely affected the sovereign debt issued by those countries, and ultimately may lead to a decline in the value of the euro. A significant decline in the value of the euro, or the exit of a country from the EU or EMU, may produce unpredictable effects on trade and commerce generally and could lead to increased volatility in financial markets worldwide. Political or economic disruptions in European countries, even in countries in which the Fund is not invested, may adversely affect security values and thus the Fund’s holdings. In particular, the Fund’s investments in the United Kingdom and other European countries may
be significantly impacted by the decision of the United Kingdom to leave the EU (known as “Brexit”). Brexit has introduced significant uncertainty and may have a negative impact on the economy and currency of the United Kingdom and European countries, including increased market volatility and illiquidity and potentially lower economic growth.
•
Japan Concentration Risk. Economic growth in Japan is heavily dependent on international trade, government support, and consistent government policy. Slowdowns in the economies of key trading partners such as the United States, China and countries in Southeast Asia, or disruptions to trade caused by trade tariffs, other protectionist measures, and competition from emerging economies, could have a negative impact on the Japanese economy as a whole. The Japanese economy has in the past been negatively affected by, among other factors, government intervention and protectionism and an unstable financial services sector. While the Japanese economy has recently emerged from a prolonged economic downturn, some of these factors, as well as other adverse political developments, increases in government debt, changes to fiscal, monetary or trade policies or other events, such as natural disasters, could have a negative impact on Japanese securities. Japan’s economic prospects may be affected by the political and military situations of its near neighbors, notably North and South Korea, China and Russia. In addition, Japan’s labor market is adapting to an aging workforce, declining population, and demand for increased labor mobility. These demographic shifts and fundamental structural changes to the labor markets may negatively impact Japan’s economic competitiveness.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
Industry/Sector Concentration Risk
The Fund’s investment of a large percentage of its assets in the securities of issuers within the same industry or sector means that an adverse economic, business or political development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. A concentration makes the Fund more susceptible to any single occurrence and may subject the Fund to greater market risk than a fund that is not so concentrated.
Consumer Discretionary Sector Risk
Companies in the consumer discretionary sector may be adversely affected by, among other things, the performance of domestic and international economies, exchange and interest rates, worldwide demand, competition, consumer confidence, consumers’ disposable income levels, propensity to spend and consumer preferences, social trends and marketing campaigns
Consumer Staples Sector Risk
Companies in the consumer staples sector may be adversely affected by, among other things, changes in domestic and international economies, exchange and interest rates, worldwide demand, competition, consumers’ disposable income levels, propensity to spend and consumer preferences, social trends and marketing campaigns. Companies in the consumer staples sector have historically been characterized as relatively cyclical and therefore more volatile in times of change.
Financials Sector Risk
Companies in the financials sector may be adversely affected by, among other things, government regulations, economic conditions, credit rating downgrades, changes in currency exchange rates, volatile interest rates, decreased liquidity in credit markets and competition from new entrants. Profitability of these companies is largely dependent on the availability and cost of capital and can fluctuate significantly when interest rates change. Credit losses resulting from financial difficulties of borrowers also can negatively impact the sector.
These companies are often subject to substantial government regulation and intervention, which may adversely impact the scope of their activities, the prices they can charge, the amount of capital they must maintain and, potentially, their size. The impact of more stringent capital requirements, or recent or future
regulation in various countries on any individual financial company or on the financials sector as a whole cannot be predicted. The financials sector is also a target for cyber attacks and may experience technology malfunctions and disruptions.
Industrials Sector Risk
Companies in the industrials sector may be affected by, among other things, worldwide economic growth, supply and demand for specific products and services, product obsolescence, environmental damages or product liability claims, rapid technological developments and government regulation. Government spending policies may impact the profitability of the industrials sector since industrials companies, especially aerospace and defense companies, often rely on government demand for their products and services.
Healthcare Sector Risk
Companies in the health care sector may be adversely affected by, among other things, extensive, costly and uncertain government regulation, restrictions on government reimbursement for medical expenses, product obsolescence, increased emphasis on outpatient services, limited number of products and fluctuations in the costs of medical products. Many health care companies are heavily dependent on intellectual property protection, and the expiration of a company’s patent may impact that company’s profitability. Many health care companies are subject to extensive litigation based on product liability and similar claims. Health care companies are subject to competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting. Many new products in the health care sector may be subject to regulatory approvals. The process of obtaining such approvals may be long and costly with no guarantee that any product will come to market.
Liquidity Risk
Liquidity risk exists when particular investments are difficult to purchase or sell. Certain investments may be subject to restrictions on resale, trade over-the-counter or in limited volume, or lack an active trading market. Accordingly, the Fund may not be able to sell or close out of such investments at favorable times or prices (or at all), or at the prices approximating those at which the Fund currently values them. Illiquid securities may trade at a discount from comparable, more liquid investments and may be subject to wide fluctuations in market value.
Market Risk
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on a Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Index or the index calculation agent may make errors. The index provider may include index
constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask” spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Valuation Risk
Independent market quotations for certain investments held by the Fund may not be readily available, and such investments may be fair valued or valued by a pricing service at an evaluated price. These valuations involve subjectivity and different market participants may assign different prices to the same investment. As a result, there is a risk that the Fund may not be able to sell an investment at the price assigned to the investment by the Fund. In addition, the value of the securities or other assets in the Fund’s portfolio may change on days or during time periods when shareholders will not be able to purchase or sell the Fund’s Shares.
Performance Information
The bar chart that follows shows the annual total returns of the Fund for a full calendar year. The table that follows the bar chart shows the Fund’s average annual total returns, both before and after taxes. The bar chart and table provide an indication of the risks of investing in the Fund by comparing the Fund’s performance from year to year and by showing how the Fund’s average annual returns for one calendar year compared with its
underlying index and additional broad measures of market performance. The FTSE Developed ex North America Index Local Currency is comprised of large and mid-cap stocks in developed markets, excluding the U.S. and Canada and represents the performance without any impact from foreign exchange fluctuations. The FTSE Developed ex North America Index is comprised of large- and mid-cap stocks in developed markets, excluding the U.S. and Canada.
All returns assume reinvestment of dividends and distributions. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Performance reflects fee waivers and/or expense reimbursement in effect if such waivers or reimbursements were not in place, the Fund’s performance would be reduced. Fund performance current to the most recent month-end is available by calling 1-888-474-7725 or by visiting newyorklifeinvestments.com.
The Fund’s year-to-date total return as of June 30, 2021 was 10.64%.
Best and Worst Quarter Returns (for the period reflected in the bar chart above)
| | | Return | | | Quarter/Year | |
Highest Return | | | | | 15.04% | | | | | | 4Q/2020 | | |
Lowest Return | | | | | -21.31% | | | | | | 1Q/2020 | | |
Average Annual Total Returns as of December 31, 2020
| | | 1 Year | | | 5 Year | | | Since Inception(1) | |
Returns before taxes | | | | | 7.20% | | | | | | 7.89% | | | | | | 5.60% | | |
Returns after taxes on distributions(2) | | | | | 6.70% | | | | | | 6.96% | | | | | | 4.72% | | |
Returns after taxes on distributions and sale of Fund Shares(2) | | | | | 4.65% | | | | | | 5.95% | | | | | | 4.13% | | |
FTSE Developed ex North America 50% Hedged to USD Index (reflects no deduction for fees, expenses or taxes) | | | | | 7.57% | | | | | | 8.29% | | | | | | 6.06% | | |
FTSE Developed ex North America Index Local Currency (reflects no deduction for fees, expenses or taxes) | | | | | 4.85% | | | | | | 8.29% | | | | | | 6.18% | | |
FTSE Developed ex North America Index (reflects no deduction for fees, expenses or taxes) | | | | | 10.28% | | | | | | 8.22% | | | | | | 5.87% | | |
(1)
(2)
Investment Advisor
IndexIQ Advisors LLC (the “Advisor”) is the investment advisor to the Fund.
Portfolio Manager
The professionals primarily responsible for the day-to-day management of the Fund are Greg Barrato. And James Harrison Mr. Barrato, Senior Vice President of the Advisor, has been a portfolio manager of the Fund since its inception and Mr. Harrison, Vice President of the Advisor, has been a portfolio manager of the Fund since April 2018.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units.” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF
Investment Objective
The Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index, the S&P U.S. Preferred Stock Low Volatility High Dividend Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy and hold shares of the Fund (“Shares”). Most investors will incur customary brokerage commissions when buying or selling Shares of the Fund, which are not reflected in the table set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee | | | | | 0.35% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses(a) | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses | | | | | 0.36% | | |
| Expense Waiver/Reimbursement(b) | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses After Waiver/Reimbursement | | | | | 0.35% | | |
(a)
(b)
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
$36 |
|
|
$115 |
|
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. As of the date of this Prospectus, the Fund had not yet commenced operations.
Principal Investment Strategies
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the Underlying Index, which was developed by S&P Opco LLC (a subsidiary of S&P Dow Jones Indices LLC) (the “Index Provider”). The Underlying Index is comprised of preferred stocks and seeks to measures the performance of a select group of preferred stocks that have been selected in accordance with a rules-based methodology that seeks to identify securities that, in the aggregate, are expected to have lower
volatility and higher dividend yield relative to the broader U.S. market for preferred stocks. The Underlying Index includes preferred stocks, including in the S&P U.S. Preferred Stock Index, which are preferred stocks with a market capitalization over $100 million that meet minimum price, liquidity, trading volume, maturity and other requirements set forth in the rules-based methodology determined by the Index Provider. The Underlying Index excludes certain issues of preferred stock, such as those that are issued by special ventures (e.g., toll roads or dam operators) or structured products and brand name products issued by financial institutions that are packaged securities linked to indices or other stocks.
Preferred stocks are a class of equity security with rights to a specified dividend that must be paid before any dividends can be paid to common stockholders. Preferred stock also takes precedence over common stock in the event of a company’s liquidation. Although preferred stocks represent a partial ownership interest in a company, preferred stocks generally do not carry voting rights and have economic characteristics similar to fixed-income securities. Preferred stocks generally are issued with a fixed par value and pay dividends based on a percentage of that par value at a fixed or variable rate. Preferred stocks often have a liquidation value that generally equals the original purchase price of the preferred stock at the date of issuance. The Underlying Index may include many different categories of preferred stock, such as floating, variable and fixed-rate preferreds, callable preferreds, convertible preferreds, cumulative and non-cumulative preferreds, trust preferreds or various other traditional and hybrid issues of preferred stock. The Underlying Index may include large-, mid- or small-capitalization companies.
Once the Underlying Index universe is defined based on the eligibility criteria, each preferred security is then ranked according to its volatility. Volatility is defined as the standard deviation of the preferred security’s daily price returns over the trailing 12 month period. Preferred securities in the eligible universe are then ranked in ascending order by realized volatility. The top 75% of the securities with the lowest volatility in the eligible universe form the low volatility universe. Preferred securities in the low volatility universe are then ranked by indicated dividend yield in descending order. The top 50% of the securities with the highest indicated yield is the low volatility universe are selected to form the Underlying Index. The Underlying Index constituents are weighted by indicated dividend yield.
There is no limit to the number of preferred securities issued by a single company included in the Underlying Index, however, a maximum weight of 5% is set per issuer. The aggregate weight of any issuer that exceeds 5% is capped on a pro rata basis to maximum of 5% of the Underlying Index, with any excess weight proportionally redistributed to all uncapped constituents.
The Underlying Index is rebalanced quarterly and typically consists of 70 to 120 securities.
To the extent the Underlying Index concentrates (i.e., holds 25% or more of its total assets) in the securities of a particular industry or group of industries, the Fund will concentrate its investments to approximately the same extent as the Underlying Index. A significant portion of the Underlying Index typically consists of securities in the financials sector.
The Fund may invest in one or more ETFs advised by the Advisor (“Affiliated ETFs”) that are not components of the index if such an investment will help the Fund track the Underlying Index.
Principal Risks
As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program. An investment in the Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, the Advisor or any of its affiliates. You should consider carefully the following risks before investing in the Fund.
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Dividend Paying Security Risk
Securities that pay high dividends can fall out of favor with investors and may underperform the broader market. There is no guarantee that issuers of securities held by the Fund will declare dividends in the future or that, if declared, they will remain at current levels or increase over time.
Equity Securities Risk
Investments in common stocks and other equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Holders of an issuer’s common stock may be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
Fixed-to-Floating Rate Securities Risk
Fixed-to-floating rate securities are securities that have a fixed dividend rate for an initial term that converts to a floating dividend rate upon the expiration of the initial term. Securities with a floating or variable interest rate component can be less sensitive to interest rate changes than securities with fixed interest rates but may decline in value if their interest rates do not rise as much, or as quickly, as interest rates in general. While fixed-to-floating rate securities can be less sensitive to interest rate risk than fixed-rate securities, they generally carry lower yields than similar fixed-rate securities.
Focused Investment Risk
To the extent that a Fund invests a large percentage of its assets in a single asset class or the securities of issuers within the same country, group of countries, region, industry, group of industries or sector, an adverse economic, market, political or regulatory development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. Different asset classes, countries, groups of countries, regions, industries, groups of industries or sectors tend to go through cycles of outperformance and underperformance in comparison to each other and to the general financial markets.
Hybrid Securities Risk
Hybrid securities are subject to the risks of equity securities and risks of debt securities. The claims of holders of hybrid securities of an issuer are generally subordinated to those of holders of traditional debt securities in bankruptcy, and thus hybrid securities may be more volatile and subject to greater risk than traditional debt securities and may in certain circumstances even be more volatile than traditional equity securities. At the same time, hybrid securities may not fully participate in gains of their issuer and thus potential returns of such securities are generally more limited than traditional equity securities, which would participate in such gains. The terms of hybrid securities may vary substantially, and the risks of a particular hybrid security will depend upon the terms of the instrument, but may include the credit risk of the issuer, as well as liquidity risk, since they often are customized to meet the needs of an issuer or a particular investor, and therefore the number of investors that buy such instruments in the secondary market may be small.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
Industry/Sector Concentration Risk
The Fund’s investment of a large percentage of its assets in the securities of issuers within the same industry or sector means that an adverse economic, business or political development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. A concentration makes the Fund more susceptible to any single occurrence and may subject the Fund to greater market risk than a fund that is not so concentrated.
Financials Sector Risk
Companies in the financials sector may be adversely affected by, among other things, government regulations, economic conditions, credit rating downgrades, changes in currency exchange rates, volatile interest rates, decreased liquidity in credit markets and competition from new entrants. Profitability of these companies is largely dependent on the availability and cost of capital and can fluctuate significantly when interest rates change. Credit losses resulting from financial difficulties of borrowers also can negatively impact the sector. These companies are often subject to substantial government regulation and intervention, which may adversely impact the scope of their activities, the prices they can charge, the amount of capital they must maintain and, potentially, their size. The impact of more stringent capital requirements, or recent or future regulation in various countries on any individual financial company or on the financials sector as a whole cannot be predicted. The financials sector is also a target for cyber attacks and may experience technology malfunctions and disruptions.
Investment Style Risk
The Underlying Index seeks to allocate investment exposure based upon a particular style of investing. Different investment styles tend to shift in and out of favor depending upon market and economic conditions and investor sentiment. As a consequence, the Fund may underperform as compared to the market generally or to other funds that invest in similar asset classes but employ different investment styles. Further, there is no guarantee that the Underlying Index will accurately or optimally utilize the investment style or that it will successfully provide the desired investment exposure.
Large-Capitalization Companies Risk
Large-capitalization companies may be less able than smaller capitalization companies to adapt to changing market conditions. Large-capitalization companies may be more mature and subject to more limited growth potential compared with smaller capitalization companies. During different market cycles, the performance of large-capitalization companies has trailed the overall performance of the broader securities markets.
Market Risk
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
New Fund Risk
As a new fund, there can be no assurance that the Fund will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index or it could ultimately liquidate. Like other new funds, large inflows and outflows may impact the Fund’s market exposure for limited periods of time. This impact may be positive or negative, depending on the direction of market movement during the period affected.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Index or the index calculation agent may make errors. The index provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Preferred Securities Risk
Preferred securities combine some of the characteristics of both common stocks and bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms of priority to corporate income, subjecting them to greater credit risk than those debt securities. Generally, holders of preferred securities have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may obtain limited rights. In certain circumstances, an issuer of preferred securities may defer payment on the securities and, in some cases, redeem the securities prior to a specified date. Preferred securities may also be substantially less liquid than other securities, including common stock.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask” spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value.
Small- and/or Mid-Capitalization Companies Risk
Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours
based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Performance Information
As of the date of this Prospectus, the Fund has not yet commenced operations and therefore does not report its performance information.
Investment Advisor
IndexIQ Advisors LLC is the investment advisor to the Fund.
Portfolio Manager
The professionals jointly and primarily responsible for the day-to-day management of the Fund are Greg Barrato and James Harrison. Mr. Barrato, Senior Vice President of the Advisor, has been a portfolio manager of the Fund since inception and Mr. Harrison, Vice President of the Advisor, has been a portfolio manager of the Fund since inception.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units.” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
IQ 500 International ETF
Investment Objective
The Fund seeks investment results that track (before fees and expenses) generally to the price and yield performance of its underlying index, the IQ 500 International Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy and hold shares of the Fund (“Shares”). Most investors will incur customary brokerage commissions when buying or selling Shares of the Fund, which are not reflected in the table set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee | | | | | 0.25% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses | | | | | 0.26% | | |
| Expense Waiver/Reimbursement(a) | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses After Waiver/Reimbursement | | | | | 0.25% | | |
(a)
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$26 |
|
|
$83 |
|
|
$145 |
|
|
$330 |
|
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 9% of the average value of its portfolio. The rate excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Fund’s Shares.
Principal Investment Strategies
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the Underlying Index, which was developed by IndexIQ LLC (“IndexIQ”), an affiliate of IndexIQ Advisors LLC, the Fund’s investment advisor (the “Advisor”).
The Fund invests, under normal circumstances, at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the investments included in the Underlying Index (“Underlying Index Components”). The Underlying Index consists of a number of Underlying Index Components selected in accordance with IndexIQ’s rules-based methodology. Such Underlying Index Components will include primarily non-U.S. equity
securities. In addition, the Fund may invest up to 20% of its net assets in investments not included in its Underlying Index, but which the Advisor believes will help the Fund track the Underlying Index. The Fund may also invest in one or more financial instruments, including but not limited to futures contracts and swap agreements (collectively, “Financial Instruments”).
The securities that are eligible for inclusion in the Underlying Index are common stock of non-U.S. companies headquartered in developed countries outside the U.S. All eligible securities must have a minimum of 52-week average daily trade volume of $5 million and 100,000 shares as well as have commenced trading at least two (2) full quarters prior to the annual reconstitution. Additionally, eligible securities must have a minimum market capitalization of at least $1 billion and a minimum average market capitalization of $1 billion at the time of the annual reconstitution. As of June 30, 2021, the market capitalization range of the companies included in the Underlying Index was $1.3 billion to $395.1 billion. As of June 30, 2021, the Underlying Index consisted of securities issued by companies domiciled in the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and United Kingdom.
The Underlying Index Components are selected and weighted utilizing a rules-based methodology (“Methodology”) incorporating fundamental factors. The Methodology ranks the universe of eligible securities based on three fundamental factors: Sales (over annual period), Market Share (over annual period), and Operating Margin (3-year average). The Market Share and Operating Margin ranks are determined relative to other eligible securities within the same sector, while the Sales rank is determined relative to all securities within the eligible universe. A composite rank of the three factors is derived as an equal weighted average. The top 500 securities, based on the composite rank, are included in the Index. The weighting of each security within the Index is derived based on the relative value of each security’s composite score. The Index is reconstituted and rebalanced once a year. At time of the annual rebalance, no single component may have a weighting greater than 5% of the Index. In addition to the annual rebalance, on a quarterly basis the weight of any security that exceeds 10% of the Index is reduced to a maximum weight of 10% and the excess amounts are redistributed proportionately among the other Index components.
To the extent the Underlying Index concentrates (i.e., holds 25% or more of its total assets) in the securities of a particular industry or group of industries, the Fund will concentrate its investments to approximately the same extent as the Underlying Index. As of June 30, 2021, the primary sectors within the Underlying Index are consumer discretionary, consumer staples, financials, industrials and materials.
The Underlying Index may include as a component one or more ETFs advised by the Advisor (“Affiliated ETFs”) and the Fund will typically invest in any Affiliated ETF included in the Underlying Index. The Fund also may invest in Affiliated ETFs that are not components of the index if such an investment will help the Fund track the Underlying Index.
Principal Risks
As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program. An investment in the Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, the Advisor or any of its affiliates. You should consider carefully the following risks before investing in the Fund.
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Currency Risk
Investments directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign (non-U.S.) currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons,
including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Depositary Receipts Risk
Sponsored and unsponsored depositary receipts involve risk not experienced when investing directly in the equity securities of an issuer. Depositary receipts may be less liquid than the underlying shares in their primary trading market. Any distributions paid to the holders of depositary receipts are usually subject to a fee charged by the depositary. Holders of depositary receipts may have limited voting rights, and investment restrictions in certain countries may adversely impact the value of depositary receipts.
Equity Securities Risk
Investments in common stocks and other equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Holders of an issuer’s common stock may be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
Exchange Traded Products Risk
Unlike an investment in a mutual fund, the value of the Fund’s investment in other exchange-traded funds or exchange-traded investment products (“ETPs”) is based on its market price (rather than NAV) and the Fund could lose money due to premiums/discounts of the ETP (which could cause the Fund to buy shares at market prices that are higher than their value or sell shares at market prices that are lower than their value); the failure of an active trading market to develop; or exchange trading halts or delistings. An investment in the Fund will entail more costs and expenses than a direct investment in any Underlying ETP. As the Fund’s allocations to Underlying ETPs changes, or the expense ratio of Underlying ETPs change, the operating expenses borne by the Fund from such investments may increase or decrease.
Focused Investment Risk
To the extent that a Fund invests a large percentage of its assets in a single asset class or the securities of issuers within the same country, group of countries, region, industry, group of industries or sector, an adverse economic, market, political or regulatory development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. Different asset classes, countries, groups of countries, regions, industries, groups of industries or sectors tend to go through cycles of outperformance and underperformance in comparison to each other and to the general financial markets.
Foreign Securities Risk
Investments in the securities of non-U.S. issuers involve risks beyond those associated with investments in U.S. securities. These additional risks include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Some countries and regions have experienced security concerns, war or threats of war and aggression, terrorism, economic uncertainty, natural and environmental disasters and/or systemic market dislocations that have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on the U.S. and world economies and markets generally. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing, financial reporting and record keeping than are U.S. issuers, and therefore not all material information will be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact the Fund’s ability to invest in foreign securities or may prevent the Fund from repatriating its investments. Less developed securities markets are more likely to experience problems with the clearing and settling of trades, as well as the holding of securities by local banks, agents and depositories. The less developed a country’s securities market is, the greater the likelihood of custody problems.
Foreign Securities Valuation Risk
The Fund’s value may be impacted by events that cause the fair value of foreign securities to materially change between the close of the local exchange on which they trade and the time at which the Fund prices its Shares. Additionally, because foreign exchanges on which securities held by the Fund may be open on days when the Fund does not price its Shares, the potential exists for the value of the securities in the Fund’s portfolio to change on days when shareholders will not be able to purchase or sell Shares. To the extent the Fund calculates its NAV based on fair value prices and the value of the Underlying Index is based on the securities’ closing price on foreign securities markets (i.e., the value of the Underlying Index is not based on fair value prices), the valuation of the Fund’s NAV may deviate from the calculation of the Underlying Index.
Geographic Concentration Risk
The Fund may invest a substantial amount of its assets in securities of issuers located in a single country or geographic region. As a result, any changes to the regulatory, political, social or economic conditions in such country or geographic region will generally have greater impact on the Fund than such changes would have on a more geographically diversified fund and may result in increased volatility and greater losses. This risk may be especially pronounced to the extent the Fund invests in countries and regions experiencing, or likely to experience, security concerns, war, threats of war, terrorism, economic uncertainty and natural disasters.
•
Europe Concentration Risk. Most developed countries in Western Europe are members of the European Union (“EU”), and many are also members of the European Monetary Union (“EMU”), which requires compliance with restrictions on inflation rates, deficits and debt levels. Unemployment in certain European nations is historically high and several countries face significant debt problems. These conditions can significantly affect every country in Europe. The euro is the official currency of the EU and, accordingly, the Fund’s investment in European securities may lead to significant exposure to the euro and events affecting it. Recent market events affecting several EU member countries have adversely affected the sovereign debt issued by those countries, and ultimately may lead to a decline in the value of the euro. A significant decline in the value of the euro, or the exit of a country from the EU or EMU, may produce unpredictable effects on trade and commerce generally and could lead to increased volatility in financial markets worldwide. Political or economic disruptions in European countries, even in countries in which the Fund is not invested, may adversely affect security values and thus the Fund’s holdings. In particular, the Fund’s investments in the United Kingdom and other European countries may be significantly impacted by the decision of the United Kingdom to leave the EU (known as “Brexit”). Brexit has introduced significant uncertainty and may have a negative impact on the economy and currency of the United Kingdom and European countries, including increased market volatility and illiquidity and potentially lower economic growth.
•
Japan Concentration Risk. Economic growth in Japan is heavily dependent on international trade, government support, and consistent government policy. Slowdowns in the economies of key trading partners such as the United States, China and countries in Southeast Asia, or disruptions to trade caused by trade tariffs, other protectionist measures, and competition from emerging economies, could have a negative impact on the Japanese economy as a whole. The Japanese economy has in the past been negatively affected by, among other factors, government intervention and protectionism and an unstable financial services sector. While the Japanese economy has recently emerged from a prolonged economic downturn, some of these factors, as well as other adverse political developments, increases in government debt, changes to fiscal, monetary or trade policies or other events, such as natural disasters, could have a negative impact on Japanese securities. Japan’s economic prospects may be affected by the political and military situations of its near neighbors, notably North and South Korea, China and Russia. In addition, Japan’s labor market is adapting to an aging workforce, declining population, and demand for increased labor mobility. These demographic shifts and fundamental structural changes to the labor markets may negatively impact Japan’s economic competitiveness.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
Industry/Sector Concentration Risk
The Fund’s investment of a large percentage of its assets in the securities of issuers within the same industry or sector means that an adverse economic, business or political development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. A concentration makes the Fund more susceptible to any single occurrence and may subject the Fund to greater market risk than a fund that is not so concentrated.
Consumer Discretionary Sector Risk
Companies in the consumer discretionary sector may be adversely affected by, among other things, the performance of domestic and international economies, exchange and interest rates, worldwide demand, competition, consumer confidence, consumers’ disposable income levels, propensity to spend and consumer preferences, social trends and marketing campaigns.
Consumer Staples Sector Risk
Companies in the consumer staples sector may be adversely affected by, among other things, changes in domestic and international economies, exchange and interest rates, worldwide demand, competition, consumers’ disposable income levels, propensity to spend and consumer preferences, social trends and marketing campaigns. Companies in the consumer staples sector have historically been characterized as relatively cyclical and therefore more volatile in times of change.
Financials Sector Risk
Companies in the financials sector may be adversely affected by, among other things, government regulations, economic conditions, credit rating downgrades, changes in currency exchange rates, volatile interest rates, decreased liquidity in credit markets and competition from new entrants. Profitability of these companies is largely dependent on the availability and cost of capital and can fluctuate significantly when interest rates change. Credit losses resulting from financial difficulties of borrowers also can negatively impact the sector. These companies are often subject to substantial government regulation and intervention, which may adversely impact the scope of their activities, the prices they can charge, the amount of capital they must maintain and, potentially, their size. The impact of more stringent capital requirements, or recent or future regulation in various countries on any individual financial company or on the financials sector as a whole cannot be predicted. The financials sector is also a target for cyber attacks and may experience technology malfunctions and disruptions.
These companies are often subject to substantial government regulation and intervention, which may adversely impact the scope of their activities, the prices they can charge, the amount of capital they must maintain and, potentially, their size. The impact of more stringent capital requirements, or recent or future regulation in various countries on any individual financial company or on the financials sector as a whole cannot be predicted. The financials sector is also a target for cyber attacks and may experience technology malfunctions and disruptions.
Industrials Sector Risk
Companies in the industrials sector may be affected by, among other things, worldwide economic growth, supply and demand for specific products and services, product obsolescence, environmental damages or product liability claims, rapid technological developments and government regulation. Government spending policies may impact the profitability of the industrials sector since industrials companies, especially aerospace and defense companies, often rely on government demand for their products and services.
Materials Sector Risk
Companies in the materials sector may be adversely affected by, among other things, changes in commodity prices, import controls and worldwide competition, volatility in exchange rates, depletion of resources, changes in government regulation, over production of resources, liability for environmental damage or product liability claims, economic cycles and consumer demand. Production of materials may exceed demand as a result of market imbalances or economic downturns, leading to poor investment returns.
Large Capitalization Company Risk
Large-capitalization companies may be less able than smaller capitalization companies to adapt to changing market conditions. Large-capitalization companies may be more mature and subject to more limited growth potential compared with smaller capitalization companies. During different market cycles, the performance of large-capitalization companies has trailed the overall performance of the broader securities markets.
Market Risk
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Index or the index calculation agent may make errors. The index provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask” spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or
redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Performance Information
The bar chart that follows shows the annual total returns of the Fund for a full calendar year. The table that follows the bar chart shows the Fund’s average annual total returns, both before and after taxes. The bar chart and table provide an indication of the risks of investing in the Fund by comparing the Fund’s performance from year to year and by showing how the Fund’s average annual returns for one calendar year compared with its underlying index and additional broad measures of market performance. The MSCI EAFE® Index consists of international stocks representing the developed world outside of North America. All returns assume reinvestment of dividends and distributions. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Performance reflects fee waivers and/or expense reimbursement in effect, if such waivers or reimbursements were not in place, the Fund’s performance would be reduced. Fund performance current to the most recent month-end is available by calling 1-888-474-7725 or by visiting newyorklifeinvestments.com.
The Fund’s year-to-date total return as of June 30, 2021 was 13.58%.
Best and Worst Quarter Returns (for the period reflected in the bar chart above)
| | | Return | | | Quarter/Year | |
Highest Return | | | | | 20.58% | | | | | | 4Q/2020 | | |
Lowest Return | | | | | -26.12% | | | | | | 1Q/2020 | | |
Average Annual Total Returns as of December 31, 2020
| | | 1 Year | | | Since Inception(1) | |
Returns before taxes | | | | | 5.22% | | | | | | 9.64% | | |
Returns after taxes on distributions(2) | | | | | 4.68% | | | | | | 8.82% | | |
Returns after taxes on distributions and sale of Fund Shares(2) | | | | | 3.53% | | | | | | 7.17% | | |
IQ 500 International Index (reflects no deduction for fees, expenses or taxes) | | | | | 5.26% | | | | | | 9.77% | | |
| | | 1 Year | | | Since Inception(1) | |
MSCI EAFE Index (reflects no deduction for fees, expenses or taxes) | | | | | 7.82% | | | | | | 12.58% | | |
(1)
(2)
Investment Advisor
IndexIQ Advisors LLC is the investment advisor to the Fund.
Portfolio Manager
The professionals jointly and primarily responsible for the day-to-day management of the Fund are Greg Barrato and James Harrison. Mr. Barrato, Senior Vice President of the Advisor, has been a portfolio manager of the Fund since inception and Mr. Harrison, Vice President of the Advisor, has been a portfolio manager of the Fund since inception.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units.” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
Overview
The Trust is an investment company consisting of a number of separate investment portfolios (each, a “Fund” and together, the “Funds”) that are structured as exchange-traded funds (“ETFs”). Each share of a Fund represents an ownership interest in the securities and other instruments comprising a Fund’s portfolio. Unlike shares of a mutual fund, which can be bought and redeemed from the issuing fund by all shareholders at a price based on net asset value (“NAV”), shares of an ETF (such as the Funds) are listed on a national securities exchange and trade in the secondary market at market prices that change throughout the day, and may differ from a Fund’s NAV. IndexIQ Advisors LLC (the “Advisor”) is the investment advisor to each Fund.
Each Fund has a distinct investment objective and policies. Each of the policies described herein, including the investment objective of each Fund, constitutes a non-fundamental policy that may be changed by the Board of Trustees of the Trust (the “Board”) without shareholder approval. Certain fundamental policies of the Funds are set forth in the Funds’ Statement of Additional Information (the “SAI”) under “Investment Restrictions.” There can be no assurance that a Fund’s objective will be achieved.
Description of the Principal Investment Strategies of the Funds
Each Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index (each, an “Underlying Index”). Each Underlying Index consists of a number of components (“Underlying Index Components”) selected in accordance with each Underlying Index’s rules-based methodology. Each Fund employs a “passive management” — or indexing — investment approach designed to track the performance of its Underlying Index. Under normal circumstances, each Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the components that make up its Underlying Index or in depositary receipts based on the securities in its Underlying Index. In determining a Fund’s net assets for the purposes of this 80% threshold, accounting practices do not include collateral held under a Fund’s securities lending program, as such collateral does not represent a true asset of a Fund.
Each Fund, except the IQ 50 Percent Hedged FTSE International ETF, will generally invest in all of the constituents comprising its Underlying Index in proportion to its weightings in the Underlying Index; however, under various circumstances, it may not be possible or practicable to purchase all of the securities in the Underlying Index in those weightings. In those circumstances, a Fund may purchase a sample of the securities in its Underlying Index or utilize various combinations of other available investment techniques in seeking to replicate generally the performance of the Underlying Index as a whole. This is known as “representative sampling” and will be utilized by IQ 50 Percent Hedged FTSE International ETF, and may be utilized by other Funds. A fund using a representative sampling strategy generally will invest in a sample of securities that collectively has an investment profile similar to that of the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (including, but not limited to, return variability, duration, maturity, credit ratings and yield) and liquidity measures similar to those of the Underlying Index. A Fund may also invest in credit default swaps and futures contracts to seek to track the Underlying Index.
There also may be instances in which the Advisor may choose to (i) overweight a security in the Underlying Index, (ii) purchase securities not contained in the Underlying Index that the Subadvisor believes are appropriate to substitute for certain securities in the Underlying Index, or (iii) utilize various combinations of other available investment techniques in seeking to track the Underlying Index. A Fund may sell securities that are represented in its Underlying Index in anticipation of their removal from the Underlying Index or purchase securities not represented in the Underlying Index in anticipation of their addition to the Underlying Index.
To the extent that a Fund’s Underlying Index concentrates (i.e., holds 25% or more of its total assets) in the securities of a particular industry or group of industries, the Fund will concentrate its investment to approximately the same extent as its Underlying Index.
Each Fund may invest up to 20% of its net assets in investments not included in its Underlying Index, but which the Advisor believes will help the Fund track its Underlying Index. Such investments may include the use of one or more financial instruments, including but not limited to futures contracts and swap agreements (collectively, “Financial Instruments”). The Funds will not directly employ leverage in their investment strategies; nevertheless, a Fund may indirectly be leveraged if and to the extent the Fund invests in Financial Instruments to replicate an exposure to an inverse ETF that is leveraged.
In accordance with Rule 35d-1 under the Investment Company Act of 1940 (the “1940 Act”), certain Funds have adopted a policy that each will, under normal circumstances, invest at least 80% of the value of its assets (net assets plus the amount of any borrowings for investment purposes) in investments of the type suggested by the Fund’s name. To the extent a Fund adopts such a policy, it will be “non-fundamental,” which means that it may be changed without the vote of a majority of the Fund’s outstanding shares as defined in the 1940 Act. Such policies generally provide a fund’s shareholders with at least 60 days’ prior notice of any changes in a fund’s non-fundamental investment policy with respect to investments of the type suggested by its name. A Fund may count investments in underlying funds toward various guideline tests (such as the 80% test required under Rule 35d-1 under the 1940 Act).
The IQ Global Resources ETF has adopted a policy that it will, under normal circumstances, invest at least 80% of the value of its assets (net assets plus the amount of any borrowings for investment purposes) in securities of companies that operate in commodity-specific market segments.
The IQ U.S. Real Estate Small Cap ETF has adopted a policy that it will, under normal circumstances, invest at least 80% of the value of its assets (net assets plus the amount of any borrowings for investment purposes) in securities of small-cap companies that invest in real estate. Small-cap issues are issuers whose market capitalization is within the range of market capitalizations of issuers included in Fund’s Underlying Index.
The IQ Chaikin U.S. Dividend Achievers ETF has adopted a policy that it will, under normal circumstances, invest at least 80% of the value of its assets (net assets plus the amount of any borrowings for investment purposes) in securities of dividend-paying U.S. companies.
The IQ Chaikin U.S. Small Cap ETF has adopted a policy that it will, under normal circumstances, invest at least 80% of the value of its assets (net assets plus the amount of any borrowings for investment purposes) in securities of U.S. small cap issuers. Small-cap issues are issuers whose market capitalization is within the range of market capitalizations of issuers included in the Nasdaq US 1500 Index.
The IQ Chaikin U.S. Large Cap ETF has adopted a policy that it will, under normal circumstances, invest at least 80% of the value of its assets (net assets plus the amount of any borrowings for investment purposes) in securities of U.S. large cap issuers. Large-cap issuers are issuers whose market capitalization is within the range of market capitalizations of issuers included in the Nasdaq US 300 Index.
The IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF has adopted a policy that it will, under normal circumstances, invest at least 80% of the value of its assets (net assets plus the amount of any borrowings for investment purposes) in preferred securities of U.S. issuers.
IndexIQ determines the “domicile” of each Underlying Index Component, as applicable, by using data provided by an unaffiliated third-party data service, which, in turn, uses the following criteria to determine a company’s domicile:
•
the country where the company is incorporated;
•
the country where the company is headquartered;
•
the country where the company has a majority of its operations;
•
the country where the company generates the largest proportion of its sales; and
•
the country where the company’s shares are traded in the most liquid manner.
Each Fund’s investments are subject to certain requirements imposed by law and regulation, as well as a Fund’s investment strategy. These requirements are generally applied at the time a Fund invests its assets. If, subsequent to an investment by a Fund, this requirement is no longer met, the Fund’s future investments will be made in a manner that will bring the Fund into compliance with this requirement.
Additional Investment Strategies
In addition to its principal investment strategies, each Fund may also invest in money market instruments, including short-term debt instruments and repurchase agreements or other funds that invest exclusively in money market instruments (subject to applicable limitations under the 1940 Act, or exemptions therefrom), rather than Underlying Index Components, when it would be more efficient or less expensive for a Fund to do so, or as cover for Financial Instruments, for liquidity purposes, or to earn interest. Swaps and other Financial Instruments may be used by a Fund to seek performance that corresponds to its Underlying Index and to manage cash flows.
Borrowing Money
Each Fund may borrow money from a bank as permitted by the 1940 Act or the rules thereunder, or by the U.S. Securities and Exchange Commission (“SEC”) or other regulatory agency with authority over the Fund, but only for temporary or emergency purposes. The 1940 Act presently allows a fund to borrow from any bank (including pledging, mortgaging or hypothecating assets) in an amount up to 33 1/3% of its total assets (not including temporary borrowings not in excess of 5% of its total assets).
Securities Lending
A Fund may lend its portfolio securities. A securities lending program allows a Fund to receive a portion of the income generated by lending its securities and investing the respective collateral. In connection with such loans, a Fund receives liquid collateral equal to at least 102% (105% for foreign securities) of the value of the portfolio securities being lent. This collateral is marked to market on each trading day.
Description of the Principal Risks of the Funds
Investors in the Funds should carefully consider the risks of investing in the Funds as set forth in each Fund’s Summary Information section under “Principal Risks.” To the extent such risks apply, they are discussed hereunder in greater detail. Unless otherwise noted, the following risks apply to all of the Funds.
Authorized Participant Concentration Risk
Only an Authorized Participant may engage in creation or redemption transactions directly with a Fund. Each Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with a Fund and no other Authorized Participant is able to step forward to create or redeem Creation Units, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting. This risk may be heightened for ETFs that invest in non-U.S. securities because such securities often involve greater settlement and operational issues for Authorized Participants that may further limit the availability of Authorized Participants.
Commodities Risk
The following risk applies to the IQ Global Resources ETF.
Exposure to the commodities markets may subject a Fund to greater volatility than investments in traditional securities, and exposure to commodities, directly or through other securities, can cause the value of such Fund’s assets to decline or fluctuate in a rapid and unpredictable manner. The value of commodities may be affected by changes in overall market movements, real or perceived inflationary trends, commodity index volatility, changes in interest rates or currency exchange rates, population growth and changing demographics, international economic, political and regulatory developments, and factors affecting a particular region, industry or commodity, such as drought, floods, or other weather conditions, livestock disease, changes in storage costs, trade embargoes, competition from substitute products, transportation bottlenecks or shortages, fluctuations in supply and demand, and tariffs. Also, a liquid secondary market may not exist for certain commodity-linked investments, which may make it difficult for a Fund to sell them at a desirable price or at the price at which it is carrying them. The commodities markets are subject to temporary distortions or other disruptions due to, among other factors, lack of liquidity, the participation of speculators, and government regulation and other actions.
Counterparty Risk
The following risk applies to the IQ Merger Arbitrage ETF, IQ Global Resources ETF and IQ 50 Percent Hedged FTSE International ETF.
A counterparty (the other party to a transaction or an agreement or the party with whom a Fund executes transactions) to a transaction with a Fund may be unable or unwilling to make timely principal, interest, settlement or margin payments, fulfill the delivery conditions of the contract or transaction, or otherwise honor its obligations. If a counterparty fails to meet its contractual obligations for any reason, including bankruptcy of the counterparty or its parent, a loss to the Fund may result. A Fund may experience significant delays in obtaining any recovery in an insolvency, bankruptcy, or other reorganization proceeding involving a counterparty (including recovery of any collateral posted by it) and may obtain only a limited recovery or may obtain no recovery in such circumstances. If a Fund holds collateral posted by its counterparty, it may be delayed or prevented from realizing on the collateral in the event of a bankruptcy or insolvency proceeding relating to the counterparty. Under applicable law or contractual provisions, including if a Fund enters into an
investment or transaction with a financial institution and such financial institution (or an affiliate of the financial institution) experiences financial difficulties, then the Fund may in certain situations be prevented or delayed from exercising its rights to terminate the investment or transaction, or to realize on any collateral, which may result in the suspension of payment and delivery obligations of the parties under such investment or transactions or in another institution being substituted for that financial institution without the consent of the Fund. Further, a Fund may be subject to “bail-in” risk under applicable law whereby, if required by the financial institution’s authority, the financial institution’s liabilities could be written down, eliminated or converted into equity or an alternative instrument of ownership. A bail-in of a financial institution may result in a reduction in value of some or all of its securities and, if a Fund holds such securities or has entered into a transaction with such a financial security when a bail-in occurs, the Fund may also be similarly impacted.
Currency Risk
The following risk applies to the IQ Merger Arbitrage ETF, IQ Global Resources ETF, IQ 50 Percent Hedged FTSE International ETF and IQ 500 International ETF.
Investments directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign (non-U.S.) currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including national debt levels and trade deficits, changes in balances of payments and trade, domestic and foreign interest and inflation rates, global or regional political, economic or financial events, monetary policies of governments, actual or potential government intervention and global energy prices. Political instability, the possibility of government intervention and restrictive or opaque business and investment policies may also reduce the value of a country’s currency. Government monetary policies and the buying or selling of currency by a country’s government may also influence exchange rates. As a result, a Fund’s investments in foreign currency denominated securities may reduce the return of such Fund. Because a Fund’s NAV is determined on the basis of U.S. dollars, the Fund’s NAV may decrease if the value of the non-U.S. currency to which the Fund has exposure depreciates in value relative to the U.S. dollar. This may occur even if the value of the underlying non-U.S. securities increases. Conversely, a Fund’s NAV may increase if the value of a non-U.S. currency appreciates relative to the U.S. dollar.
Currency Hedging Risk
The following risk applies to the IQ 50 Percent Hedged FTSE International ETF.
A Fund may use various strategies to attempt to reduce the impact of changes in the value of a foreign currency against the U.S. dollar. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. Hedges are sometimes subject to imperfect matching between the hedging transaction and the risk sought to be hedged, and there can be no assurance that a Fund’s hedging transactions will be successful. A Fund’s currency hedging strategy will generally be affected by the volatility of the U.S. dollar relative to the currencies to be hedged. Increased volatility may reduce the effectiveness of a Fund’s currency hedging strategy and may impact the costs associated with hedging transactions. The effectiveness of a Fund’s currency hedging strategy and the costs associated with hedging transactions may also in general be affected by interest rates. Significant differences between U.S. dollar interest rates and foreign currency interest rates may further impact the effectiveness of a Fund’s currency hedging strategy.
Cyber Security Risk
The Funds are susceptible to operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a Fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. These risks typically are not covered by insurance. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber incidents include, but are not limited to, gaining unauthorized access to digital systems (e.g., through “hacking” or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data or causing operational disruption. Cyber attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make network services unavailable to intended users). Cyber security failures by or breaches of the systems of security issuers, the Advisor, distributor and other service providers (including, but not limited to, sub-advisors, index providers, fund accountants, custodians, transfer agents and administrators), market makers, Authorized Participants or the issuers of securities in which a Fund invests, have the ability to
cause disruptions and impact business operations, potentially resulting in financial losses, interference with a Fund’s ability to calculate its NAV, disclosure of confidential trading information, impediments to trading, submission of erroneous trades or erroneous creation or redemption orders, the inability of a Fund or its service providers to transact business, violations of applicable privacy and other laws, regulatory fines and other penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs. Substantial costs may be incurred by a Fund in order to resolve or prevent cyber incidents in the future. While the Funds have established business continuity plans in the event of, and risk management systems to prevent, such cyber attacks, there are inherent limitations in such plans and systems, including the possibility that certain risks have not been identified and that prevention and remediation efforts will not be successful. Furthermore, the Funds cannot control the cyber security plans and systems put in place by service providers to the Funds, issuers in which the Funds invest, Authorized Participants or market makers. There is no guarantee that such preventative efforts will succeed, and the Funds and their shareholders could be negatively impacted as a result.
Debt Securities Risk
The following risk applies to the IQ Merger Arbitrage ETF.
The risks of investing in debt securities include (without limitation): (i) credit risk, e.g., the issuer or guarantor of a debt security may be unable or unwilling (or be perceived as unable or unwilling) to make timely principal and/or interest payments or otherwise honor its obligations; (ii) interest rate risk, e.g., when interest rates go up, the value of a debt security generally goes down, and when interest rates go down, the value of a debt security generally goes up; (iii) liquidity risk and valuation risk, e.g., debt securities generally do not trade on a securities exchange, making them generally less liquid and more difficult to value than common stock; (iv) call risk and income risk, e.g., during a period of falling interest rates, the issuer may redeem a security by repaying it early, which may reduce a Fund’s income if the proceeds are reinvested at lower interest rates; and (v) extension risk, e.g., if interest rates rise, repayments of debt securities may occur more slowly than anticipated by the market, which may drive the prices of these securities down because their interest rates are lower than the current interest rate and the securities remain outstanding longer. Debt securities most frequently trade in institutional round lot size transactions. If the Fund purchases bonds in amounts less than the institutional round lot size, which are frequently referred to as “odd” lots, the odd lot size positions may have more price volatility than institutional round lot size positions. The Fund uses a third-party pricing service to value bond holdings and the pricing service values bonds assuming orderly transactions of an institutional round lot size.
Depositary Receipts Risk
The following risk applies to the IQ 50 Percent Hedged FTSE International ETF and IQ 500 International ETF.
A Fund may invest in listed and liquid depositary receipts, including listed unsponsored depositary receipts. Unsponsored depositary receipts may be established by a depositary without participation by the underlying issuer. Holders of an unsponsored depositary receipt generally bear all the costs associated with establishing the unsponsored depositary receipt. These investments may involve additional risks and considerations including, for example, risks related to adverse political and economic developments unique to a country or region, currency fluctuations or controls and the possibility of expropriation, nationalization or confiscatory taxation. The issuers of the securities underlying unsponsored depositary receipts are not obligated to disclose material information in the United States and, therefore, there may be less information available regarding such issuers and there may not be a correlation between such information and the market value of the depositary receipts. Additionally, to the extent the value of a depositary receipt held by a Fund fails to track that of the underlying security, the use of the depositary receipt may result in tracking error. Depositary receipts may be less liquid than the underlying shares in their primary trading market. Any distributions paid to the holders of depositary receipts are usually subject to a fee charged by the depositary. Holders of depositary receipts may have limited voting rights, and investment restrictions in certain countries may adversely impact the value of depositary receipts because such restrictions may limit the ability to convert the equity shares into depositary receipts and vice versa. Such restrictions may cause the equity shares of the underlying issuer to trade at a discount or premium to the market price of the depositary receipts.
Derivatives Risk
The following risk applies to the IQ Merger Arbitrage ETF, IQ 50 Percent Hedged FTSE International ETF, IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF and IQ 500 International ETF.
Derivatives are investments whose value depends on (or is derived from) the value of an underlying instrument, such as a security, asset, reference rate or index and involve risks different from, and possibly greater than, the risks associated with other investments. These risks include: (i) the risk that the counterparty to a derivatives transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. Such prices are influenced by numerous factors that affect the markets, including, but not limited to, changing supply and demand relationships, government programs and policies, national and international political and economic events, changes in interest rates, inflation and deflation, and changes in supply and demand relationships. Unlike other investments, derivative contracts often have leverage inherent in their terms. This leverage creates a disconnect between the initial amount of an investment relative to the risk assumed and introduces the possibility that a relatively small movement in the value of an underlying reference asset can result in an immediate and substantial loss to a party to a derivative contract. In general, the use of leveraged derivatives can magnify potential for gain or loss and, therefore, amplify the effects of market volatility on a Fund’s Share price. The effects of leverage may also cause a Fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations or to meet collateral segregation requirements. In the event of the bankruptcy or insolvency of a counterparty, a Fund could experience the loss of some or all of its investment in a derivative or experience delays in liquidating its positions, including declines in the value of its investment during the period in which the Fund seeks to enforce its rights, and an inability to realize any gains on its investment during such period. A Fund may also incur fees and expenses in enforcing its rights. Certain derivatives are subject to mandatory clearing. Central clearing is intended to reduce counterparty credit risk and increase liquidity, but central clearing does not make derivatives transactions risk-free.
Dividend Paying Security Risk
The following risk applies to the IQ Chaikin U.S. Dividend Achievers ETF and IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF.
Securities that pay high dividends can fall out of favor with investors and may underperform the broader market. There is no guarantee that issuers of securities held by a Fund will declare dividends in the future or that, if declared, they will remain at current levels or increase over time.
Equity Securities Risk
The value of equity securities held by a Fund may fall due to general market and economic conditions, perceptions regarding the industries in which the issuers of securities held by the Fund participate or factors relating to specific companies in which the Fund invests. For example, an adverse event, such as an unfavorable earnings report, may depress the value of equity securities of an issuer held by a Fund; the price of common stock of an issuer may be particularly sensitive to general movements in the stock market; or a drop in the stock market may depress the price of most or all of the common stocks and other equity securities held by a Fund. In addition, common stock of an issuer in a Fund’s portfolio may decline in price if the issuer fails to make anticipated dividend payments because, among other reasons, the issuer of the security experiences a decline in its financial condition. Holders of an issuer’s common stock may also be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
Exchange Traded Products Risk
The following risk applies to the IQ 500 International ETF.
Unlike an investment in a mutual fund, the value of the Fund’s investment in other exchange-traded funds or exchange-traded investment products (“ETPs”) is based on its market price (rather than NAV) and the Fund could lose money due to premiums/discounts of the ETP (which could cause the Fund to buy shares at market prices that are higher than their value or sell shares at market prices that are lower than their value); the failure of an active trading market to develop; or exchange trading halts or delistings. An investment in the Fund will entail more costs and expenses than a direct investment in any Underlying ETP. As a Fund’s allocations to Underlying ETPs changes, or the expense ratio of Underlying ETPs change, the operating expenses borne by such Fund from such investments may increase or decrease. Federal law prohibits a Fund from acquiring investment company shares, including shares of other registered investment companies (including ETFs), in excess of specific thresholds unless exempted by rule, regulation or exemptive order. These prohibitions may prevent a Fund from allocating its investment in an optimal manner.
Fixed-to-Floating Rate Securities Risk
The following risk applies to the IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF.
Fixed-to-floating rate securities are securities that have a fixed dividend rate for an initial term that converts to a floating dividend rate upon the expiration of the initial term. Securities with a floating or variable interest rate component can be less sensitive to interest rate changes than securities with fixed interest rates but may decline in value if their interest rates do not rise as much, or as quickly, as interest rates in general. While fixed-to-floating rate securities can be less sensitive to interest rate risk than fixed-rate securities, they generally carry lower yields than similar fixed-rate securities. The interest rate for a floating rate security resets or adjusts periodically by reference to a benchmark interest rate. The impact of interest rate changes on floating rate investments is typically mitigated by the periodic interest rate reset of the investments. Fixed-to-floating rate securities generally are subject to legal or contractual restrictions on resale and may trade infrequently, and their value may be impaired when a Fund needs to liquidate such securities. There is no guarantee or assurance that a Fund will be able to invest in a desired amount of fixed-to-floating rate securities that a Fund will be able to buy such securities at a desirable price or that the fixed-to-floating rate securities in which such Fund invests or seeks to invest will be actively traded. Any or all of the foregoing, should they occur, could negatively impact a Fund.
Focused Investment Risk
To the extent that a Fund invests a large percentage of its assets in a single asset class or the securities of issuers within the same country, group of countries, region, industry, group of industries or sector, an adverse economic, market, political or regulatory development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. Different asset classes, countries, groups of countries, regions, industries, groups of industries or sectors tend to go through cycles of outperformance and underperformance in comparison to each other and to the general financial markets.
Foreign Currency Forward Contracts Risk
The following risk applies to the IQ 50 Percent Hedged FTSE International ETF.
When trading in foreign currency forward contracts, a Fund will contract with a foreign or domestic bank, or a foreign or domestic securities dealer, to make or take future delivery of a specified amount of a particular currency. There are no limitations on daily price moves in such forward contracts, and banks and dealers are not required to continue to make markets in such contracts. There have been periods during which certain banks or dealers have refused to quote prices for such forward contracts or have quoted prices with an unusually wide spread between the price at which the bank or dealer is prepared to buy and that at which it is prepared to sell. Governmental imposition of credit controls might limit any such forward contract trading. Foreign currency forward contracts involve certain risks, including the risk of failure of the counterparty to perform its obligations under the contract and the risk that the use of forward contracts may not serve as a complete hedge because of an imperfect correlation between movements in the prices of the contracts and the prices of the currencies hedged. Foreign currency forward contracts may limit any potential gain that might result should the value of the underlying currencies increase. In addition, because foreign currency forward contracts are privately negotiated transactions, there can be no assurance that a Fund will have flexibility to roll-over a foreign currency forward contract upon its expiration if it desires to do so.
Foreign Securities Risk
The following risk applies to the IQ Merger Arbitrage ETF, IQ Global Resources ETF, IQ 50 Percent Hedged FTSE International ETF and IQ 500 International ETF.
Investments in the securities of non-U.S. issuers involve risks beyond those associated with investments in U.S. securities. These additional risks include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Some countries and regions have experienced security concerns, war or threats of war and aggression, terrorism, economic uncertainty, natural and environmental disasters and/or systemic market dislocations that have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on the U.S. and world economies and markets generally. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing, custody, financial reporting and record keeping than are U.S. issuers, and therefore not all material information will be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact a Fund’s ability to invest in foreign securities or may prevent a Fund from repatriating its investments. Non-U.S. transaction costs,
such as brokerage commissions and custody costs, may be higher than in the United States. In some non-U.S. markets, custody arrangements for securities provide significantly less protection than custody arrangements in U.S. markets. Prevailing custody and trade settlement practices (e.g., the requirement to pay for securities prior to receipt) could similarly expose a Fund to credit and other risks it does not have in the United States with respect to participating brokers, custodians, clearing banks or other clearing agents, escrow agents and issuers. In addition, a Fund may not receive shareholder communications or be permitted to vote the securities it holds, as the issuers may be under no legal obligation to distribute them.
Less developed securities markets are more likely to experience problems with the clearing and settling of trades, as well as the holding of securities by local banks, agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle, and governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. Local agents are held only to the standards of care of their local markets. The less developed a country’s securities market is, the greater the likelihood of custody problems.
Foreign Securities Valuation Risk
The following risk applies to the IQ Merger Arbitrage ETF, IQ Global Resources ETF, IQ 50 Percent Hedged FTSE International ETF and IQ 500 International ETF.
A Fund’s value may be impacted by events that cause the fair value of foreign securities to materially change between the close of the local exchange on which they trade and the time at which the Fund prices its Shares. Additionally, because foreign exchanges on which securities held by a Fund may be open on days when such Fund does not price its Shares, the potential exists for the value of the securities in a Fund’s portfolio to change on days when shareholders will not be able to purchase or sell such Shares. To the extent a Fund calculates its NAV based on fair value prices and the value of the Underlying Index is based on the securities’ closing price on foreign securities markets (i.e., the value of the Underlying Index is not based on fair value prices), the valuation of a Fund’s NAV may deviate from the calculation of the Underlying Index.
Geographic Concentration Risk
A Fund may invest a substantial amount of its assets in securities of issuers located in a single country or geographic region. As a result, any changes to the regulatory, political, social or economic conditions in such country or geographic region will generally have greater impact on such Fund than such changes would have on a more geographically diversified fund and may result in increased volatility and greater losses. This risk may be especially pronounced to the extent a Fund invests in countries and regions experiencing, or likely to experience, security concerns, war, threats of war, terrorism, economic uncertainty and natural disasters.
•
Europe Concentration Risk. This risk applies to the IQ 50 Percent Hedged FTSE International ETF and IQ 500 International ETF.
Most developed countries in Western Europe are members of the EU, and many are also members of the EMU, which requires compliance with restrictions on inflation rates, deficits and debt levels. Unemployment in certain European nations is historically high and several countries face significant debt problems. These conditions can significantly affect every country in Europe. The euro is the official currency of the EU and, accordingly, a Fund’s investment in European securities may lead to significant exposure to the euro and events affecting it. Recent market events affecting several EU member countries have adversely affected the sovereign debt issued by those countries, and ultimately may lead to a decline in the value of the euro. A significant decline in the value of the euro, or the exit of a country from the EU or EMU, may produce unpredictable effects on trade and commerce generally and could lead to increased volatility in financial markets worldwide. Political or economic disruptions in European countries, even in countries in which a Fund is not invested, may adversely affect security values and thus such Fund’s holdings. The national politics of countries in the EU have been unpredictable and subject to influence by varying political groups and ideologies. The governments of EU countries may be subject to change and such countries may experience social and political unrest. Unanticipated or sudden political or social developments may result in sudden and significant investment losses. In particular, a Fund’s investments in the United Kingdom subject the Fund to additional risks. In a June 2016 referendum, citizens of the United Kingdom voted to leave the EU (known as “Brexit”). There continues to be considerable uncertainty relating to the potential consequences and precise timeframe for Brexit, how the negotiations for the withdrawal and new trade agreements will be conducted (including whether such negotiations will be completed prior to a formal exit), and whether Brexit will increase the likelihood of other countries to also depart the EU. As a result of Brexit and the
related uncertainty, a Fund will face risks, including with respect to volatility in exchange rates and interest rates. Brexit could adversely affect European or worldwide political, regulatory, economic or market conditions and could contribute to instability in global political institutions, regulatory agencies and financial markets. Brexit could also lead to legal uncertainty and politically divergent national laws and regulations as a new relationship between the United Kingdom and the EU is defined and the United Kingdom determines which EU laws to replace or replicate. Investments in the United Kingdom may become more difficult to value or subject to greater or more frequent rises and falls in value. During this period of political, legal and commercial uncertainty, the negative impact on not only the United Kingdom and European economies, but the broader global economy, could be significant, potentially resulting in increased market volatility and illiquidity and lower economic growth for companies that rely significantly on Europe for their business activities and revenues. In addition, secessionist movements, such as the Catalan movement in Spain and the independence movement in Scotland, as well as governmental or other responses to such movements, may also create instability and uncertainty in the region.
•
Japan Concentration Risk. This risk applies to the IQ 50 Percent Hedged FTSE International ETF and IQ 500 International ETF.
A Fund is subject to various risks associated specifically with investments in the securities of Japanese issuers. A Fund’s performance may be particularly affected by social, political and economic conditions within Japan and to be more volatile than the performance of more geographically diversified funds. The Japanese economy has only recently emerged from a prolonged economic downturn. Since the year 2000, Japan’s economic growth rate has remained relatively low. Japan’s economy is characterized by government intervention and protectionism, an unstable financial services sector, and relatively high unemployment. Economic growth is heavily dependent on international trade, government support of the financial services sector and other troubled sectors, and consistent government policy. The United States is Japan’s largest single trading partner, but close to half of Japan’s trade is conducted with developing nations, almost all of which are in Southeast Asia.
Slowdowns in the United States, China and countries in Southeast Asia, or disruptions to trade caused by trade tariffs, other protectionist measures, and competition from emerging economies, could have a negative impact on Japan. Exposure to China, in terms of both imports and exports, has been increasing in recent years. Japan’s economic prospects may be also affected by the political and military situations of its near neighbors, notably North and South Korea, China and Russia. In addition, Japan’s labor market is adapting to an aging workforce, declining population, and demand for increased labor mobility. These demographic shifts and fundamental structural changes to the labor markets may negatively impact Japan’s economic competitiveness. Japan is located in a seismically active area and in 2011 experienced an earthquake of a sizeable magnitude and a tsunami that significantly affected important elements of its infrastructure and resulted in a nuclear crisis. The risks of natural disaster of varying degrees, such as earthquakes and tsunamis, and the resulting damage, continue to exist.
Hybrid Securities Risk
The following risk applies to the IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF.
Hybrid securities are securities that contain characteristics of both a debt security and an equity security. Therefore, hybrid securities are subject to the risks of equity securities and risks of debt securities. The terms of hybrid instruments may vary substantially. The claims of holders of hybrid securities of an issuer are generally subordinated to those of holders of traditional debt securities in bankruptcy, and thus hybrid securities may be more volatile and subject to greater risk than traditional debt securities and may in certain circumstances even be more volatile than traditional equity securities. At the same time, hybrid securities may not fully participate in gains of their issuer and thus potential returns of such securities are generally more limited than traditional equity securities, which would participate in such gains. Hybrid securities may also be more limited in their rights to participate in management decisions of an issuer (such as voting for the board of directors). Certain hybrid securities may be more thinly traded and less liquid than either publicly issued equity securities or debt securities, especially hybrid securities that are “customized” to meet the needs of particular investors, potentially making it difficult for a Fund to sell such securities at a favorable price or at all. Any of these features could cause a loss in market value of hybrid securities held by a Fund or otherwise adversely affect such Fund.
Index Risk
There is no guarantee that a Fund’s investment results will have a high degree of correlation to those of its Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on a Fund’s ability to adjust its exposure to the required levels in order to track its Underlying Index. Errors in index data, index computations or the construction of an Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on a Fund and its shareholders. Apart from scheduled rebalances, an Underlying Index may undergo additional ad hoc rebalances in order, for example, to correct an error in the selection of index constituents. When a Fund’s Underlying Index is rebalanced and the Fund in turn rebalances its portfolio to attempt to increase the correlation between the Fund’s portfolio and the Underlying Index, any transaction costs and market exposure arising from such portfolio rebalancing will be borne directly by the Fund and its shareholders. Unscheduled rebalances to a Fund’s Underlying Index may expose the Fund to additional tracking error risk, which is the risk that the Fund’s returns may not track those of the Underlying Index. Therefore, index errors and additional ad hoc rebalances may increase the costs to and the tracking error risk of the Fund.
In constructing an Underlying Index, the index provider may utilize quantitative models or methodologies that may be proprietary or developed by third-parties. These models and methodologies are used to determine the composition of an Underlying Index and may not adequately take into account certain factors, resulting in a decline in the value of the Underlying Index and, therefore, a Fund. Models rely on accurate financial and market data inputs. If inaccurate data is entered into a model, the resulting information will be incorrect. In addition, the models used by be predictive and nature and such models may result in an incorrect assessment of future events. The models evaluate securities or securities markets based on certain assumptions concerning the interplay of market factors. The markets or prices of individual securities may be affected by factors not foreseen in developing the models. The historical correlations and relationships between individual securities or asset classes, upon which a model may be based, may not continue in the future.
Industry/Sector Concentration Risk
A Fund’s investment of a large percentage of its assets in the securities of issuers within the same industry or sector means that an adverse economic, business or political development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. A concentration makes a Fund more susceptible to any single occurrence and may subject the Fund to greater market risk than a fund that is not so concentrated.
•
Consumer Staples Sector Risk. The following risk applies to the IQ Chaikin U.S. Dividend Achievers ETF. IQ 50 Percent Hedged FTSE International ETF and IQ 500 International ETF.
The consumer staples sector may be affected by changes in domestic and international economies, exchange and interest rates, worldwide demand, competition, consumers’ disposable income levels, propensity to spend and consumer preferences, social trends and marketing campaigns. Companies in the consumer staples sector have historically been characterized as relatively cyclical and therefore more volatile in times of change. Additionally, government regulation, including new laws, affecting the permissibility of using various production methods or other types of inputs such as materials, may adversely impact companies in the consumer staples sector. Changes or trends in commodity prices, which may be influenced or characterized by unpredictable factors may adversely impact companies in the consumer staples sector as well.
•
Consumer Discretionary Sector Risk. The following risk applies to the IQ Chaikin U.S. Dividend Achievers ETF, IQ Chaikin U.S. Large Cap ETF, IQ Chaikin U.S. Small Cap ETF, IQ 500 International ETF and IQ 50 Percent Hedged FTSE International ETF.
The consumer discretionary sector includes companies that provide discretionary, non-essential goods and services to consumers. The consumer discretionary sector may be affected by, among other things, the performance of domestic and international economies, exchange and interest rates, worldwide demand, competition, consumer confidence, consumers’ disposable income levels, propensity to spend and consumer preferences, social trends and marketing campaigns. Severe competition within the industry may significantly impact the profitability of consumer discretionary companies. Companies may also be affected by social trends and marketing campaigns. Changes in consumer tastes and demographics can also impact the demand for these products. Historically, consumer discretionary companies have been characterized as relatively cyclical, and therefore, more volatile in times of change.
•
Financials Sector Risk. The following risk applies to the IQ Chaikin U.S. Dividend Achievers ETF, IQ Chaikin U.S. Large Cap ETF, IQ Chaikin U.S. Small Cap ETF, IQ 50 Percent Hedged FTSE International ETF. IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF and IQ 500 International ETF.
Companies in the financials sector, including retail and commercial banks, insurance companies and financial services companies, may be adversely impacted by many factors, including, among others, government regulations, economic conditions, credit rating downgrades, changes in currency exchange rates, volatile interest rates, decreased liquidity in credit markets and competition from new entrants. Profitability of these companies is largely dependent on the availability and cost of capital and can fluctuate significantly when interest rates change. Credit losses resulting from financial difficulties of borrowers also can negatively impact the sector. Companies in the financials sector 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 financials 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 financials 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 financials sector may also be adversely affected by increases in interest rates and loan losses, decreases in the availability of money or asset valuations 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. The financials sector has been subject to increased scrutiny by international regulators and future regulations could be imposed that would have an adverse economic impact on financial companies. Recently, the financials sector has been prone to cyber attacks and technology malfunctions and failures, which have caused losses to financial companies.
•
Global Resources Sector Risk. The following risk applies only to the IQ Global Resources ETF.
Investments in global resources companies may be affected by numerous factors, including events occurring in nature, inflationary pressures and domestic and international politics. For example, events occurring in nature (such as earthquakes or fires in prime natural resource areas) and political events (such as coups or military confrontations) can affect the overall supply of a resource and the value of companies involved in such resource. Political risks and other risks to which non-U.S. securities are subject may also affect the U.S. companies in which a Fund invests if such companies have significant operations or investments outside of the United States. In addition, interest rates, prices of raw materials and other commodities, international economic developments, energy conservation, tax and other government regulations (both U.S. and non-U.S.) may affect the supply of and demand for natural resources, which can affect the profitability and value of securities issued by global resources companies.
•
Health Care Sector Risk. The following risk applies to the IQ Chaikin U.S. Large Cap ETF, IQ 50 Percent Hedged FTSE International ETF and IQ Chaikin U.S. Small Cap ETF.
The health care sector includes companies that provide medical and health care goods and services, engage in manufacturing medical equipment, supplies and pharmaceuticals and operate health care facilities. Health care companies may be affected by, among other things, extensive, costly and uncertain government regulation, restrictions on government reimbursement for medical expenses, product obsolescence, increased emphasis on outpatient services, limited number of products and fluctuations in the costs of medical products. Many health care companies are heavily dependent on intellectual property protection, and the expiration of a company’s patent may impact that company’s profitability. Many health care companies are subject to extensive litigation based on product liability and similar claims. Health care companies are subject to competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting. Many new products in the health care sector may be subject to regulatory approvals. The process for health care companies to obtain regulatory approvals may be time- and cost-prohibitive, and such efforts ultimately may be unsuccessful.
•
Industrials Sector Risk. The following risk applies to the IQ Chaikin U.S. Dividend Achievers ETF, IQ Chaikin U.S. Large Cap ETF, IQ Chaikin U.S. Small Cap ETF, IQ 50 Percent Hedged FTSE International ETF and IQ 500 International ETF.
The industrials sector can be significantly affected by supply and demand for specific products and services. Rapid technological developments and new product introduction may cause products of manufacturing companies to become obsolete. World economic growth, international political and economic developments, environmental issues and tax and governmental regulatory policies may adversely affect industrials companies. Changes or trends in commodity prices, which may be influenced by unpredictable factors, may adversely affect these companies. Companies in the industrials sector may also be impacted by liabilities from environmental damage and product liability claims. Government spending policies may impact the profitability of the industrials sector since industrials companies, especially aerospace and defense companies, often rely on government demand for their products and services.
•
Information Technology Sector Risk. The following risk applies to the IQ Chaikin U.S. Large Cap ETF and IQ Chaikin U.S. Small Cap ETF.
Information technology companies face intense competition, both domestically and internationally, which may have an adverse effect on their profit margins. Like other technology companies, information technology companies may have limited product lines, markets, financial resources or personnel. The products of information technology companies may face obsolescence due to rapid technological developments, frequent new product introduction, unpredictable changes in growth rates and competition for the services of qualified personnel. Companies in the information technology sector are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies. Information technology companies having high market valuations may appear less attractive to investors, which may cause sharp decreases in their market prices. The market prices of information technology securities may exhibit a greater degree of market risk and more frequent, sharp price fluctuations than other types of securities. These securities may fall in and out of favor with investors rapidly, which may cause sudden selling and dramatically lower market prices.
•
Materials Sector Risk. The following risk applies to the IQ 500 International ETF.
Companies in the materials sector may be significantly affected by commodity prices, exchange rates, government regulation, economic cycles and consumer demand. At times, worldwide production of industrial materials has exceeded demand as a result of over building or economic downturns, leading to poor investment returns or losses. Other risks may include liabilities for environmental damage and general civil liabilities, depletion of resources and mandated expenditures for safety and pollution control. The materials sector may also be affected by technical progress, labor relations and government regulations. Production of materials may exceed demand as a result of market imbalances or economic downturns, leading to poor investment returns.
•
Real Estate Sector Risk. The following risk applies to the IQ U.S. Real Estate Small Cap ETF.
Real estate companies include REITs and other companies involved in the operation and development of commercial, residential and industrial real estate. An investment in a real estate company may subject investors to risks associated with direct ownership of real estate, including the possibility of declines in the value of real estate, losses from casualty or condemnation, and changes in local and general economic conditions, supply and demand, interest rates, environmental liability, zoning laws, regulatory limitations on rents, property taxes, and operating expenses. Real estate is highly sensitive to general and local economic conditions and developments and is characterized by intense competition and periodic overbuilding. Some real estate companies have limited diversification because they invest in a limited number of properties, a narrow geographic area, or a single type of property. Historically, the performance of real estate companies has been cyclical and particularly sensitive to the overall economy and market changes, including declines in the value of real estate or, conversely, saturation of the real estate market, economic downturns and defaults by borrowers or tenants during such periods, increases in competition, possible lack of mortgage funds or other limits to accessing the credit or capital markets.
Investment Style Risk
The following risk applies to the IQ Global Resources ETF, IQ Chaikin U.S. Dividend Achievers ETF, IQ Chaikin U.S. Large Cap ETF, IQ Chaikin U.S. Small Cap ETF and IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF.
One or more Underlying Indexes seek to allocate investment exposure based upon a particular style of investing. Different investment styles tend to shift in and out of favor depending upon market and economic
conditions and investor sentiment. As a consequence, a Fund tracking such an Underlying Index may underperform as compared to the market generally or to other funds that invest in similar asset classes but employ different investment styles. Further, there is no guarantee that an Underlying Index will accurately or optimally utilize the investment style or that it will successfully provide the desired investment exposure.
•
Growth Investing Style Risk. The following risk applies to the IQ Chaikin U.S. Dividend Achievers ETF, IQ Chaikin U.S. Large Cap ETF and IQ Chaikin U.S. Small Cap ETF.
Growth companies usually invest a high portion of earnings in their businesses and may lack the dividends of value securities that can cushion stock prices in a falling market. The prices of growth securities are based largely on projections of the issuer’s future earnings and revenues. If a company’s earnings or revenues fall short of expectations, its stock price may fall dramatically. Growth securities may be volatile and may also be more expensive, relative to their earnings or assets, compared to value or other stocks. Growth securities may go in and out of favor over time.
•
Low Volatility Investing Style Risk. The following risk applies to the IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF.
While the Fund seeks to invest in securities exhibiting lower levels of volatility, there is no guarantee it will successfully do so. The value of the securities in the Fund’s portfolio may fluctuate, sometimes rapidly and unpredictably. The prices may not be any less volatile than the market as a whole, and could be more volatile. During periods of market expansion, an investment portfolio comprised of low volatility securities may underperform. Low volatility securities may go in and out of favor over time.
•
Momentum Investing Style Risk. The following risk applies to the IQ Global Resources ETF.
The momentum style of investing is subject to the risk that the securities may be more volatile than the market as a whole, or that the returns on securities that previously have exhibited price momentum are less than returns on other styles of investing. Momentum can turn quickly, and stocks that previously have exhibited high momentum may not experience continued positive momentum. In addition, there may be periods when the momentum style of investing is out of favor and therefore, the investment performance of the Fund may suffer.
•
Value Investing Style Risk. The following risk applies to the IQ Chaikin U.S. Dividend Achievers ETF, IQ Chaikin U.S. Large Cap ETF and IQ Chaikin U.S. Small Cap ETF.
Value securities are those issued by companies that may be perceived as undervalued. Value securities may fail to appreciate for long periods of time and may never realize their full potential value. Under certain market conditions, value securities have performed better during periods of economic recovery. Value securities may go in and out of favor over time.
Issuer Risk
The following risk applies to the IQ Merger Arbitrage ETF.
The performance of a Fund depends on the performance of individual securities to which the Fund has exposure. Any issuer of these securities may perform poorly, causing the value of its securities to decline. Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection, disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures, credit deterioration of the issuer or other factors. Issuers may, in times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline. An issuer may also be subject to risks associated with the countries, states and regions in which the issuer resides, invests, sells products or otherwise conducts operations.
Large-Capitalization Companies Risk
The following risk applies to the IQ Chaikin U.S. Large Cap ETF, IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF and IQ 500 International ETF.
Large-capitalization companies may be unable to respond quickly to new competitive challenges such as changes in technology and consumer tastes. Larger companies also may not be able to attain the high growth rates of successful smaller companies, especially during periods of economic expansion. Large capitalization companies may go in and out of favor based on market and economic conditions. Although the securities of larger companies may, on average, be less volatile than those of companies with smaller market capitalizations, during different market cycles, the performance of large-capitalization companies has trailed the overall performance of the broader securities markets and the securities of smaller companies.
Liquidity Risk
The following risk applies to the IQ Merger Arbitrage ETF, IQ Global Resources ETF and IQ 50 Percent Hedged FTSE International ETF.
Liquidity risk exists when particular investments are difficult to purchase or sell. To the extent a Fund invests in illiquid securities or securities that become less liquid, such investments may have a negative effect on the returns of the Fund because the Fund may be unable to sell the illiquid securities at an advantageous time or price. Securities with substantial market and/or credit risk may be especially susceptible to liquidity risk. Liquidity risk may be the result of, among other things, an investment being subject to restrictions on resale, trading over-the-counter or in limited volume, or lacking an active trading market. Liquid investments may become illiquid or less liquid after purchase by the Fund, particularly during periods of market turmoil or economic uncertainty. Illiquid and relatively less liquid investments may be harder to value, especially in changing markets. If a Fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or for other cash needs, the Fund may suffer a loss. This may be magnified in a rising interest rate environment or under other circumstances where redemptions from a Fund may be higher than normal. It may also be the case that other market participants may be attempting to liquidate similar holdings at the same time as a Fund, causing increased supply in the market and contributing to liquidity risk and downward pricing pressure. There can be no assurance that a security that is deemed to be liquid when purchased will continue to be liquid or as long as it is held by a Fund.
Market Risk
The value of a Fund’s investments may fluctuate and/or decline because of changes in the markets in which the Fund invests, which could cause the Fund to underperform other funds with similar investment objectives and strategies. Security markets are volatile and may decline significantly in response to adverse issuer, regulatory, political, or economic developments. Different sectors of the market and different security types may react differently to such developments. Changes in these markets may be rapid and unpredictable. Fluctuations in the markets generally or in a specific industry or sector may impact the securities in which a Fund invests. From time to time, markets may experience periods of stress for potentially prolonged periods that may result in: (i) increased market volatility; (ii) reduced market liquidity; and (iii) increased redemptions of Fund Shares. Such conditions may add significantly to the risk of volatility in the NAV of a Fund’s shares and the market prices at which Shares of a Fund trade on a securities exchange. During periods of market stress Shares of a Fund may also experience significantly wider “bid/ask” spreads and premiums and discounts between a Fund’s NAV and market price.
Market changes may impact equity and fixed income securities in different and, at times, conflicting manners. A Fund potentially will be prevented from executing investment decisions at an advantageous time or price as a result of any domestic or global market disruptions, particularly disruptions causing heightened market volatility and reduced market liquidity, as well as increased or changing regulations or market closures. Thus, investments that the Advisor believes best enable a Fund to track the performance of its Underlying Index may be unavailable entirely or in the specific quantities sought by the Advisor and the Fund may need to obtain the exposure through less advantageous or indirect investments or forgo the investment at the time. Securities and investments included as components of an Underlying Index may be susceptible to declines in value, including declines in value that are not believed to be representative of the issuer’s value or fundamentals, due to investor reactions to such events. In response to market volatility and disruption, an Underlying Index may delay rebalancing, implement temporary or permanent modifications to its methodology or take other actions.
Political and diplomatic events within the United States and abroad, such as the U.S. budget and deficit reduction plans, protectionist measures, trade tensions central bank policy and government intervention in the economy, has in the past resulted, and may in the future result, in developments that present additional risks to a Fund’s investments and operations. Geopolitical and other events, such as war, acts of terrorism, natural disasters, the spread of infectious illnesses, epidemics and pandemics, environmental and other public health issues, recessions or other events, and governments’ reactions to such events, may lead to increased market volatility and instability in world economies and markets generally and may have adverse effects on the performance of a Fund and its investments. Additional and/or prolonged geopolitical or other events may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. Any such market, economic and other disruptions could also prevent a Fund from executing its investment strategies and processes in a timely manner.
An investment in a Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. When you sell your Shares, they could be worth less than what you paid for them.
Market Disruption Risk and Recent Market Events
Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on a Fund and its investments. Market disruptions could cause a Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets. Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant restrictions, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. A Fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in a Fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.
Merger Arbitrage Risk
The following risk applies to the IQ Merger Arbitrage ETF.
Investments in companies that are the subject of a publicly announced transaction carry the risk that the proposed or expected transaction may not be completed or may be completed on less favorable terms than originally expected, which may lower Fund performance. In the event an expected transaction is not completed, the share price of the target company may decline significantly. Announced transactions may be renegotiated or terminated or may take an unexpectedly long time to be completed. Investments in foreign companies involved in pending mergers, takeovers and other corporate reorganizations may entail political, cultural, regulatory, legal and tax risks different from those associated with comparable transactions in the United States.
During market turbulence, natural disasters, health emergencies and geopolitical events, or as a result of political developments or changes in laws of regulation, there may be periods in which there is limited merger, acquisition and other buy-out activity. During periods in which there are a limited number of target companies eligible for inclusion in the Underling Index, the Fund ma have significant investments in cash and other similar investments. In such an environment, a significant portion of the Fund will not be pursuing a merger arbitrage strategy.
Money Market/Short-Term Securities Risk
The following risk applies to the IQ Merger Arbitrage ETF.
To the extent that a Fund invests in money market or short-term securities, the Fund may be subject to certain risks associated with such investments. An investment in a money market fund or short-term securities is not a bank deposit and is not insured or guaranteed by any bank, the Federal Deposit Insurance Corporation or any other government agency. It is possible for a Fund to lose money by investing in money market funds. A money market fund may not achieve its investment objective. Changes in government regulations may affect the value of an investment in a money market fund.
New Fund Risk
The following risk applies to the IQ Chaikin U.S. Dividend Achievers ETF and IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF.
As a new fund, there can be no assurance that a Fund will grow to or maintain an economically viable size, in which case it could ultimately liquidate. Like other new funds, large inflows and outflows may impact a Fund’s market exposure for limited periods of time. This impact may be positive or negative, depending on the direction of market movement during the period affected. An Authorized Participant, the Advisor or an affiliate of the Advisor may invest in a Fund and hold its investments for a specific period of time in order to facilitate commencement of the Fund’s operations or for the Fund to achieve size or scale. There can be no assurance that any such entity would not redeem its investment or that the size of a Fund would be maintained at such levels which could negatively impact the Fund.
Non-Diversified Risk
The following risk applies to each fund except the IQ Merger Arbitrage ETF, IQ Global Resources ETF and IQ U.S. Real Estate Small Cap ETF.
A Fund is classified as a “non-diversified” investment company under the 1940 Act, which means it may invest a larger percentage of its assets in a smaller number of issuers than a diversified fund. To the extent a Fund invests its assets in a smaller number of issuers, the Fund will be more susceptible to negative events affecting those issuers than a diversified fund. Under the 1940 Act, a Fund may change its classification from non-diversified to diversified without shareholder approval.
Operational Risk
Each Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Funds are not actively managed and instead seek to track the performance of an index. Passive management has the following risks associated with it:
•
Each Fund invests in the securities included in, or representative of, its Underlying Index. The provider of an Index or the index calculation agent may make errors. An index provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in a Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to a Fund.
•
In seeking to track an Underlying Index’s performance, a Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of its Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in a Fund’s portfolio and those included in an Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and a Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, a Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to an Underlying Index or the costs to a Fund of complying with various new or existing regulatory requirements. Tracking error also may result because a Fund incurs fees and expenses, while an Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
Portfolio Turnover Risk
The following risk applies to the IQ Merger Arbitrage ETF and IQ Global Resources ETF.
A Fund’s strategy may frequently involve buying and selling portfolio securities to rebalance the Fund’s investment exposures. High portfolio turnover may result in the Fund paying higher levels of transaction costs and generating greater tax liabilities for shareholders. Portfolio turnover risk may cause a Fund’s performance to be less than expected.
Preferred Stock Risk
The following risk applies to the IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF.
Preferred securities combine some of the characteristics of both common stocks and bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms of priority to corporate income, subjecting them to greater credit risk than those debt securities. Preferred securities often include provisions that permit the issuer, at its discretion, to defer distributions for a stated period without any adverse consequences to the issuer. If a Fund owns a preferred security that is deferring its distributions, the Fund may be required to report income for federal income tax purposes although it has not yet received such income in cash. Generally, holders of preferred securities have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may elect a number of directors to the issuer’s board of director. Generally, once the issuer pays all the arrearages, the preferred security holders no longer have voting rights. In certain circumstances, an issuer of preferred securities may redeem the securities prior to a specified date. For instance, for certain types of preferred securities, a redemption may be triggered by a change in federal income tax or securities laws or a change in regulatory trademark. As with redemption provisions of debt securities, a special redemption by the issuer may negatively impact the return of the preferred security held by a Fund. Preferred securities may also be substantially less liquid than other securities, including common stock.
Real Estate Companies Risk
The following risk applies only to the IQ U.S. Real Estate Small Cap ETF.
An investment in companies that invest in real estate (including REITs) exposes a Fund to the risks of the real estate market and the risks associated with the ownership of real estate. These risks can include fluctuations in the value of or destruction of underlying properties; realignment in tenant living and work habits (for example, movements to and from different parts of a nation, a region, a state or a city); tenant or borrower default; market saturation; changes in general and local economic conditions; decreases in market rates for rents; increases in vacancies; competition; property taxes; capital expenditures or operating expenses; other economic or political events affecting the real estate industry; concentration in a limited number of properties, geographic regions or property types; and low quality and/or conflicted management. In addition, real estate is generally a less liquid asset class and companies that hold real estate may not be able to liquidate or modify their holdings quickly in response to changes in economic or other market conditions. Companies in the real estate sector or in sectors that affect the performance of companies in the real estate sector (such as banking or financial institutions) may be subject to extensive government regulation, which may change unexpectedly and significantly impact the value of a Fund’s investments. Changing interest rates and credit quality requirements for borrowers and tenants may also affect the cash flow of companies that invest in real estate, and their ability to meet capital needs. Additionally, such companies may utilize leverage, which increases investment risk and the potential for more volatility in a Fund’s returns. A REIT’s failure to abide by U.S. federal tax requirements may cause it to be subject to federal income taxation, which would tend to impair the value of the REIT and change the characterization of the REIT’s distributions. The U.S. federal tax requirement that a REIT distribute substantially all of its net income to its shareholders may result in the REIT having insufficient capital for future expenditures.
Secondary Market Trading Risk
Although each Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. The trading of Shares on securities exchanges is subject to the risk of irregular trading activity. Additionally, market makers are under no obligation to make a market in a Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in a Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, such Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value
Buying or selling Shares on an exchange involves two types of costs that apply to all securities transactions. When buying or selling Shares through a broker, you will likely incur a brokerage commission and other charges. In addition, you may incur the cost of the “spread” — the difference between what investors are willing to pay for Shares (the “bid” price) and the price at which they are willing to sell Fund shares (the “ask” price). The
spread, which varies over time for Shares based on trading volume and market liquidity, is generally narrower if the Fund has more trading volume and market liquidity and wider if the Fund has less trading volume and market liquidity. The risk of wide bid and ask spreads may be especially pronounced for smaller funds. In addition, increased market volatility may cause wider spreads. There may also be regulatory and other charges that are incurred as a result of trading activity. Because of the costs inherent in buying or selling Shares, frequent trading may detract significantly from investment results and an investment in Shares may not be advisable for investors who anticipate regularly making small investments through a brokerage account.
Securities exchanges have requirements that must be met in order for Shares to be listed. There can be no assurance that the requirements of an exchange necessary to maintain the listing of Shares will continue to be met. This risk is particularly acute for funds that fail to attract a large number of shareholders. Pursuant to an exchange’s “circuit breaker” rules, trading in a Fund’s Shares may be halted due to extraordinary market volatility.
Short Sales Risk
The following risk applies to the IQ Merger Arbitrage ETF.
In order to achieve its investment objective, a Fund may engage in short sales, which are designed to provide the Fund gains when the price of a particular security, basket of securities or index declines. When a Fund shorts a security, it borrows shares of that security, which it then sells. A Fund closes out a short sale by purchasing the security that it has sold short and returning that security to the entity that lent the security. A Fund may also seek inverse or “short” exposure through the use of derivatives such as swap agreements or futures contracts, which will expose the Fund to certain risks such as an increase in volatility or decrease in the liquidity of the securities of the underlying short position. A short position subjects a Fund to the risk that instead of declining, the price of the security or reference asset to which the Fund has short exposure will rise. If the price of the security or reference asset increases between the date of the short sale and the date on which a Fund replaces the security or otherwise closes out its short position, such Fund will experience a loss, which is theoretically unlimited since there is a theoretically unlimited potential for the market price of a security or other instrument sold short to increase.
Small- and/or Mid-Capitalization Companies Risk
The following risk applies to the IQ Merger Arbitrage ETF, IQ Global Resources ETF, IQ U.S. Real Estate Small Cap ETF, IQ Chaikin U.S. Dividend Achievers ETF, IQ Chaikin U.S. Small Cap ETF and IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF.
Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies as a result of several factors, including narrower markets for their goods and/or services, more limited managerial and financial resources, limited product lines, services, markets, financial resources or are dependent on a small management group. Because these stocks may not be well known to the investing public, do not have significant institutional ownership and are followed by relatively few security analysts, there will normally be less publicly available information concerning these securities compared to what is available for the securities of larger companies. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, can decrease the value and liquidity of securities held by a Fund, resulting in more volatile performance. Accordingly, such companies are generally subject to greater market risk than larger, more established companies.
Swap Agreements Risk
The following risk applies to the IQ Merger Arbitrage ETF.
Swap agreements are two-party contracts entered into for a set period of time in which the parties agree to exchange payments based on some underlying reference or asset (such as interest rates). The use of swaps is a highly specialized activity that involves investment techniques, risk analyses and tax planning different from those associated with ordinary portfolio securities transactions. These transactions can result in sizeable realized and unrealized capital gains and losses relative to the gains and losses from a Fund’s direct investments in the reference assets. Transactions in swaps can involve greater risks than if a Fund had invested directly in the reference asset since, in addition to general market risks, swaps may be leveraged and are also subject to credit risk, counterparty risk, liquidity risk and valuation risk. Because they are two-party contracts and may have terms of greater than seven days, certain swap transactions may be considered illiquid. Moreover, a Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap counterparty. Some swaps may be complex and difficult to value. Swaps may also be subject to pricing or “basis” risk, which exists when a particular swap becomes extraordinarily expensive relative to historical prices or the price of corresponding cash market instruments. Under certain market conditions it may not be economically feasible to initiate a transaction or liquidate a position in time to avoid a loss or take advantage of an opportunity. If a swap transaction is particularly large or if the relevant market is illiquid, it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price, which may result in significant losses. The prices of swaps can be very volatile, and a variance in the degree of volatility or in the direction of the price of the reference asset from the portfolio managers’ expectations may produce significant losses in a Fund’s investments in swaps. In addition, a perfect correlation between a swap and an investment position may be impossible to achieve. As a result, a Fund’s use of swaps may not be effective in fulfilling such Fund’s investment strategies and may contribute to losses that would not have been incurred otherwise. Certain swaps are not bilateral agreements but are centrally cleared and are exchange-traded. Central clearing tends to decrease credit risk and improve liquidity but many regulations regarding centrally cleared swaps have not been fully implemented and the scope of the risks remain unclear. As central clearing does not make the agreements risk-free and there is no guarantee that a Fund would consider all centrally cleared or exchange-traded swaps to be liquid.
Trading Price Risk
Shares of a Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of a Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of a Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the Fund’s NAV. As a result, the trading prices of a Fund’s Shares may deviate significantly from NAV during periods of market volatility. The market price of a Fund’s 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 Shares. In times of severe market disruption, the bid/ask spread can increase significantly. At those times, Shares are most likely to be traded at a discount to NAV, and the discount is likely to be greatest when the price of Shares is falling fastest, which may be the time that an investor most wants to sell their Shares. Although it is generally expected that the market price of a Fund’s Shares will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares. While the creation/redemption feature is designed to make it more likely that a Fund’s Shares normally will trade on securities exchanges at prices close to the Fund’s next calculated NAV, exchange prices are not expected to correlate exactly with the Fund’s NAV due to timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions at market makers, Authorized Participants, or other market participants, and during periods of significant market volatility, may result in trading prices for Shares of a Fund that differ significantly from its NAV. Authorized Participants may be less willing to create or redeem Shares if there is a lack of an active market for such Shares or its underlying investments, which may contribute to the Fund’s Shares trading at a premium or discount to NAV. Additionally, similar to shares of other issuers listed on a securities exchange, a Fund’s Shares may be sold short and are therefore subject to the risk of increased volatility and price decreases associated with being sold short. Any of these factors, among others, may lead to a Fund’s Shares trading at a premium or discount to NAV.
Valuation Risk
The following risk applies to the IQ Merger Arbitrage ETF, IQ Global Resources ETF and IQ 50 Percent Hedged FTSE International ETF.
Independent market quotations for certain investments held by a Fund may not be readily available, and such investments may be fair valued or valued by a pricing service at an evaluated price. These valuations involve subjectivity and different market participants may assign different prices to the same investment. As a result, there is a risk that a Fund may not be able to sell an investment at the price assigned to the investment by the Fund. In addition, the value of the securities or other assets in a Fund’s portfolio may change on days or during time periods when shareholders will not be able to purchase or sell the Fund’s Shares. Authorized Participants who purchase or redeem Shares on days when a Fund is holding fair-valued securities may receive fewer or more shares, or lower or higher redemption proceeds, than they would have received had the Fund not fair-valued securities or used a different valuation methodology. A Fund’s ability to value investments may be impacted by technological issues or errors by pricing services or other third-party service providers.
Additional Risks
Large Investments by Shareholders Risk
From time to time, a Fund may receive large purchase or redemption orders from affiliated or unaffiliated funds or other investors. In addition, any third-party investor, investment advisor affiliate, authorized participant, lead market maker or other entity may make a large investment in a Fund and hold its investment for any number of reasons, including to facilitate such Fund’s commencement of operations or to facilitate the Fund’s achieving a specified size or scale. There can be no assurance that any large shareholder would not sell or redeem its investment at any given time, either in a single transaction or over time. These large transactions, and particularly redemptions, could have adverse effects on a Fund, including: (i) negative impacts to performance if the Fund were required to sell securities, invest cash or hold significant cash at times when it otherwise would not do so; (ii) wider price spreads or greater premiums/discounts that could materialize as a result of lower secondary market volume of shares; and (iii) negative federal income tax consequences if this activity accelerated the realization of capital gains.
Securities Lending Risk
Securities lending involves the risk that the borrower of the loaned securities fails to return the securities in a timely manner or at all. A Fund could also lose money due to a decline in the value of collateral provided for loaned securities or any investments made with cash collateral. These events could also trigger adverse tax consequences for a Fund. To the extent the collateral provided or investments made with cash collateral differ from securities included in a Fund’s Underlying Index, such collateral or investments may have a greater risk of loss than the securities included in the Underlying Index.
Underinvestment Risk
If certain aggregate ownership thresholds are reached either through the actions of the Advisor and its affiliates or a Fund, or as a result of third-party transactions, the ability of the Advisor on behalf of clients (including a Fund) to purchase or dispose of investments, or exercise rights or undertake business transactions, may be restricted by regulation or otherwise impaired. The capacity of the Fund to make investments in certain securities may be affected by the relevant limits, and such limitations may have adverse effects on the liquidity and performance of a Fund’s portfolio holdings compared to the performance of the Underlying Index. This may increase the risk of the Fund being underinvested to the Underlying Index and increase the risk of tracking error.
U.S. Tax Risks
To qualify for the favorable U.S. federal income tax treatment accorded to regulated investment companies, a Fund must satisfy certain income, asset diversification and distribution requirements. If for any taxable year, a Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) for that year would be subject to tax at regular corporate rates without any deduction for distributions to its shareholders, and such distributions would be taxable to its shareholders as dividend income to the extent of a Fund’s current and accumulated earnings and profits. To the extent a Fund engages in derivatives transactions, the tax treatment such derivatives transactions is unclear for purposes of determining a Fund’s tax status. To the extent a Fund engages in transactions in financial instruments, including, but not limited to, options, futures contracts, hedging transactions, forward contracts and swap contracts, the Fund will be subject to special tax rules (which may include mark-to-market, constructive sale, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund’s securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could, therefore, affect the amount, timing and character of distributions to a Fund’s shareholders. A Fund’s use of such transactions may result in the Fund realizing more short-term capital gains and ordinary income, in each case subject to U.S. federal income tax at higher ordinary income tax rates, than it would if it did not engage in such transactions.
Please refer to the SAI for a more complete discussion of the risks of investing in Shares.
Buying and Selling Shares in the Secondary Market
Most investors will buy and sell Shares of each Fund in Secondary Market transactions through brokers. Shares of each Fund will be listed for trading on the Secondary Market on the NYSE Arca or Nasdaq. Shares can be bought and sold throughout the trading day like other publicly-traded shares. Unless imposed by your broker or dealer, there is no minimum dollar amount you must invest and no minimum number of Shares you must buy in the Secondary Market. 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 spread between the bid and the offered price in the Secondary Market on each leg of a round trip (purchase and sale) transaction In addition, because transactions in the Secondary Market occur at market prices, you may pay more than NAV when you buy Shares and receive less than NAV when you sell those Shares.
Share prices are reported in dollars and cents per Share. For information about buying and selling Shares in the Secondary Market, please contact your broker or dealer.
Book Entry
Shares of each Fund are held in book-entry form and no stock certificates are issued. DTC, through its nominee Cede & Co., 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. Participants in DTC 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 securities that you hold in book entry or “street name” form for any publicly-traded company. Specifically, in the case of a shareholder meeting of a Fund, DTC assigns applicable Cede & Co. voting rights to its participants that have Shares credited to their accounts on the record date, issues an omnibus proxy and forwards the omnibus proxy to the Fund. The omnibus proxy transfers the voting authority from Cede & Co. to the DTC participant. This gives the DTC participant through whom you own Shares (namely, your broker, dealer, bank, trust company or other nominee) authority to vote the shares, and, in turn, the DTC participant is obligated to follow the voting instructions you provide.
Management
The Board is responsible for the general supervision of the Funds. The Board appoints officers who are responsible for the day-to-day operations of the Funds.
Investment Advisor
The Advisor has been registered as an investment advisor with the SEC since August 2007 and is a wholly-owned indirect subsidiary of New York Life Investment Management Holdings LLC. The Advisor’s principal office is located at 51 Madison Avenue, New York, New York 10010. As of June 30, 2021, the Advisor had approximately $4.7 billion in assets under management.
The Advisor has overall responsibility for the general management and administration of the Trust. The Advisor provides an investment program for the Funds. The Advisor has arranged for custody, fund administration, transfer agency and all other non-distribution related services necessary for the Funds to operate.
As compensation for its services and its assumption of certain expenses, each Fund pays the Advisor a management fee equal to a percentage of a Fund’s average daily net assets that is calculated daily and paid monthly, as follows:
Fund Name | | | Management Fee | |
IQ Merger Arbitrage ETF | | | | | 0.75% | | |
IQ Global Resources ETF | | | | | 0.30% | | |
IQ U.S. Real Estate Small Cap ETF | | | | | 0.69% | | |
IQ Chaikin U.S. Dividend Achievers ETF | | | | | 0.35% | | |
IQ Chaikin U.S. Large Cap ETF | | | | | 0.25% | | |
Fund Name | | | Management Fee | |
IQ Chaikin U.S. Small Cap ETF | | | | | 0.35% | | |
IQ 50 Percent Hedged FTSE International ETF | | | | | 0.35% | | |
IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF | | | | | 0.35% | | |
IQ 500 International ETF | | | | | 0.25% | | |
The Advisor may voluntarily waive any portion of its advisory fee from time to time, and may discontinue or modify any such voluntary limitations in the future at its discretion.
The Advisor serves as advisor to each Fund pursuant to an Investment Advisory Agreement (the “Advisory Agreement”). The Advisory Agreement was approved by the Independent Trustees of the Trust. The basis for the Board’s approval of the Advisory Agreement is available in the Trust’s Annual or Semiannual Report to Shareholders.
Under the Advisory Agreement, the Advisor agrees to pay all expenses of the Trust, except brokerage and other transaction expenses; extraordinary legal fees or expenses, such as those for litigation or arbitration; compensation and expenses of the Independent Trustees, counsel to the Independent Trustees, and the Trust’s chief compliance officer; extraordinary expenses; distribution fees and expenses paid by the Trust under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act; and the advisory fee payable to the Advisor hereunder.
The Advisor and its affiliates deal, trade and invest for their own accounts in the types of securities in which the Funds also may invest. The Advisor does not use inside information in making investment decisions on behalf of the Funds.
Section 15(a) of the 1940 Act requires that all contracts pursuant to which persons serve as investment advisors to investment companies be approved by shareholders. As interpreted, this requirement also applies to the appointment of subadvisors to the Funds. The Advisor and the Trust have obtained an exemptive order (the “Order”) from the SEC permitting the Advisor, on behalf of the Funds, and subject to the approval of the Board, including a majority of the Independent Trustees, to hire or terminate unaffiliated subadvisors and to modify any existing or future subadvisory agreement with unaffiliated subadvisors without shareholder approval. This authority is subject to certain conditions. A Fund will notify shareholders and provide them with certain information required by the Order within 90 days of hiring a new subadvisor. A Fund’s sole shareholder has approved the use of the Order. Please see the SAI for more information on the Order. The Advisor and its affiliates deal, trade and invest for their own accounts in the types of securities in which the Funds also may invest. The Advisor does not use inside information in making investment decisions on behalf of the Funds.
Expense Limitation Agreement
The Advisor has entered into an Expense Limitation Agreement with certain Funds under which it has agreed to waive or reduce its fees and to assume other expenses of each Fund, if necessary, in an amount that limits “Total Annual Fund Operating Expenses” (exclusive of interest, taxes, brokerage commissions and other expenses that are capitalized in accordance with generally accepted accounting principles, dividend, interest and brokerage expenses paid on short sales, acquired fund fees and expenses, extraordinary expenses, if any, and payments, if any, under the Rule 12b-1 Plan) to not more than the percentage of the average daily net assets for each Fund for the period from each Fund’s inception to August 31, 2022, as follows:
Fund Name | | | Total Annual Fund Operating Expenses After Expense Waiver/Reimbursement | |
IQ Global Resources ETF | | | | | 0.30% | | |
IQ Chaikin U.S. Dividend Achievers ETF | | | | | 0.35% | | |
IQ Chaikin U.S. Small Cap ETF | | | | | 0.35% | | |
IQ Chaikin U.S. Large Cap ETF | | | | | 0.25% | | |
IQ 50 Percent Hedged FTSE International ETF | | | | | 0.20% | | |
IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF | | | | | 0.35% | | |
IQ 500 International ETF | | | | | 0.25% | | |
Portfolio Management
The Advisor acts as investment advisor to the Funds and is responsible for managing the investment portfolios of the Funds and the purchase and sale of the Funds’ investment securities. The Advisor utilizes a team of investment professionals acting together to manage the assets of the Funds. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the portfolio as they deem appropriate in the pursuit of each Fund’s investment objective. For these services, the Advisor is paid a monthly management fee by the Funds.
The portfolio managers who are currently responsible for the day-to-day management of the Funds’ portfolios are Greg Barrato and James Harrison.
Greg Barrato joined the Advisor as Vice President in November 2010 and has been Senior Vice President of the Advisor since August 2013 and portfolio manager of the Funds since February 2011. Prior to joining the Advisor, Mr. Barrato served as Head Global Equity Trader and Trader at Lucerne Capital Management, LLC from 2008 to 2010 and as Assistant Trader and Operations Manager at ReachCapital Management, LP from 2004 to 2008. Mr. Barrato is a graduate of the University of Connecticut.
James Harrison has been a member of the portfolio management team of the Advisor since 2015. He has been a Vice President of the Advisor since June 2018 and a portfolio manager of the Funds since April 2018. Prior to joining the Advisor, Mr. Harrison served as a New York Stock Exchange Member Floor Broker and Equity Sales Trader for Cuttone and Company from 2010 to 2015. Mr. Harrison is a graduate of St. Lawrence University.
For more information about the portfolio managers’ compensation, other accounts managed by the portfolio managers and the portfolio managers’ ownership of securities in the Funds, see the SAI.
Other Service Providers
Index Providers IndexIQ LLC
IndexIQ LLC, located at 51 Madison Avenue, New York, NY 10010, is the index provider for all the Funds, except, IQ Chaikin U.S. Dividend Achievers ETF, IQ Chaikin U.S. Large Cap ETF, IQ Chaikin U.S. Small Cap ETF, IQ 50 Percent Hedged FTSE International ETF and IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF. IndexIQ is in the business of developing and maintaining financial indexes, including the Underlying Indexes. Presently, IndexIQ has developed and is maintaining a number of indexes in addition to the Underlying Indexes, of which 13 are currently being used by registered investment companies. IndexIQ has entered into an index licensing agreement (the “Licensing Agreement”) with the Advisor to allow the Advisor’s use of the Underlying Indexes for the operation of the Funds. The Advisor pays licensing fees to IndexIQ from the Advisor’s management fees or other resources. The Advisor has, in turn, entered into a sub-licensing agreement (the “Sub-Licensing Agreement”) with the Trust to allow the Funds to utilize the Underlying Indexes. The Funds pay no fees to IndexIQ or the Advisor under the Sub-Licensing Agreement.
Additional information regarding the Underlying Indexes developed and maintained by IndexIQ, including the index methodology and composition, is available at newyorkofeinvestments.com.
Nasdaq, Inc.
Nasdaq, Inc. located at One Liberty Plaza, 165 Broadway, New York, NY 10006, developed and sponsors each Underlying Index for the IQ Chaikin U.S. Dividend Achievers ETF, IQ Chaikin U.S. Large Cap ETF and IQ Chaikin U.S. Small Cap ETF.
The Product(s) is not sponsored, endorsed, sold or promoted by Nasdaq, Inc. or its affiliates (Nasdaq, with its affiliates, are referred to as the “Corporations”). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the Product(s). The Corporations make no representation or warranty, express or implied to the owners of the Product(s) or any member of the public regarding the advisability of investing in securities generally or in the Product(s) particularly, or the ability of the Nasdaq Chaikin Power US Dividend Achievers Index, Nasdaq Chaikin Power US Small Cap Index and Nasdaq Chaikin Power US Large Cap Index to track general stock market performance. The Corporations’ only relationship to IndexIQ Advisors LLC (“Licensee”) is in the licensing of the Nasdaq® and certain trade names of the Corporations and the use of the Nasdaq Chaikin Power US Dividend Achievers Index, Nasdaq Chaikin Power US Small Cap Index and Nasdaq Chaikin Power US Large Cap Index which are determined, composed and calculated by Nasdaq without regard to Licensee or the Product(s). Nasdaq has no obligation to take the needs of the Licensee or the owners of the Product(s) into consideration in determining, composing or calculating the Nasdaq Chaikin Power US Dividend Achievers Index, Nasdaq Chaikin Power US Small Cap Index and Nasdaq Chaikin Power US Large Cap Index. The Corporations are not responsible for and have not participated in the determination of the timing of, prices at, or quantities of the Product(s) to be issued or in the determination or calculation of the equation by which the Product(s) is to be converted into cash. The Corporations have no liability in connection with the administration, marketing or trading of the Product(s).
The Corporations do not guarantee the accuracy and/or uninterrupted calculation of Nasdaq Chaikin Power US Dividend Achievers Index, Nasdaq Chaikin Power US Small Cap Index and Nasdaq Chaikin Power US Large Cap Index or any data included therein. The Corporations make no warranty, express or implied, as to results to
be obtained by Licensee, owners of the product(s), or any other person or entity from the use of the Nasdaq Chaikin Power US Dividend Achievers Index, Nasdaq Chaikin Power US Small Cap Index and Nasdaq Chaikin Power US Large Cap Index or any data included therein. The Corporations make no express or implied warranties, and expressly disclaim all warranties of merchantability or fitness for a particular purpose or use with respect to the Indexes or any data included therein. Without limiting any of the foregoing, in no event shall the Corporations have any liability for any lost profits or special, incidental, punitive, indirect, or consequential damages, even if notified of the possibility of such damages.
Chaikin, Chaikin Analytics and Chaikin Power Gauge are registered trademarks or service marks of Chaikin Analytics LLC and Chaikin Investments LLC and used under license.
FTSE International Ltd.
FTSE International Ltd. (“FTSE”), located at 10 Paternoster Square, London, United Kingdom, developed and sponsors each Underlying Index for the IQ 50 Percent Hedged FTSE International ETF.
The IQ 50 Percent Hedged FTSE International ETF is not in any way sponsored, endorsed, sold, or promoted by FTSE International Limited (“FTSE”) or the London Stock Exchange Group companies (“LSEG”) (together the “Licensor Parties”), and none of the Licensor Parties make any claim, prediction, warranty, or representation whatsoever, expressly or impliedly, either as to (i) the results to be obtained from the use of the FTSE Developed ex North America 50% Hedged to USD Index (the “Index”) (upon which the Fund is based), (ii) the figure at which the Index is said to stand at any particular time on any particular day or otherwise, or (iii) the suitability of the Index for the purpose to which it is being put in connection with the Fund. None of the Licensor Parties have provided or will provide any financial or investment advice or recommendation in relation to the Index to the Advisor or to its clients. The Index is calculated by FTSE or its agent. None of the Licensor Parties shall be (a) liable (whether in negligence or otherwise) to any person for any error in an Index or (b) under any obligation to advise any person of any error therein. All rights in each Index vest in FTSE. “FTSE®” is a trademark of LSEG and is used by FTSE under license.
S&P Opco LLC
S&P Opco LLC located at 55 Water Street, New York, New York 10041, developed and sponsors the S&P U.S. Preferred Stock Low Volatility High Dividend Index for the IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF.
The “S&P U.S. Preferred Stock Low Volatility High Dividend Index” is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and has been licensed for use by IndexIQ Advisors LLC. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). The trademarks have been licensed to SPDJI and have been sublicensed for use for certain purposes by IndexIQ Advisors LLC. IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices makes no representation or warranty, express or implied, to the owners of the IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF or any member of the public regarding the advisability of investing in securities generally or in IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF particularly or the ability of the S&P U.S. Preferred Stock Low Volatility High Dividend Index to track general market performance. S&P Dow Jones Indices’ only relationship to IndexIQ Advisors LLC with respect to the S&P U.S. Preferred Stock Low Volatility High Dividend Index is the licensing of the Index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its licensors. The S&P U.S. Preferred Stock Low Volatility High Dividend Index is determined, composed and calculated by S&P Dow Jones Indices without regard to IndexIQ Advisors LLC or the IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF. S&P Dow Jones Indices has no obligation to take the needs of IndexIQ Advisors LLC or the owners of IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF into consideration in determining, composing or calculating the S&P U.S. Preferred Stock Low Volatility High Dividend Index. S&P Dow Jones Indices is responsible for and have not participated in the determination of the prices, and amount of IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF or the timing of the issuance or sale of IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF or in the determination or calculation of the equation by which IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices has no obligation or liability in connection with the administration, marketing or trading of IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF. There is no assurance that investment products based on the S&P U.S. Preferred Stock Low
Volatility High Dividend Index will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.
S&P DOW JONES INDICES DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P U.S. PREFERRED STOCK LOW VOLATILITY HIGH DIVIDEND INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY INDEXIQ ADVISORS LLC, OWNERS OF THE IQ S&P U.S. PREFERRED STOCK LOW VOLATILITY HIGH DIVIDEND ETF, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P U.S. PREFERRED STOCK LOW VOLATILITY HIGH DIVIDEND INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND INDEXIQ ADVISORS LLC, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
Fund Administrator, Custodian, Transfer Agent and Securities Lending Agent
The Bank of New York Mellon (“BNY Mellon”), located at 240 Greenwich Street, New York, New York 10286, serves as the Funds’ Administrator, Custodian, Transfer Agent and Securities Lending Agent. BNY Mellon is the principal operating subsidiary of The Bank of New York Mellon Corporation.
Under the Fund Administration and Accounting Agreement (the “Administration Agreement”), BNY Mellon serves as Administrator for the Funds. Under the Administration Agreement, BNY Mellon provides necessary administrative, legal, tax, accounting services, and financial reporting for the maintenance and operations of the Trust. In addition, BNY Mellon makes available the office space, equipment, personnel and facilities required to provide such services.
BNY Mellon supervises the overall administration of the Trust, including, among other responsibilities, assisting in the preparation and filing of documents required for compliance by the Funds with applicable laws and regulations and arranging for the maintenance of books and records of the Funds. BNY Mellon provides persons satisfactory to the Board to serve as officers of the Trust.
Distributor
ALPS Distributors, Inc. (“ALPS” or “Distributor”), located at 1290 Broadway, Suite 1100, Denver, Colorado 80203, serves as the Distributor of Creation Units for the Funds on an agency basis. The Distributor does not maintain a Secondary Market in Funds’ Shares. NYLIFE Distributors LLC has entered into a Services Agreement with ALPS to market the Funds.
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP, located at 300 Madison Avenue, New York, NY 10017, serves as the independent registered public accounting firm for the Trust.
Legal Counsel
Chapman and Cutler LLP, located at 1717 Rhode Island Avenue, Washington, D.C. 20036, serves as counsel to the Trust and the Funds.
Frequent Trading
The Board has not adopted policies and procedures with respect to frequent purchases and redemptions of Shares by Fund shareholders (“market timing”). In determining not to adopt market timing policies and procedures, the Board noted that the Funds are expected to be attractive to active institutional and retail investors interested in buying and selling Shares on a short-term basis. In addition, the Board considered that, unlike traditional mutual funds, Shares can only be purchased and redeemed directly from the Fund in Creation Units by Authorized Participants, and that the vast majority of trading in Shares occurs on the Secondary
Market. Because Secondary Market trades do not involve a Fund directly, it is unlikely those trades would cause many of the harmful effects of market timing, including dilution, disruption of portfolio management, increases in a Fund’s trading costs and the realization of capital gains. With respect to trades directly with the Funds, to the extent effected in-kind (namely, for securities), those trades do not cause any of the harmful effects that may result from frequent cash trades. To the extent trades are effected in whole or in part in cash, the Board noted that those trades could result in dilution to a Fund and increased transaction costs (a Fund may impose higher transaction fees to offset these increased costs), which could negatively impact the Fund’s ability to achieve its investment objective. However, the Board noted that direct trading on a short-term basis by Authorized Participants is critical to ensuring that Shares trade at or close to NAV. Given this structure, the Board determined that it is not necessary to adopt market timing policies and procedures. Each Fund reserves the right to reject any purchase order at any time and reserves the right to impose restrictions on disruptive or excessive trading in Creation Units.
The Board has instructed the officers of the Trust to review reports of purchases and redemptions of Creation Units on a regular basis to determine if there is any unusual trading in the Funds. The officers of the Trust will report to the Board any such unusual trading in Creation Units that is disruptive to the Funds. In such event, the Board may reconsider its decision not to adopt market timing policies and procedures.
Distribution and Service Plan
The Board has adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with its Rule 12b-1 plan, each Fund is authorized to pay an amount up to 0.10% of its average daily net assets each year to finance activities primarily intended to result in the sale of Creation Units of each Fund or the provision of investor services. No Rule 12b-1 fees are currently paid by the Funds and there are no plans to impose these fees. However, in the event Rule 12b-1 fees are charged in the future, they will be paid out of the respective Fund’s assets, and over time these fees will increase the cost of your investment and they may cost you more than certain other types of sales charges.
The Advisor and its affiliates may, out of their own resources, pay amounts (“Payments”) to third-parties for distribution or marketing services on behalf of the Funds. The making of these payments could create a conflict of interest for a financial intermediary receiving such payments. The Advisor may make Payments for such third-parties to organize or participate in activities that are designed to make registered representatives, other professionals and individual investors more knowledgeable about ETFs, including ETFs advised by the Advisor, or for other activities, such as participation in marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems (“Education Costs”). The Advisor also may make Payments to third-parties to help defray costs typically covered by a trading commission, such as certain printing, publishing and mailing costs or materials relating to the marketing of services related to exchange-traded products (such as commission-free trading platforms) or exchange-traded products in general (“Administrative Costs”).
Determination of Net Asset Value (NAV)
The NAV of the Shares for a Fund is equal to the Fund’s total assets minus its total liabilities divided by the total number of Shares outstanding. Interest and investment income on a Fund’s assets accrue daily and are included in the Fund’s total assets. Expenses and fees (including investment advisory, management, administration and distribution fees, if any) accrue daily and are included in the applicable Fund’s total liabilities. The NAV that is published is rounded to the nearest cent; however, for purposes of determining the price of Creation Units, the NAV is calculated to eight decimal places. The NAV is calculated by the Administrator and Custodian and determined each day the NYSE Arca or the Nasdaq is open for trading as of the close of regular trading on the NYSE Arca or the Nasdaq (ordinarily 4:00 p.m. Eastern time).
In calculating NAV, each Fund’s investments are valued using market quotations when available. Equity securities are generally valued at the closing price of the security on the security’s primary exchange. The primary exchanges for a Fund’s foreign equity securities may close for trading at various times prior to close of regular trading on the NYSE Arca or the Nasdaq, and the value of such securities used in computing the Fund’s NAV are generally determined as of such times. A Fund’s foreign securities may trade on weekends or other days when Shares do not trade. Consequently, the value of portfolio securities of a Fund may change on days when Shares of the Fund cannot be purchased or sold.
When market quotations are not readily available or are deemed unreliable or not representative of an investment’s fair value, investments are valued using fair value pricing as determined in good faith by the Advisor under procedures established by and under the general supervision and responsibility of the Board. Investments that may be valued using fair value pricing include, but are not limited to: (1) securities that are not actively traded, including “restricted” securities and securities received in private placements for which there is no public market; (2) securities of an issuer that becomes bankrupt or enters into a restructuring; (3) securities whose trading has been halted or suspended; and (4) foreign securities traded on exchanges that close before each Fund’s NAV is calculated.
The frequency with which the Funds’ investments are valued using fair value pricing is primarily a function of the types of securities and other assets in which the respective Fund invests pursuant to its investment objective, strategies and limitations. If the Funds invest in other open-end management investment companies registered under the 1940 Act, they may rely on the NAVs of those companies to value the shares they hold of them. Those companies may also use fair value pricing under some circumstances.
Valuing each Fund’s investments using fair value pricing results in using prices for those investments that may differ from current market valuations. Accordingly, fair value pricing could result in a difference between the prices used to calculate NAV and the prices used to determine each Fund’s indicative intra-Day value (“IIV”), which could result in the market prices for Shares deviating from NAV.
Premium/Discount Information
As of the date of this Prospectus, IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETFand IQ Chaikin U.S. Dividend Achievers ETF have not yet commenced operations and therefore have not accumulated information to report regarding the extent and frequency with which market prices of Shares have tracked such Funds’ NAV.
Information regarding the extent and frequency with which market prices of Shares have tracked the relevant Fund’s NAV for the most recently completed calendar year and the quarters since that year will be available without charge on the Funds’ website at newyorklifeinvestments.com.
Indicative Intra-Day Value
The approximate value of a Fund’s investments on a per-Share basis, the Indicative Intra-Day Value, or IIV, is disseminated every 15 seconds during hours of trading on the NYSE Arca. The IIV should not be viewed as a “real-time” update of NAV because the IIV may not be calculated in the same manner as NAV, which is computed once per day.
Solactive AG, an independent third party calculator calculates the IIV for each Fund during hours of trading on the NYSE Arca by dividing the “Estimated Fund Value” as of the time of the calculation by the total number of outstanding Shares of that Fund. “Estimated Fund Value” is the sum of the estimated amount of cash held in a Fund’s portfolio, the estimated amount of accrued interest owed to the Fund and the estimated value of the securities held in the Fund’s portfolio, minus the estimated amount of the Fund’s liabilities. The IIV will be calculated based on the same portfolio holdings disclosed on the Trust’s website.
Each Fund provides the independent third party calculator with information to calculate the IIV, but the Funds are not involved the actual calculation of the IIV and is not responsible for the calculation or dissemination of the IIV. The Funds make no warranty as to the accuracy of the IIV.
Dividends, Distributions and Taxes
Net Investment Income and Capital Gains
As a Fund shareholder, you are entitled to your share of the Fund’s distributions of net investment income and net realized capital gains on its investments. The Funds pay out substantially all of their net earnings to their shareholders as “distributions.” The Funds typically earn dividends from stocks and interest from debt securities. These amounts, net of expenses, typically are passed along to Fund shareholders as dividends from net investment income. The Funds realize capital gains or losses whenever they sell securities. Net capital gains typically are passed along to shareholders as “capital gain distributions.” Net investment income and net capital gains typically are distributed to shareholders at least annually. Dividends may be declared and paid more frequently to improve index tracking or to comply with the distribution requirements of the U.S. Internal
Revenue Code of 1986, as amended (the “Code”). In addition, the Funds may decide to distribute at least annually amounts representing the full dividend yield net of expenses on the underlying investment securities, as if the Funds owned the underlying investment securities for the entire dividend period, in which case some portion of each distribution may result in a return of capital. You will be notified regarding the portion of a distribution that represents a return of capital.
Distributions in cash may be reinvested automatically in additional Shares of a Fund only if the broker through which you purchased Shares makes such option available. Distributions which are reinvested nevertheless will be subject to U.S. federal income tax to the same extent as if such distributions had not been reinvested.
U.S. Federal Income Taxation
The following is a summary of certain U.S. federal income tax considerations applicable to an investment in Shares of a Fund. The summary is based on the Code, U.S. Treasury Department regulations promulgated thereunder, and judicial and administrative interpretations thereof, all as in effect on the date of this Prospectus and all of which are subject to change, possibly with retroactive effect. In addition, this summary assumes that a Fund shareholder holds Shares as capital assets within the meaning of the Code and does not hold Shares in connection with a trade or business. This summary does not address all potential U.S. federal income tax considerations possibly applicable to an investment in Shares of a Fund, and does not address the consequences to Fund shareholders subject to special tax rules, including, but not limited to, partnerships and the partners therein, tax-exempt shareholders, regulated investment companies (“RICs”), real estate investment trust (“REITs”), real estate mortgage investment conduits (“REMICs”), those who hold Shares through an IRA, 401(k) plan or other tax-advantaged account, and, except to the extent discussed below, “non-U.S. shareholders” (as defined below). This discussion does not discuss any aspect of U.S. state, local, estate and gift, or non-U.S., tax law. Furthermore, this discussion is not intended or written to be legal or tax advice to any shareholder in a Fund or other person and is not intended or written to be used or relied on, and cannot be used or relied on, by any such person for the purpose of avoiding any U.S. federal tax penalties that may be imposed on such person. Prospective Fund shareholders are urged to consult their own tax advisors with respect to the specific U.S. federal, state and local, and non-U.S., tax consequences of investing in Shares, based on their particular circumstances.
The Funds have not requested and will not request an advance ruling from the U.S. Internal Revenue Service (the “IRS”) as to the U.S. federal income tax matters described below. The IRS could adopt positions contrary to those discussed below and such positions could be sustained. Prospective investors should consult their own tax advisors with regard to the U.S. federal tax consequences of the purchase, ownership and disposition of Shares, as well as the tax consequences arising under the laws of any state, locality, non-U.S. country or other taxing jurisdiction. The following information supplements, and should be read in conjunction with, the section in the SAI entitled “U.S. Federal Income Taxation.”
Tax Treatment of a Fund
Each Fund intends to qualify and elect to be treated as a separate RIC under the Code. To qualify and remain eligible for the special tax treatment accorded to RICs, each Fund must meet certain annual income and quarterly asset diversification requirements and must distribute annually at least 90% of the sum of (i) its “investment company taxable income” (which includes dividends, interest and net short-term capital gains) and (ii) certain net tax-exempt income, if any.
As a RIC, a Fund generally will not be required to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes to its shareholders. If a Fund fails to qualify as a RIC for any year (subject to certain curative measures allowed by the Code), the Fund will be subject to regular corporate-level U.S. federal income tax in that year on all of its taxable income, regardless of whether the Fund makes any distributions to its shareholders. In addition, in such case, distributions will be taxable to a Fund’s shareholders generally as ordinary dividends to the extent of the Fund’s current and accumulated earnings and profits. The remainder of this discussion assumes that the Funds will qualify for the special tax treatment accorded to RICs.
A Fund generally will be subject to a 4% excise tax on certain undistributed income if the Fund does not distribute to its shareholders in each calendar year an amount at least equal to the sum of 98% of its ordinary income for the calendar year (taking into account certain deferrals and elections), 98.2% of its capital gain net income (adjusted for certain ordinary losses) for the twelve months ended October 31 of such year (or later if the Fund is permitted to elect and so elects), plus 100% of any undistributed amounts from prior years. For these
purposes, a Fund will be treated as having distributed any amount on which it has been subject to U.S. corporate income tax for the taxable year ending within the calendar year. Each Fund intends to make distributions necessary to avoid this 4% excise tax, although there can be no assurance that it will be able to do so.
A Fund may be required to recognize taxable income in advance of receiving the related cash payment. For example, if a Fund invests in original issue discount obligations (such as zero coupon debt instruments or debt instruments with payment-in-kind interest), the Fund will be required to include in income each year a portion of the original issue discount that accrues over the term of the obligation, even if the related cash payment is not received by the Fund until a later year. Under the “wash sale” rules, a Fund may not be able to deduct currently a loss on a disposition of a portfolio security. As a result, a Fund may be required to make an annual income distribution greater than the total cash actually received during the year. Such distribution may be made from the existing cash assets of the Fund or cash generated from selling portfolio securities. The Fund may realize gains or losses from such sales, in which event its shareholders may receive a larger capital gain distribution than they would in the absence of such transactions.
Tax Treatment of Fund Shareholders
Taxation of U.S. Shareholders
The following is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Shares applicable to “U.S. shareholders.” For purposes of this discussion, a “U.S. shareholder” is a beneficial owner of Shares who, for U.S. federal income tax purposes, is (i) an individual who is a citizen or resident of the United States; (ii) a corporation (or an entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, or of any state thereof, or the District of Columbia; (iii) an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or (iv) a trust, if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (2) the trust has a valid election in place to be treated as a U.S. person.
Fund Distributions. In general, Fund distributions are subject to U.S. federal income tax when paid, regardless of whether they consist of cash or property, and regardless of whether they are re-invested in Shares. However, any Fund distribution declared in October, November or December of any calendar year and payable to shareholders of record on a specified date during such month will be deemed to have been received by each Fund shareholder on December 31 of such calendar year, provided such dividend is actually paid during January of the following calendar year.
Distributions of a Fund’s net investment income and net short-term capital gains in excess of net long-term capital losses (collectively referred to as “ordinary income dividends”) are taxable as ordinary income to the extent of the Fund’s current and accumulated earnings and profits (subject to an exception for distributions of “qualified dividend income,” as discussed below). To the extent designated as capital gain dividends by a Fund, distributions of a Fund’s net long-term capital gains in excess of net short-term capital losses (“net capital gain”) are taxable at long-term capital gain tax rates to the extent of the Fund’s current and accumulated earnings and profits, regardless of a Fund shareholder’s holding period in the Fund’s Shares. Distributions of “qualified dividend income” (defined below) are, to the extent of a Fund’s current and accumulated earnings and profits, taxed to certain non-corporate Fund shareholders at the rates generally applicable to long-term capital gain, provided that the Fund shareholder meets certain holding period and other requirements with respect to the distributing Fund’s Shares and the distributing Fund meets certain holding period and other requirements with respect to its dividend-paying stocks. For this purpose, “qualified dividend income” generally means income from dividends received by a Fund from U.S. corporations and qualified non-U.S. corporations. Substitute payments received on Shares that are lent out will be ineligible for being reported as qualified dividend income. If a Fund pays a dividend that would be “qualified” dividend income for individuals, corporate shareholders may be entitled to a dividends received deduction.
Each Fund intends to distribute its net capital gain at least annually. However, by providing written notice to its shareholders no later than 60 days after its year-end, a Fund may elect to retain some or all of its net capital gain and designate the retained amount as a “deemed distribution.” In that event, the Fund pays U.S. federal income tax on the retained net capital gain, and each Fund shareholder recognizes a proportionate share of the Fund’s undistributed net capital gain. In addition, each Fund shareholder can claim a tax credit or refund
for the shareholder’s proportionate share of the Fund’s U.S. federal income taxes paid on the undistributed net capital gain and increase the shareholder’s tax basis in the Shares by an amount equal to the shareholder’s proportionate share of the Fund’s undistributed net capital gain, reduced by the amount of the shareholder’s tax credit or refund.
Distributions in excess of a Fund’s current and accumulated earnings and profits will, as to each shareholder, be treated as a tax-free return of capital to the extent of the shareholder’s tax basis in its Shares of the Fund, and generally as capital gain thereafter. Any such distribution will reduce the shareholder’s tax basis in the Shares, and thus will increase the shareholder’s capital gain, or decrease the capital loss, recognized upon a sale or exchange of Shares.
In addition, individuals with adjusted gross incomes above certain threshold amounts (and certain trusts and estates) generally are subject to a 3.8% Medicare tax on “net investment income” in addition to otherwise applicable U.S. federal income tax. “Net investment income” generally will include dividends (including capital gain dividends) received from a Fund and net gains from the redemption or other disposition of Shares. Please consult your tax advisor regarding this tax.
If a Fund is a “qualified fund of funds” (i.e., a RIC at least 50% of the value of the total assets of which, at the close of each quarter of the taxable year, is represented by interests in other RICs) or more than 50% of a Fund’s total assets at the end of a taxable year consist of non-U.S. stock or securities, the Fund may elect to “pass through” to its shareholders certain non-U.S. income taxes paid by the Fund. This means that each shareholder will be required to (i) include in gross income, even though not actually received, the shareholder’s pro rata share of the Fund’s non-U.S. income taxes, and (ii) either take a corresponding deduction (in calculating U.S. federal taxable income) or credit (in calculating U.S. federal income tax), subject to certain limitations.
Investors considering buying Shares just prior to a distribution should be aware that, although the price of the Shares purchased at such time may reflect the forthcoming distribution, such distribution nevertheless may be taxable (as opposed to a non-taxable return of capital).
Sales or Exchanges of Shares. Any capital gain or loss realized upon a sale or exchange of Shares (including an exchange of Shares of one Fund for Shares of another Fund) generally is treated as a long-term gain or loss if the Shares have been held for more than one year. Any capital gain or loss realized upon a sale or exchange of Shares held for one year or less generally is treated as a short-term gain or loss, except that any capital loss on the sale or exchange of Shares held for six months or less is treated as long-term capital loss to the extent that capital gain dividends were paid (or deemed to be paid) with respect to the Shares.
Creation Unit Issues and Redemptions. On an issue of Shares of a Fund as part of a Creation Unit where the creation is conducted in-kind, an Authorized Participant generally recognizes capital gain or loss equal to the difference between (i) the fair market value (at issue) of the issued Shares (plus any cash received by the Authorized Participant as part of the issue) and (ii) the Authorized Participant’s aggregate basis in the exchanged securities (plus any cash paid by the Authorized Participant as part of the issue). On a redemption of Shares as part of a Creation Unit where the redemption is conducted in-kind, an Authorized Participant generally recognizes capital gain or loss equal to the difference between (i) the fair market value (at redemption) of the securities received (plus any cash received by the Authorized Participant as part of the redemption) and (ii) the Authorized Participant’s basis in the redeemed Shares (plus any cash paid by the Authorized Participant as part of the redemption). However, the IRS may assert, under the “wash sale” rules or on the basis that there has been no significant change in the Authorized Participant’s economic position, that any loss on creation or redemption of Creation Units cannot be deducted currently.
In general, any capital gain or loss recognized upon the issue or redemption of Shares (as components of a Creation Unit) is treated either as long-term capital gain or loss, if the deposited securities (in the case of an issue) or the Shares (in the case of a redemption) have been held for more than one year, or otherwise as short-term capital gain or loss. However, any capital loss on a redemption of Shares held for six months or less is treated as long-term capital loss to the extent that capital gain dividends were paid (or deemed to be paid) with respect to such Shares.
Back-Up Withholding
A Fund (or a financial intermediary such as a broker through which a shareholder holds Shares in a Fund) may be required to report certain information on a Fund shareholder to the IRS and withhold U.S. federal income tax (“backup withholding”) at a current rate of 24% from taxable distributions and redemption or sale proceeds payable to the Fund shareholder if (i) the Fund shareholder fails to provide the Fund with a correct taxpayer
identification number or make required certifications, or if the IRS notifies the Fund that the Fund shareholder is otherwise subject to backup withholding, and (ii) the Fund shareholder is not otherwise exempt from backup withholding. Non-U.S. shareholders can qualify for exemption from backup withholding by submitting a properly completed IRS Form W-8BEN or W-8BEN-E. Backup withholding is not an additional tax and any amount withheld may be credited against a Fund shareholder’s U.S. federal income tax liability.
Taxation of Non-U.S. Shareholders
The following is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Shares applicable to “non-U.S. shareholders.” For purposes of this discussion, a “non-U.S. shareholder” is a beneficial owner of Shares that is not a U.S. shareholder (as defined above) and is not an entity or arrangement treated as a partnership for U.S. federal income tax purposes. The following discussion is based on current law and is for general information only. It addresses only selected, and not all, aspects of U.S. federal income taxation applicable to non-U.S. shareholders.
With respect to non-U.S. shareholders of a Fund, the Fund’s ordinary income dividends generally will be subject to U.S. federal withholding tax at a rate of 30% (or at a lower rate established under an applicable tax treaty), subject to certain exceptions for “interest-related dividends” and “short-term capital gain dividends” discussed below. The Funds will not pay any additional amounts to shareholders in respect of any amounts withheld. U.S. federal withholding tax generally will not apply to any gain realized by a non-U.S. shareholder in respect of a Fund’s net capital gain. Special rules (not discussed herein) apply with respect to dividends of a Fund that are attributable to gain from the sale or exchange of “U.S. real property interests.”
In general, all “interest-related dividends” and “short-term capital gain dividends” (each defined below) will not be subject to U.S. federal withholding tax, provided that, among other requirements, the non-U.S. shareholder furnished the Fund with a completed IRS Form W-8BEN or W-8BEN-E, as applicable, (or acceptable substitute documentation) establishing the non-U.S. shareholder’s non-U.S. status and the Fund does not have actual knowledge or reason to know that the non-U.S. shareholder would be subject to such withholding tax if the non-U.S. shareholder were to receive the related amounts directly rather than as dividends from the Fund. “Interest-related dividends” generally means dividends designated by a Fund as attributable to such Fund’s U.S.-source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which such Fund is at least a 10% shareholder, reduced by expenses that are allocable to such income. “Short-term capital gain dividends” generally means dividends designated by a Fund as attributable to the excess of such Fund’s net short-term capital gain over its net long-term capital loss. Depending on its circumstances, a Fund may treat such dividends, in whole or in part, as ineligible for these exemptions from withholding.
In general, subject to certain exceptions, non-U.S. shareholders will not be subject to U.S. federal income or withholding tax in respect of a sale or other disposition of Shares of a Fund. To claim a credit or refund for any Fund-level taxes on any undistributed net capital gain (as discussed above) or any taxes collected through back-up withholding (discussed below), a non-U.S. shareholder must obtain a U.S. taxpayer identification number and file a U.S. federal income tax return even if the non-U.S. shareholder would not otherwise be required to do so.
Foreign Account Tax Compliance Act
The U.S. Foreign Account Tax Compliance Act (“FATCA”) generally imposes a 30% withholding tax on “withholdable payments” (defined below) made to (i) a “foreign financial institution” (“FFI”), unless the FFI enters into an agreement with the IRS to provide information regarding certain of its direct and indirect U.S. account holders and satisfy certain due diligence and other specified requirements, and (ii) a “non-financial foreign entity” (“NFFE”) unless such NFFE provides certain information about its direct and indirect “substantial U.S. owners” to the withholding agent or certifies that it has no such U.S. owners. The beneficial owner of a “withholdable payment” may be eligible for a refund or credit of the withheld tax. The U.S. government also has entered into intergovernmental agreements with other jurisdictions to provide an alternative, and generally easier, approach for FFIs to comply with FATCA. If the shareholder is a tax resident in a jurisdiction that has entered into an intergovernmental agreement with the U.S. government, the shareholder will be required to provide information about the shareholder’s classification and compliance with the intergovernmental agreement.
“Withholdable payments” generally include, among other items, U.S.-source interest and dividends, and gross proceeds from the sale or disposition of property of a type that can produce U.S.-source interest or dividends. However, proposed regulations may eliminate the requirement to withhold on payments of gross proceeds from dispositions.
A Fund or a shareholder’s broker may be required to impose a 30% withholding tax on withholdable payments to a shareholder if the shareholder fails to provide the Fund with the information, certifications or documentation required under FATCA, including information, certification or documentation necessary for the Fund to determine if the shareholder is a non-U.S. shareholder or a U.S. shareholder and, if it is a non-U.S. shareholder, if the non-U.S. shareholder has “substantial U.S. owners” and/or is in compliance with (or meets an exception from) FATCA requirements. A Fund will not pay any additional amounts to shareholders in respect of any amounts withheld. The Fund may disclose any shareholder information, certifications or documentation to the IRS or other parties as necessary to comply with FATCA.
The requirements of, and exceptions from, FATCA are complex. All prospective shareholders are urged to consult their own tax advisors regarding the potential application of FATCA with respect to their own situation.
For a more detailed tax discussion regarding an investment in the Funds, please see the section of the SAI entitled “U.S. Federal Income Taxation.”
Code of Ethics
The Trust, Advisor and Distributor each have adopted a code of ethics under Rule 17j-1 of the 1940 Act that is designed to prevent affiliated persons of the Trust, the Advisor and the Distributor from engaging in deceptive, manipulative or fraudulent activities in connection with securities held or to be acquired by the Funds (which may also be held by persons subject to a code). There can be no assurance that the codes will be effective in preventing such activities. The codes permit personnel subject to them to invest in securities, including securities that may be held or purchased by the Funds. The codes are on file with the SEC and are available to the public.
Fund Website and Disclosure of Portfolio Holdings
The Advisor maintains a website for the Funds at newyorklifeinvestments.com. The website for the Funds contains the following information, on a per-Share basis, for each Fund: (1) the prior Business Day’s NAV; (2) the reported midpoint of the bid-ask spread at the time of NAV calculation (the “Bid-Ask Price”); (3) a calculation of the premium or discount of the Bid-Ask Price against such NAV; and (4) data in chart format displaying the frequency distribution of discounts and premiums of the Bid-Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters (or for the life of a Fund if, shorter). In addition, on each Business Day, before the commencement of trading in Shares on the NYSE Arca or Nasdaq, as applicable, each Fund will disclose on its website (newyorklifeinvestments.com) the identities and quantities of the portfolio securities and other assets held by each Fund that will form the basis for the calculation of NAV at the end of the Business Day.
A description of each Fund’s policies and procedures with respect to the disclosure of the Fund’s portfolio securities is available in the SAI.
Other Information
The Funds are not sponsored, endorsed, sold or promoted by the NYSE Arca. The NYSE Arca makes 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 Funds particularly or the ability of the Funds to achieve their objectives. The NYSE Arca has no obligation or liability in connection with the administration, marketing or trading of the Funds.
For purposes of the 1940 Act, the Funds are RICs, and the acquisition of Shares by other RICs and companies relying on exemption from registration as investment companies under Section 3(c)(1) or 3(c)(7) of the 1940 Act is subject to the restrictions of Section 12(d)(1) of the 1940 Act, except as permitted by an exemptive order that permits RICs to invest in the Funds beyond those limitations.
Financial Highlights
Selected Data for a Share of Capital Stock Outstanding
The financial highlights tables are intended to help you understand the Funds’ financial performance for the past five fiscal years or, if shorter, the period of the Funds’ operations. Certain information reflects financial results for a single Fund Share. The total returns in the tables represent the rate that an investor would have earned (or lost) on an investment in the respective Fund (assuming reinvestment of all dividends and distributions). This information has been audited by PricewaterhouseCoopers LLP, whose report, along with each Fund’s financial statements, is included in the Funds’ Annual Report, which is available upon request.
Financial highlights are not presented for the IQ Chaikin U.S. Dividend Achievers ETF and IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF since these Funds have not yet commended operations.
| | | IQ Merger Arbitrage ETF | |
| | | For the Year Ended April 30, | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
Net asset value, beginning of year | | | | $ | 31.53 | | | | | $ | 31.50 | | | | | $ | 30.72 | | | | | $ | 30.21 | | | | | $ | 28.44 | | |
Income from Investment Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income(a)(b) | | | | | 0.31 | | | | | | 0.14 | | | | | | 0.07 | | | | | | 0.10 | | | | | | 0.24(c) | | |
Net realized and unrealized gain(loss) | | | | | 2.55 | | | | | | (0.11) | | | | | | 0.71 | | | | | | 0.41(d) | | | | | | 1.59 | | |
Distributions of net realized gains from investments in other investment companies | | | | | 0.00(e) | | | | | | 0.00(e) | | | | | | — | | | | | | — | | | | | | — | | |
Net increase (decrease) in net assets resulting from investment operations | | | | | 2.86 | | | | | | 0.03 | | | | | | 0.78 | | | | | | 0.51 | | | | | | 1.83 | | |
Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | | | (0.77) | | | | | | — | | | | | | — | | | | | | — | | | | | | (0.06) | | |
Net asset value, end of year | | | | $ | 33.62 | | | | | $ | 31.53 | | | | | $ | 31.50 | | | | | $ | 30.72 | | | | | $ | 30.21 | | |
Market price, end of year | | | | $ | 33.67 | | | | | $ | 31.45 | | | | | $ | 31.48 | | | | | $ | 30.75 | | | | | $ | 30.27 | | |
Total Return | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value(f) | | | | | 9.07% | | | | | | 0.10% | | | | | | 2.52% | | | | | | 1.69% | | | | | | 6.45% | | |
Total investment return based on market price(g) | | | | | 9.53% | | | | | | (0.10)% | | | | | | 2.37% | | | | | | 1.59% | | | | | | 6.39% | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets, end of year (000’s omitted) | | | | $ | 746,279 | | | | | $ | 723,582 | | | | | $ | 985,800 | | | | | $ | 525,386 | | | | | $ | 188,833 | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses(h) | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | |
Net investment income (loss)(b) | | | | | 0.94% | | | | | | 0.42% | | | | | | 0.21% | | | | | | 0.34% | | | | | | 0.82%(c) | | |
Portfolio turnover rate(i) | | | | | 313% | | | | | | 308% | | | | | | 337% | | | | | | 329% | | | | | | 268% | | |
(a)
Based on average shares outstanding.
(b)
Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the investment companies in which the Fund invests.
(c)
Net investment income per share and ratio of net investment income to average net assets include a special cash dividend received of $0.14 per share owned of Calsonic Kansei Corp. on February 17, 2017. Net investment income per share and the net investment income to average net assets excluding the special dividend are $0.10 and 0.34% respectively.
(d)
Calculation of the net realized and unrealized gain (loss) per share does not correlate with the Fund’s net realized and unrealized gain (loss) presented on the Statements of Changes in Net Assets due to the timing of creation of Fund shares in relation to fluctuating market values.
(e)
Less than $0.005 per share.
(f)
Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, if any, at net asset value during the period, and redemption on the last day of the period.
(g)
The market price returns are calculated using the mean between the last bid and ask prices.
(h)
In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a prorated share of the fees and expenses of the underlying funds in which it invests. Such indirect expenses are not included in the above expense ratios.
(i)
Portfolio turnover rate is not annualized and excludes the value of portfolio securities received or delivered as in-kind creations or redemptions in connection with the Fund’s capital share transactions.
Financial Highlights (continued)
Selected Data for a Share of Capital Stock Outstanding
| | | IQ Global Resources ETF | |
| | | For the Year Ended April 30, | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
Net asset value, beginning of year | | | | $ | 24.16 | | | | | $ | 26.97 | | | | | $ | 27.76 | | | | | $ | 25.82 | | | | | $ | 24.70 | | |
Income from Investment Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income(a)(b) | | | | | 0.71 | | | | | | 0.66 | | | | | | 0.65 | | | | | | 0.68 | | | | | | 0.33 | | |
Net realized and unrealized gain (loss) | | | | | 6.27 | | | | | | (3.00) | | | | | | (1.24) | | | | | | 1.26 | | | | | | 0.89 | | |
Distributions of net realized gains from investments in other investment companies | | | | | 0.01 | | | | | | 0.00(c) | | | | | | — | | | | | | — | | | | | | — | | |
Net increase (decrease) in net assets resulting from investment operations | | | | | 6.99 | | | | | | (2.34) | | | | | | (0.59) | | | | | | 1.94 | | | | | | 1.22 | | |
Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | | | (2.55) | | | | | | (0.47) | | | | | | (0.20) | | | | | | — | | | | | | (0.10) | | |
Net asset value, end of year | | | | $ | 28.60 | | | | | $ | 24.16 | | | | | $ | 26.97 | | | | | $ | 27.76 | | | | | $ | 25.82 | | |
Market price, end of year | | | | $ | 28.55 | | | | | $ | 23.99 | | | | | $ | 27.06 | | | | | $ | 27.65 | | | | | $ | 25.95 | | |
Total Return | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value(d) | | | | | 30.07% | | | | | | (8.89)% | | | | | | (2.08)% | | | | | | 7.50% | | | | | | 4.94% | | |
Total investment return based on market price(e) | | | | | 30.76% | | | | | | (9.81)% | | | | | | (1.38)% | | | | | | 6.55% | | | | | | 5.13% | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets, end of year (000’s omitted) | | | | $ | 20,021 | | | | | $ | 22,948 | | | | | $ | 175,312 | | | | | $ | 238,712 | | | | | $ | 179,450 | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses(f) | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.76% | | | | | | 0.75% | | |
Net investment income (loss)(b) | | | | | 2.70% | | | | | | 2.48% | | | | | | 2.37% | | | | | | 2.51% | | | | | | 1.29% | | |
Portfolio turnover rate(g) | | | | | 98% | | | | | | 100% | | | | | | 132% | | | | | | 235% | | | | | | 199% | | |
(a)
Based on average shares outstanding.
(b)
Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the investment companies in which the Fund invests.
(c)
Less than $0.005 per share.
(d)
Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, if any, at net asset value during the period, and redemption on the last day of the period.
(e)
The market price returns are calculated using the mean between the last bid and ask prices.
(f)
In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a prorated share of the fees and expenses of the underlying funds in which it invests. Such indirect expenses are not included in the above expense ratios.
(g)
Portfolio turnover rate is not annualized and excludes the value of portfolio securities received or delivered as in-kind creations or redemptions in connection with the Fund’s capital share transactions.
Financial Highlights (continued)
Selected Data for a Share of Capital Stock Outstanding
| | | IQ U.S. Real Estate Small Cap ETF | |
| | | For the Year Ended April 30, | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
Net asset value, beginning of year | | | | $ | 17.32 | | | | | $ | 25.13 | | | | | $ | 24.14 | | | | | $ | 27.14 | | | | | $ | 25.14 | | |
Income from Investment Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income(a)(b) | | | | | 0.33 | | | | | | 0.66 | | | | | | 0.79 | | | | | | 0.88 | | | | | | 0.71 | | |
Net realized and unrealized gain(loss) | | | | | 8.67 | | | | | | (7.16) | | | | | | 1.81 | | | | | | (2.53) | | | | | | 2.88 | | |
Distributions of net realized gains from investments in other investment companies | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 0.00(c) | | |
Net increase (decrease) in net assets resulting from investment operations | | | | | 9.00 | | | | | | (6.50) | | | | | | 2.60 | | | | | | (1.65) | | | | | | 3.59 | | |
Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | | | (0.32) | | | | | | (0.62) | | | | | | (0.78) | | | | | | (0.85) | | | | | | (0.71) | | |
Return of capital | | | | | (0.48) | | | | | | (0.69) | | | | | | (0.83) | | | | | | (0.50) | | | | | | (0.88) | | |
Total distributions from net investment income and return of capital | | | | | (0.80) | | | | | | (1.31) | | | | | | (1.61) | | | | | | (1.35) | | | | | | (1.59) | | |
Net asset value, end of year | | | | $ | 25.52 | | | | | $ | 17.32 | | | | | $ | 25.13 | | | | | $ | 24.14 | | | | | $ | 27.14 | | |
Market price, end of year | | | | $ | 25.51 | | | | | $ | 17.30 | | | | | $ | 25.12 | | | | | $ | 24.12 | | | | | $ | 27.15 | | |
Total Return | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value(d) | | | | | 53.54% | | | | | | (27.15)% | | | | | | 11.16% | | | | | | (6.37)% | | | | | | 14.60% | | |
Total investment return based on market price(e) | | | | | 53.68% | | | | | | (27.21)% | | | | | | 11.24% | | | | | | (6.49)% | | | | | | 14.79% | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets, end of year (000’s omitted) | | | | $ | 52,309 | | | | | $ | 40,702 | | | | | $ | 71,615 | | | | | $ | 82,089 | | | | | $ | 114,001 | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses(f) | | | | | 0.70% | | | | | | 0.70% | | | | | | 0.70% | | | | | | 0.70% | | | | | | 0.70% | | |
Net investment income (loss)(b) | | | | | 1.66% | | | | | | 2.72% | | | | | | 3.11% | | | | | | 3.36% | | | | | | 2.64% | | |
Portfolio turnover rate(g) | | | | | 38% | | | | | | 26% | | | | | | 26% | | | | | | 27% | | | | | | 28% | | |
(a)
Based on average shares outstanding.
(b)
Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the investment companies in which the Fund invests.
(c)
Less than $0.005 per share.
(d)
Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, if any, at net asset value during the period, and redemption on the last day of the period.
(e)
The market price returns are calculated using the mean between the last bid and ask prices.
(f)
In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a prorated share of the fees and expenses of the underlying funds in which it invests. Such indirect expenses are not included in the above expense ratios.
(g)
Portfolio turnover rate is not annualized and excludes the value of portfolio securities received or delivered as in-kind creations or redemptions in connection with the Fund’s capital share transactions.
Financial Highlights (continued)
Selected Data for a Share of Capital Stock Outstanding
| | | IQ Chaikin U.S. Large Cap ETF | |
| | | For the Year Ended April 30, | | | For the Period December 13, 2017(a) to April 30, 2018 | |
| | | 2021 | | | 2020 | | | 2019 | |
Net asset value, beginning of period | | | | $ | 21.95 | | | | | $ | 24.75 | | | | | $ | 25.30 | | | | | $ | 25.05 | | |
Income from Investment Operations | | | | | |
Net investment income(b)(c) | | | | | 0.38 | | | | | | 0.58 | | | | | | 0.48 | | | | | | 0.15 | | |
Net realized and unrealized gain (loss) | | | | | 10.60 | | | | | | (2.80) | | | | | | (0.53) | | | | | | 0.18(d) | | |
Net increase (decrease) in net assets resulting from investment operations | | | | | 10.98 | | | | | | (2.22) | | | | | | (0.05) | | | | | | 0.33 | | |
Distributions from: | | | | | |
Net investment income | | | | | (0.42) | | | | | | (0.58) | | | | | | (0.50) | | | | | | (0.08) | | |
Net asset value, end of period | | | | $ | 32.51 | | | | | $ | 21.95 | | | | | $ | 24.75 | | | | | $ | 25.30 | | |
Market price, end of period | | | | $ | 32.54 | | | | | $ | 21.92 | | | | | $ | 24.75 | | | | | $ | 25.30 | | |
Total Return | | | | | | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value(e) | | | | | 50.46% | | | | | | (9.04)% | | | | | | (0.13)% | | | | | | 1.31% | | |
Total investment return based on market price(f) | | | | | 50.82% | | | | | | (9.18)% | | | | | | (0.13)% | | | | | | 1.32%(g) | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | | $ | 305,608 | | | | | $ | 220,630 | | | | | $ | 278,412 | | | | | $ | 320,000 | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses net of waivers/reimbursements(h) | | | | | 0.25% | | | | | | 0.25% | | | | | | 0.25% | | | | | | 0.25%(i) | | |
Expenses excluding waivers/reimbursements(h) | | | | | 0.26% | | | | | | 0.26% | | | | | | 0.26% | | | | | | 0.26%(i) | | |
Net investment income (loss)(c) | | | | | 1.43% | | | | | | 2.35% | | | | | | 1.97% | | | | | | 1.59%(i) | | |
Portfolio turnover rate(j) | | | | | 68% | | | | | | 58% | | | | | | 52% | | | | | | 94% | | |
(a)
Commencement of operations.
(b)
Based on average shares outstanding.
(c)
Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the investment companies in which the Fund invests.
(d)
Calculation of the net realized and unrealized gain (loss) per share does not correlate with the Fund’s net realized and unrealized gain (loss) presented on the Statements of Changes in Net Assets due to the timing of creation of Fund shares in relation to fluctuating market values.
(e)
Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, if any, at net asset value during the period, and redemption on the last day of the period. Total return calculated for a period less than one year is not annualized.
(f)
The market price returns are calculated using the mean between the last bid and ask prices.
(g)
Since the Shares of the Fund did not trade in the secondary market until the day after the Fund’s inception, for the period from the inception to the first day of the secondary market trading, the NAV is used as a proxy for the secondary market trading price to calculate the market returns.
(h)
In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a prorated share of the fees and expenses of the underlying funds in which it invests. Such indirect expenses are not included in the above expense ratios.
(i)
Annualized.
(j)
Portfolio turnover rate is not annualized and excludes the value of portfolio securities received or delivered as in-kind creations or redemptions in connection with the Fund’s capital share transactions.
Financial Highlights (continued)
Selected Data for a Share of Capital Stock Outstanding
| | | IQ Chaikin U.S. Small Cap ETF | |
| | | For the Year Ended April 30, | | | For the Period May 16, 2017(a) to April 30, 2018 | |
| | | 2021 | | | 2020 | | | 2019 | |
Net asset value, beginning of period | | | | $ | 20.02 | | | | | $ | 25.72 | | | | | $ | 27.13 | | | | | $ | 25.16 | | |
Income from Investment Operations | | | | | |
Net investment income(b)(c) | | | | | 0.35 | | | | | | 0.28 | | | | | | 0.27 | | | | | | 0.16 | | |
Net realized and unrealized gain (loss) | | | | | 15.01 | | | | | | (5.72) | | | | | | (1.39) | | | | | | 1.93 | | |
Net increase (decrease) in net assets resulting from investment operations | | | | | 15.36 | | | | | | (5.44) | | | | | | (1.12) | | | | | | 2.09 | | |
Distributions from: | | | | | |
Net investment income | | | | | (0.35) | | | | | | (0.26) | | | | | | (0.29) | | | | | | (0.12) | | |
Net asset value, end of period | | | | $ | 35.03 | | | | | $ | 20.02 | | | | | $ | 25.72 | | | | | $ | 27.13 | | |
Market price, end of period | | | | $ | 35.03 | | | | | $ | 20.02 | | | | | $ | 25.72 | | | | | $ | 27.14 | | |
Total Return | | | | | | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value(d) | | | | | 77.31% | | | | | | (21.35)% | | | | | | (4.10)% | | | | | | 8.33% | | |
Total investment return based on market price(e) | | | | | 77.34% | | | | | | (21.34)% | | | | | | (4.14)% | | | | | | 8.36%(f) | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | | $ | 206,659 | | | | | $ | 103,108 | | | | | $ | 348,555 | | | | | $ | 465,347 | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses net of waivers/reimbursements(g) | | | | | 0.35% | | | | | | 0.35% | | | | | | 0.35% | | | | | | 0.35%(h) | | |
Expenses excluding waivers/reimbursements(g) | | | | | 0.36% | | | | | | 0.36% | | | | | | 0.36% | | | | | | 0.36%(h) | | |
Net investment income (loss)(c) | | | | | 1.29% | | | | | | 1.14% | | | | | | 1.01% | | | | | | 0.61%(h) | | |
Portfolio turnover rate(i) | | | | | 76% | | | | | | 43% | | | | | | 57% | | | | | | 106% | | |
(a)
Commencement of operations.
(b)
Based on average shares outstanding.
(c)
Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the investment companies in which the Fund invests.
(d)
Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, if any, at net asset value during the period, and redemption on the last day of the period. Total return calculated for a period less than one year is not annualized.
(e)
The market price returns are calculated using the mean between the last bid and ask prices.
(f)
Since the Shares of the Fund did not trade in the secondary market until the day after the Fund’s inception, for the period from the inception to the first day of the secondary market trading, the NAV is used as a proxy for the secondary market trading price to calculate the market returns.
(g)
In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a prorated share of the fees and expenses of the underlying funds in which it invests. Such indirect expenses are not included in the above expense ratios.
(h)
Annualized.
(i)
Portfolio turnover rate is not annualized and excludes the value of portfolio securities received or delivered as in-kind creations or redemptions in connection with the Fund’s capital share transactions.
Financial Highlights (continued)
Selected Data for a Share of Capital Stock Outstanding
| | | IQ 50 Percent Hedged FTSE International ETF | |
| | | For the Year Ended April 30, | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
Net asset value, beginning of year | | | | $ | 18.02 | | | | | $ | 20.59 | | | | | $ | 21.63 | | | | | $ | 19.68 | | | | | $ | 17.68 | | |
Income from Investment Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income(a)(b) | | | | | 0.51 | | | | | | 0.56 | | | | | | 0.62 | | | | | | 0.60 | | | | | | 0.46 | | |
Net realized and unrealized gain(loss) | | | | | 6.28 | | | | | | (2.51) | | | | | | (0.77) | | | | | | 1.89 | | | | | | 2.18 | | |
Net increase (decrease) in net assets resulting from investment operations | | | | | 6.79 | | | | | | (1.95) | | | | | | (0.15) | | | | | | 2.49 | | | | | | 2.64 | | |
Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | | | (0.47) | | | | | | (0.62) | | | | | | (0.70) | | | | | | (0.54) | | | | | | (0.44) | | |
Return of capital | | | | | — | | | | | | — | | | | | | (0.19) | | | | | | 0.00(c) | | | | | | (0.20) | | |
Total distributions from net investment income and return of capital | | | | | (0.47) | | | | | | (0.62) | | | | | | (0.89) | | | | | | (0.54) | | | | | | (0.64) | | |
Net asset value, end of year | | | | $ | 24.34 | | | | | $ | 18.02 | | | | | $ | 20.59 | | | | | $ | 21.63 | | | | | $ | 19.68 | | |
Market price, end of year | | | | $ | 24.36 | | | | | $ | 17.83 | | | | | $ | 20.65 | | | | | $ | 21.60 | | | | | $ | 19.75 | | |
Total Return | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value(d) | | | | | 38.14% | | | | | | (9.74)% | | | | | | (0.42)% | | | | | | 12.84% | | | | | | 15.29% | | |
Total investment return based on market price(e) | | | | | 39.70% | | | | | | (10.94)% | | | | | | (0.03)% | | | | | | 12.28% | | | | | | 16.28% | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets, end of year (000’s omitted) | | | | $ | 310,388 | | | | | $ | 249,575 | | | | | $ | 281,079 | | | | | $ | 578,517 | | | | | $ | 208,595 | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses net of waives/reimbursements(f) | | | | | 0.20% | | | | | | 0.20% | | | | | | 0.20% | | | | | | 0.22% | | | | | | 0.36% | | |
Expenses excluding waives/ reimbursements(f) | | | | | 0.36% | | | | | | 0.36% | | | | | | 0.36% | | | | | | 0.36% | | | | | | 0.36% | | |
Net investment income (loss)(b) | | | | | 2.41% | | | | | | 2.78% | | | | | | 3.03% | | | | | | 2.87% | | | | | | 2.55% | | |
Portfolio turnover rate(g) | | | | | 10% | | | | | | 8% | | | | | | 13% | | | | | | 10% | | | | | | 8% | | |
(a)
Based on average shares outstanding.
(b)
Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the investment companies in which the Fund invests.
(c)
Less than $0.005 per share.
(d)
Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, if any, at net asset value during the period, and redemption on the last day of the period.
(e)
The market price returns are calculated using the mean between the last bid and ask prices.
(f)
In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a prorated share of the fees and expenses of the underlying funds in which it invests. Such indirect expenses are not included in the above expense ratios.
(g)
Portfolio turnover rate is not annualized and excludes the value of portfolio securities received or delivered as in-kind creations or redemptions in connection with the Fund’s capital share transactions.
Financial Highlights (continued)
Selected Data for a Share of Capital Stock Outstanding
| | | IQ 500 International ETF | |
| | | For the Year Ended April 30, | | | For the Period December 13, 2018(a) to April 30, 2019 | |
| | | 2021 | | | 2020 | |
Net asset value, beginning of period | | | | $ | 22.29 | | | | | $ | 27.64 | | | | | $ | 25.50 | | |
Income from Investment Operations | | | | |
Net investment income(b)(c) | | | | | 0.77 | | | | | | 0.72 | | | | | | 0.39 | | |
Net realized and unrealized gain (loss) | | | | | 10.19 | | | | | | (5.40) | | | | | | 1.77 | | |
Net increase (decrease) in net assets resulting from investment operations | | | | | 10.96 | | | | | | (4.68) | | | | | | 2.16 | | |
Distributions from: | | | | |
Net investment income | | | | | (0.67) | | | | | | (0.67) | | | | | | (0.02) | | |
Net asset value, end of period | | | | $ | 32.58 | | | | | $ | 22.29 | | | | | $ | 27.64 | | |
Market price, end of period | | | | $ | 32.52 | | | | | $ | 22.10 | | | | | $ | 27.65 | | |
Total Return | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value(d) | | | | | 49.88% | | | | | | (17.33)% | | | | | | 8.47% | | |
Total investment return based on market price(e) | | | | | 50.94% | | | | | | (18.07)% | | | | | | 8.52% | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | | $ | 244,336 | | | | | $ | 218,451 | | | | | $ | 85,675 | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | |
Expenses net of waivers/reimbursements(f) | | | | | 0.25% | | | | | | 0.25% | | | | | | 0.25%(g) | | |
Expenses excluding waivers/reimbursements(f) | | | | | 0.26% | | | | | | 0.26% | | | | | | 0.26%(g) | | |
Net investment income (loss)(c) | | | | | 2.86% | | | | | | 2.81% | | | | | | 3.90%(g) | | |
Portfolio turnover rate(h) | | | | | 9% | | | | | | 13% | | | | | | 0% | | |
(a)
Commencement of operations.
(b)
Based on average shares outstanding.
(c)
Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the investment companies in which the Fund invests.
(d)
Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, if any, at net asset value during the period, and redemption on the last day of the period. Total return calculated for a period less than one year is not annualized.
(e)
The market price returns are calculated using the mean between the last bid and ask prices.
(f)
In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a prorated share of the fees and expenses of the underlying funds in which it invests. Such indirect expenses are not included in the above expense ratios.
(g)
Annualized.
(h)
Portfolio turnover rate is not annualized and excludes the value of portfolio securities received or delivered as in-kind creations or redemptions in connection with the Fund’s capital share transactions.
Privacy Policy
The following notice does not constitute part of the Prospectus, nor is it incorporated into the Prospectus.
The Trust is committed to respecting the privacy of personal information you entrust to us in the course of doing business with us.
The Trust may collect non-public personal information from various sources. The Trust uses such information provided by you or your representative to process transactions, to respond to inquiries from you, to deliver reports, products, and services, and to fulfill legal and regulatory requirements.
We do not disclose any non-public personal information about our customers to anyone unless permitted by law or approved by the customer. We may share this information within the Trust’s family of companies in the course of providing services and products to best meet your investing needs. We may share information with certain third-parties who are not affiliated with the Trust to perform marketing services, to process or service a transaction at your request or as permitted by law. For example, sharing information with companies that maintain or service customer accounts for the Trust is essential. We may also share information with companies that perform administrative or marketing services for the Trust, including research firms. When we enter into such a relationship, we restrict the companies’ use of our customers’ information and prohibit them from sharing it or using it for any purposes other than those for which they were hired.
We maintain physical, electronic, and procedural safeguards to protect your personal information. Within the Trust, we restrict access to personal information to those employees who require access to that information in order to provide products or services to our customers such as handling inquiries. Our employment policies restrict the use of customer information and require that it be held in strict confidence.
We will adhere to the policies and practices described in this notice for both current and former customers of the Trust.
Frequently Used Terms
| Trust | | | IndexIQ ETF Trust, a registered open-end investment company | |
| Funds | | | The investment portfolios of the Trust | |
| Shares | | | Shares of the Funds offered to investors | |
| Advisor | | | IndexIQ Advisors LLC | |
| Custodian | | | The Bank of New York Mellon, the custodian of the Funds’ assets | |
| Distributor | | | ALPS Distributors, Inc., the distributor to the Funds | |
| AP or Authorized Participant | | | Certain large institutional investors such as brokers, dealers, banks or other entities that have entered into authorized participant agreements with the Distributor | |
| IIV | | | The Indicative Intra-Day Value, an appropriate per-Share value based on a Fund’s portfolio | |
| Nasdaq | | | The NASDAQ Stock Market LLC, a national securities exchange. | |
| NYSE Arca | | | NYSE Arca, Inc., a national securities exchange | |
| 1940 Act | | | Investment Company Act of 1940 | |
| NAV | | | Net asset value | |
| SAI | | | Statement of Additional Information | |
| SEC | | | Securities and Exchange Commission | |
| Secondary Market | | | A national securities exchange, national securities association or over-the counter trading system where Shares may trade from time to time | |
| Securities Act | | | Securities Act of 1933 | |
IndexIQ ETF Trust
Mailing Address
51 Madison Avenue
New York, New York 10010
1-888-474-7725
newyorklifeinvestments.com
IndexIQ ETF Trust
PROSPECTUS | August 31, 2021
FOR MORE INFORMATION
If you would like more information about the Trust, the Funds and the Shares, the following documents are available free upon request:
Annual/Semi-annual Report
Additional information about a Fund’s investments is available in the Fund’s annual and semi-annual reports to shareholders (once available). In the Fund’s annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund’s performance during the last fiscal year.
Statement of Additional Information
Additional information about the Funds and their policies is also available in the Funds’ SAI. The SAI is incorporated by reference into this Prospectus (and is legally considered part of this Prospectus). The Funds’ annual and semi-annual reports (once available) and the SAI are available free upon request by calling IndexIQ at 1-888-474-7725. You can also access and download the annual and semi-annual reports (once available) and the SAI at the Funds’ website: newyorklifeinvestments.com
To obtain other information and for shareholder inquiries:
By telephone: 1-888-474-7725
By mail: IndexIQ ETF Trust
c/o IndexIQ
51 Madison Avenue
New York, NY 10010
On the Internet: SEC Edgar database: http://www.sec.gov; or newyorklifeinvestments.com
You may review and obtain copies of Fund documents (including the SAI) by visiting the SEC’s public reference room in Washington, D.C. You may also obtain copies of Fund documents, after paying a duplicating fee, by writing to the SEC’s Public Reference Section, Washington, D.C. 20549-0102 or by electronic request to: publicinfo@sec.gov. Information on the operation of the public reference room may be obtained by calling the SEC at (202) 551-8090.
No person is authorized to give any information or to make any representations about the Funds and their Shares not contained in this Prospectus and you should not rely on any other information. Read and keep the Prospectus for future reference.
Dealers effecting transactions in the Funds’ Shares, whether or not participating in this distribution, may be generally required to deliver a Prospectus. This is in addition to any obligation dealers have to deliver a Prospectus when acting as underwriters.
“New York Life Investments” is both a servicemark, and the common trade name, of certain investment advisors affiliated with New York Life Insurance Company.
IQ® and IndexIQ® are registered servicemarks of New York Life Insurance Company.
The Trust’s investment company registration number is 811-22227.
IndexIQ ETF Trust
Prospectus
August 31, 2021
| IQ Candriam ESG US Equity ETF (IQSU) IQ Candriam ESG International Equity ETF (IQSI) | | | | |
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
As permitted by regulations adopted by the Securities and Exchange Commission, paper copies of each Fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you hold accounts through a financial intermediary, you may contact your financial intermediary to enroll in electronic delivery. Please note that not all financial intermediaries may offer this service.
You may elect to receive all future reports in paper free of charge. If you hold accounts through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held with your financial intermediary.
Not FDIC Insured | May Lose Value | No Bank Guarantee
IndexIQ ETF Trust (the “Trust”) is a registered investment company that consists of separate investment portfolios called “Funds”. This Prospectus relates to the following Funds:
Name | | | CUSIP | | | Symbol | |
IQ Candriam ESG US Equity ETF | | | 45409B461 | | | IQSU | |
IQ Candriam ESG International Equity ETF | | | 45409B453 | | | IQSI | |
Each Fund is an exchange-traded fund. This means that shares of the Funds are listed on a national securities exchange, such as the NYSE Arca, Inc. (“NYSE Arca”), and trade at market prices. The market price for a Fund’s shares may be different from its net asset value per share (the “NAV”). Each Fund has its own CUSIP number and exchange trading symbol.
| | | | | | 4 | | |
| | | | | | 11 | | |
| | | | | | 19 | | |
| | | | | | 19 | | |
| | | | | | 20 | | |
| | | | | | 20 | | |
| | | | | | 28 | | |
| | | | | | 29 | | |
| | | | | | 30 | | |
| | | | | | 31 | | |
| | | | | | 32 | | |
| | | | | | 33 | | |
| | | | | | 33 | | |
| | | | | | 34 | | |
| | | | | | 34 | | |
| | | | | | 34 | | |
| | | | | | 39 | | |
| | | | | | 39 | | |
| | | | | | 39 | | |
| | | | | | 40 | | |
| | | | | | 42 | | |
| | | | | | 43 | | |
IQ Candriam ESG US Equity ETF
Investment Objective
The Fund seeks investment results that track (before fees and expenses) the price and yield performance of its underlying index, the IQ Candriam ESG US Equity Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy, sell or hold shares of the Fund (“Shares”). Investors may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee | | | | | 0.09% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses | | | | | 0.10% | | |
| Expense Waiver/Reimbursement(a) | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses After Waiver/Reimbursement | | | | | 0.09% | | |
(a)
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$9 |
|
|
$31 |
|
|
$55 |
|
|
$127 |
|
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 21% of the average value of its portfolio. This rate excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Fund’s’ Shares.
Principal Investment Strategies
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the Underlying Index, which was developed by IndexIQ LLC (“IndexIQ”) with Candriam Belgium S.A. (“Candriam”) acting as index consultant to IndexIQ. The Underlying Index is designed to deliver exposure to equity securities of companies meeting environmental, social and corporate governance (ESG) criteria developed by Candriam and weighted using a market capitalization weighting methodology. As of June 30, 2021, the market capitalization range of the Underlying Index was approximately $730 million to $2.3 trillion. As of June 30, 2021, the primary sectors within the Underlying Index are communication services, information technology and health care.
The first step in the ESG security selection process scores companies on stakeholder criteria and an issuer’s exposure to global sustainability trends. Companies are scored relative to other companies within the same industry. The stakeholder criteria are:
•
Treatment of customers, including advertising practices, after sales service and support, and anti-competitive behaviors.
•
Treatment of employees, including working conditions, employee retention, gender equality, training and career opportunities.
•
Environmental initiatives and compliance with new environmental legislation.
•
Supplier standards and oversight, including supplier adherence to fair labor standards.
•
Corporate governance, including quality of governance and ethics, adherence to accounting standards and anti-bribery efforts.
•
Societal impact and how the company is viewed by populations in the area where the company operates.
The global sustainability trends include:
•
Climate Change: Activities related to the production of renewable energy and decarbonizing business activities.
•
Resources and Waste: Activities related to the efficient utilization of resources, recycling, and mitigating the impact on ecosystems.
•
Digitalization and Innovation: Activities that drive higher industrial and resource efficiencies and protecting data privacy and the resilience of digital networks.
•
Health and Wellness: Activities related to providing healthy products and services, improving air quality, and investing in human capital through job creation, gender equality and decent working conditions.
•
Demographic Shifts: Activities related to providing products and services to aging populations in developed countries and supporting population growth in emerging countries through investment in infrastructure and the food supply chain.
This sector-specific analysis evaluates companies within the same sector against each other, using criteria specific to the particular sector. Except for the excluded activities described below, the ESG security selection process seeks to maintain exposure to all industry sectors of the economy (e.g., consumer discretionary, communication services, healthcare and information technology). The ESG selection process analyzes securities comprising approximately 85% of the market capitalization of equity securities domiciled in the United States. The companies with an overall ranking in the top 70% of the eligible universe within each industry sector based on this ESG selection process are included in the Underlying Index, unless a company is excluded as a result of the second step in the ESG security selection process.
The second step in the ESG security selection process is an exclusionary screen based on any continued and significant non-compliance with the Principles of the United Nation’s Global Compact, which address human rights, labor, environmental, and anti-corruption matters, as well as the exclusion of companies engaged in certain businesses beyond minimum thresholds (e.g., companies that operate in countries with oppressive regimes, that operate in adult content, alcohol, armament, gambling, nuclear, and tobacco sectors, or that utilize animal testing or genetic modification in research and development). As a result of this second step, the companies selected for inclusion in the Underlying Index represent less than 70% of the eligible universe. As of June 30, 2021, the Underlying Index consisted of 353 component securities.
The Underlying Index is reconstituted and rebalanced quarterly.
The Underlying Index may include as a component one or more ETFs advised by the Advisor (“Affiliated ETFs”) and the Fund will typically invest in any Affiliated ETF included in the Underlying Index. The Fund also may invest in Affiliated ETFs that are not components of the index if such an investment will help the Fund track the Underlying Index.
Principal Risks
As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program. An investment in the Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, the Advisor or any of its affiliates. You should consider carefully the following risks before investing in the Fund.
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Derivatives Risk
Derivatives are investments whose value depends on (or is derived from) the value of an underlying instrument, such as a security, asset, reference rate or index and involve risks different from, and possibly greater than, the risks associated with other investments. These risks include: (i) the risk that the counterparty to a derivatives transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. Such prices are influenced by numerous factors that affect the markets, including, but not limited to, changing supply and demand relationships, government programs and policies, national and international political and economic events, changes in interest rates, inflation and deflation, and changes in supply and demand relationships. Unlike other investments, derivative contracts often have leverage inherent in their terms. The use of leveraged derivatives can magnify potential for gain or loss and, therefore, amplify the effects of market volatility on the Fund’s Share price. The effects of leverage may also cause the Fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations or to meet collateral segregation requirements.
Equity Securities Risk
Investments in common stocks and other equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Holders of an issuer’s common stock may be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
Industry/Sector Concentration Risk
The Fund’s investment of a large percentage of its assets in the securities of issuers within the same industry or sector means that an adverse economic, business or political development may affect the value of the Fund’s
investments more than if the Fund were more broadly diversified. A concentration makes the Fund more susceptible to any single occurrence and may subject the Fund to greater market risk than a fund that is not so concentrated.
Communication Services Sector Risk
Companies in the communication services sector may be adversely affected by, among other things, industry competition, substantial capital requirements, changes in government regulation and obsolescence of communication services products due to technological advancement. Communication services companies may also be subject to risks associated with intellectual property use, fluctuating domestic and international demand, shifting demographics and changes in consumer tastes. While network security breaches can happen to all companies, certain communication services companies are more susceptible to hacking, theft of proprietary or consumer information and disruptions in service.
Health Care Sector Risk
Companies in the health care sector may be adversely affected by, among other things, extensive, costly and uncertain government regulation, restrictions on government reimbursement for medical expenses, product obsolescence, increased emphasis on outpatient services, limited number of products and fluctuations in the costs of medical products. Many health care companies are heavily dependent on intellectual property protection, and the expiration of a company’s patent may impact that company’s profitability. Many health care companies are subject to extensive litigation based on product liability and similar claims. Health care companies are subject to competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting. Many new products in the health care sector may be subject to regulatory approvals. The process of obtaining such approvals may be long and costly with no guarantee that any product will come to market.
Information Technology Sector Risk
Companies in the information technology sector may be adversely affected by, among other things, domestic and international market competition, obsolescence due to rapid technological developments, new product introduction, unpredictable growth rates and competition for qualified personnel. Aggressive pricing and reduced profit margins, intellectual property rights protections, cyclical market patterns and evolving industry standards and government regulations may also impact information technology companies. The market prices of information technology securities may exhibit a greater degree of market risk and more frequent, sharp price fluctuations than other types of securities. These securities may fall in and out of favor with investors rapidly, which may cause sudden selling and dramatically lower market prices.
Investment Style Risk
The Underlying Index seeks to allocate investment exposure based upon a particular style of investing. Different investment styles tend to shift in and out of favor depending upon market and economic conditions and investor sentiment. As a consequence, the Fund may underperform as compared to the market generally or to other funds that invest in similar asset classes but employ different investment styles. Further, there is no guarantee that the Underlying Index will accurately or optimally utilize the investment style or that it will successfully provide the desired investment exposure.
•
ESG Investing Style Risk. The Underlying Index seeks to provide exposure to the equity securities of companies meeting certain environmental, social and corporate governance investing criteria. The Underlying Index excludes or limits exposure to securities of certain issuers for non-financial reasons, and the Fund may forgo some market opportunities available to funds that do not use these criteria. The application of environmental, social and corporate governance investing criteria may affect the Fund’s exposure to certain sectors or types of investments and may impact the Fund’s relative investment performance depending on whether such sectors or investments are in or out of favor in the market. In addition, there is no guarantee that the construction methodology of the Underlying Index will accurately provide exposure to issuers meeting environmental, social and corporate governance criteria.
Market Risk
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general
downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Underlying Index or the index calculation agent may make errors. The index provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an Index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask” spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her Shares at a market price that is more than their value, and selling those Shares at a market price that is less than their value.
Small- and/or Mid-Capitalization Companies Risk
Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Performance Information
The bar chart that follows shows the annual total returns of the Fund for a full calendar year. The table that follows the bar chart shows the Fund’s average annual total return, both before and after taxes. The bar chart and table provide an indication of the risks of investing in the Fund by comparing the Fund’s performance from year to year and by showing how the Fund’s average annual returns for one calendar year compared with its benchmark and additional broad measures of market performance. The S&P 500® Index is widely regarded as the standard index for measuring large-cap U.S. stock market performance.
All returns assume reinvestment of dividends and distributions. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Performance reflects fee waivers and/or expense reimbursement in effect, if such waivers or reimbursements were not in place, the Fund’s performance would be reduced. Fund performance current to the most recent month-end is available by calling 1-888-474-7725 or by visiting newyorklifeinvestments.com.
The Fund’s year-to-date total return as of June 30, 2021 was 14.55%.
Best and Worst Quarter Returns (for the period reflected in the bar chart above)
| | | Return | | | Quarter/Year | |
Highest Return | | | | | 23.33% | | | | | | 2Q/2020 | | |
Lowest Return | | | | | -16.04% | | | | | | 1Q/2020 | | |
Average Annual Total Returns as of December 31, 2020
| | | 1 Year | | | Since Inception(1) | |
Returns before taxes | | | | | 28.18% | | | | | | 28.55% | | |
Returns after taxes on distributions(2) | | | | | 27.80% | | | | | | 28.15% | | |
Returns after taxes on distributions and sale of Fund Shares(2) | | | | | 16.84% | | | | | | 21.66% | | |
IQ Candriam ESG US Equity Index (reflects no deduction for fees, expenses or taxes) | | | | | 28.25% | | | | | | 28.55% | | |
S&P 500® Index (reflects no deduction for fees, expenses or taxes) | | | | | 18.40% | | | | | | 19.02% | | |
(1)
(2)
After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those shown and are not relevant if you hold your Shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. In some cases the return after taxes may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of Fund Shares at the end of the measurement period.
Investment Advisor
IndexIQ Advisors LLC (the “Advisor”) is the investment advisor to the Fund.
Portfolio Manager
The professionals jointly and primarily responsible for the day-to-day management of the Fund are Greg Barrato and James Harrison. Both Mr. Barrato, Senior Vice President of the Advisor, and Mr. Harrison, Vice President of the Advisor, have been a portfolio manager of the Fund since its inception.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units.” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
IQ Candriam ESG International Equity ETF
Investment Objective
The Fund seeks investment results that track (before fees and expenses) the price and yield performance of its underlying index, the IQ Candriam ESG International Equity Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy, sell or hold shares of the Fund (“Shares”). Investors may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee | | | | | 0.15% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses | | | | | 0.16% | | |
| Expense Waiver/Reimbursement(a) | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses After Waiver/Reimbursement | | | | | 0.15% | | |
(a)
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$15 |
|
|
$51 |
|
|
$89 |
|
|
$204 |
|
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 21% of the average value of its portfolio. This rate excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Shares.
Principal Investment Strategies
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the Underlying Index, which was developed by IndexIQ LLC (“IndexIQ”) with Candriam Belgium S.A. (“Candriam”) acting as index consultant to IndexIQ. The Underlying Index is designed to deliver exposure to equity securities of companies meeting environmental, social and corporate governance (ESG) criteria developed by Candriam and weighted using a market-capitalization weighting methodology. As of June 30, 2021, the market capitalization range of the Underlying Index was approximately $370 million to $347.3 billion. As of June 30, 2021, the primary sectors within the Underlying Index are financials, industrials and health care.
The first step in the ESG security selection process scores companies on stakeholder criteria and an issuer’s exposure to global sustainability trends. Companies are scored relative to other companies within the same industry. The stakeholder criteria are:
•
Treatment of customers, including advertising practices, after sales service and support, and anti-competitive behaviors.
•
Treatment of employees, including working conditions, employee retention, gender equality, training and career opportunities.
•
Environmental initiatives and compliance with new environmental legislation.
•
Supplier standards and oversight, including supplier adherence to fair labor standards.
•
Corporate governance, including quality of governance and ethics, adherence to accounting standards and anti-bribery efforts.
•
Societal impact and how the company is viewed by populations in the area where the company operates.
The global sustainability trends Include:
•
Climate Change: Activities related to the production of renewable energy and decarbonizing business activities.
•
Resources and Waste: Activities related to the efficient utilization of resources, recycling, and mitigating the impact on ecosystems.
•
Digitalization and Innovation: Activities that drive higher industrial and resource efficiencies and protecting data privacy and the resilience of digital networks.
•
Health and Wellness: Activities related to providing healthy products and services, improving air quality, and investing in human capital through job creation, gender equality and decent working conditions.
•
Demographic Shifts: Activities related to providing products and services to aging populations in developed countries and supporting population growth in emerging countries through investment in infrastructure and the food supply chain.
This sector-specific analysis evaluates companies within the same sector each other, using criteria specific to the particular sector. Except for the excluded activities described below, the ESG security selection process seeks to maintain exposure to all industry sectors of the economy (e.g., financials, industrials, consumer discretionary, consumer staples, materials, health care, energy, utilities and information technology). The ESG selection process analyzes securities comprising approximately 85% of the market capitalization of equity securities domiciled in the following 23 international developed market country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. The companies with an overall ranking in the top 70% of the eligible universe within each industry sector based on this ESG selection process are included in the Underlying Index, unless a company is excluded as a result of the second step in the ESG security selection process.
The second step in the ESG security selection process is an exclusionary screen based on any continued and significant non-compliance with the Principles of the United Nation’s Global Compact, which address human rights, labor, environmental, and anti-corruption matters, as well as the exclusion of companies engaged in certain businesses beyond minimum thresholds (e.g., companies that operate in countries with oppressive regimes, that operate in adult content, alcohol, armament, gambling, nuclear, and tobacco sectors, or that utilize animal testing or genetic modification in research and development). As a result of this second step, the companies selected for inclusion in the Underlying Index represent less than 70% of the eligible universe. As of June 30, 2021, the Underlying Index consisted of 675 component securities.
The Underlying Index is reconstituted and rebalanced quarterly.
The Underlying Index may include as a component one or more ETFs advised by the Advisor (“Affiliated ETFs”) and the Fund will typically invest in any Affiliated ETF included in the Underlying Index. The Fund also may invest in Affiliated ETFs that are not components of the index if such an investment will help the Fund track the Underlying Index.
Principal Risks
As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program. An investment in the Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, the Advisor or any of its affiliates. You should consider carefully the following risks before investing in the Fund.
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Currency Risk
Investments directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign (non-U.S.) currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Depositary Receipts Risk
Sponsored and unsponsored depositary receipts involve risk not experienced when investing directly in the equity securities of an issuer. Depositary receipts may be less liquid than the underlying shares in their primary trading market. Any distributions paid to the holders of depositary receipts are usually subject to a fee charged by the depositary. Holders of depositary receipts may have limited voting rights, and investment restrictions in certain countries may adversely impact the value of depositary receipts.
Derivatives Risk
Derivatives are investments whose value depends on (or is derived from) the value of an underlying instrument, such as a security, asset, reference rate or index and involve risks different from, and possibly greater than, the risks associated with other investments. These risks include: (i) the risk that the counterparty to a derivatives transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. Such prices are influenced by numerous factors that affect the markets, including, but not limited to, changing supply and demand relationships, government programs and policies, national and international political and economic events, changes in interest rates, inflation and deflation, and changes in supply and demand relationships. Unlike other investments, derivative contracts often have leverage inherent in their terms. The use of leveraged derivatives can magnify potential for gain or loss and, therefore, amplify the effects of market volatility on the Fund’s Share price. The effects of leverage may also cause the Fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations or to meet collateral segregation requirements.
Equity Securities Risk
Investments in common stocks and other equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly sensitive to rising interest rates, as the
cost of capital rises and borrowing costs increase. Holders of an issuer’s common stock may be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
Foreign Securities Risk
Investments in the securities of non-U.S. issuers involve risks beyond those associated with investments in U.S. securities. These additional risks include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Some countries and regions have experienced security concerns, war or threats of war and aggression, terrorism, economic uncertainty, natural and environmental disasters and/or systemic market dislocations that have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on the U.S. and world economies and markets generally. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing, financial reporting and record keeping than are U.S. issuers, and therefore not all material information will be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact the Fund’s ability to invest in foreign securities or may prevent the Fund from repatriating its investments. Less developed securities markets are more likely to experience problems with the clearing and settling of trades, as well as the holding of securities by local banks, agents and depositories. The less developed a country’s securities market is, the greater the likelihood of custody problems.
Foreign Securities Valuation Risk
The Fund’s value may be impacted by events that cause the fair value of foreign securities to materially change between the close of the local exchange on which they trade and the time at which the Fund prices its Shares. Additionally, because foreign exchanges on which securities held by the Fund may be open on days when the Fund does not price its Shares, the potential exists for the value of the securities in the Fund’s portfolio to change on days when shareholders will not be able to purchase or sell Shares. To the extent the Fund calculates its NAV based on fair value prices and the value of the Underlying Index is based on the securities’ closing price on foreign securities markets (i.e., the value of the Underlying Index is not based on fair value prices), the valuation of the Fund’s NAV may deviate from the calculation of the Underlying Index.
Geographic Concentration Risk
The Fund may invest a substantial amount of its assets in securities of issuers located in a single country or geographic region. As a result, any changes to the regulatory, political, social or economic conditions in such country or geographic region will generally have greater impact on the Fund than such changes would have on a more geographically diversified fund and may result in increased volatility and greater losses. This risk may be especially pronounced to the extent the Fund invests in countries and regions experiencing, or likely to experience, security concerns, war, threats of war, terrorism, economic uncertainty and natural disasters.
•
Japan Concentration Risk. Economic growth in Japan is heavily dependent on international trade, government support, and consistent government policy. Slowdowns in the economies of key trading partners such as the United States, China and countries in Southeast Asia, or disruptions to trade caused by trade tariffs, other protectionist measures, and competition from emerging economies, could have a negative impact on the Japanese economy as a whole. The Japanese economy has in the past been negatively affected by, among other factors, government intervention and protectionism and an unstable financial services sector. While the Japanese economy has recently emerged from a prolonged economic downturn, some of these factors, as well as other adverse political developments, increases in government debt, changes to fiscal, monetary or trade policies or other events, such as natural disasters, could have a negative impact on Japanese securities. Japan’s economic prospects may be affected by the political and military situations of its near neighbors, notably North and South Korea, China and Russia. In addition, Japan’s labor market is adapting to an aging workforce, declining population, and demand for increased labor mobility. These demographic shifts and fundamental structural changes to the labor markets may negatively impact Japan’s economic competitiveness.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in
order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
Industry/Sector Concentration Risk
The Fund’s investment of a large percentage of its assets in the securities of issuers within the same industry or sector means that an adverse economic, business or political development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. A concentration makes the Fund more susceptible to any single occurrence and may subject the Fund to greater market risk than a fund that is not so concentrated.
Financials Sector Risk
Companies in the financials sector may be adversely affected by, among other things, government regulations, economic conditions, credit rating downgrades, changes in currency exchange rates, volatile interest rates, decreased liquidity in credit markets and competition from new entrants. Profitability of these companies is largely dependent on the availability and cost of capital and can fluctuate significantly when interest rates change. Credit losses resulting from financial difficulties of borrowers also can negatively impact the sector. These companies are often subject to substantial government regulation and intervention, which may adversely impact the scope of their activities, the prices they can charge, the amount of capital they must maintain and, potentially, their size. The impact of more stringent capital requirements, or recent or future regulation in various countries on any individual financial company or on the financials sector as a whole cannot be predicted. The financials sector is also a target for cyber attacks and may experience technology malfunctions and disruptions.
Health Care Sector Risk
Companies in the health care sector may be adversely affected by, among other things, extensive, costly and uncertain government regulation, restrictions on government reimbursement for medical expenses, product obsolescence, increased emphasis on outpatient services, limited number of products and fluctuations in the costs of medical products. Many health care companies are heavily dependent on intellectual property protection, and the expiration of a company’s patent may impact that company’s profitability. Many health care companies are subject to extensive litigation based on product liability and similar claims. Health care companies are subject to competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting. Many new products in the health care sector may be subject to regulatory approvals. The process of obtaining such approvals may be long and costly with no guarantee that any product will come to market.
Industrials Sector Risk
Companies in the industrials sector may be affected by, among other things, worldwide economic growth, supply and demand for specific products and services, product obsolescence, environmental damages or product liability claims, rapid technological developments and government regulation. Government spending policies may impact the profitability of the industrials sector since industrials companies, especially aerospace and defense companies, often rely on government demand for their products and services.
Investment Style Risk
The Underlying Index seeks to allocate investment exposure based upon a particular style of investing. Different investment styles tend to shift in and out of favor depending upon market and economic conditions and investor sentiment. As a consequence, the Fund may underperform as compared to the market generally or to other funds that invest in similar asset classes but employ different investment styles. Further, there is no guarantee that the Underlying Index will accurately or optimally utilize the investment style or that it will successfully provide the desired investment exposure.
•
ESG Investing Style Risk. The Underlying Index seeks to provide exposure to the equity securities of companies meeting certain environmental, social and corporate governance investing criteria. The Underlying Index excludes or limits exposure to securities of certain issuers for non-financial reasons, and the Fund may forgo some market opportunities available to funds that do not use these criteria. The application of environmental, social and corporate governance investing criteria may affect the Fund’s exposure to certain sectors or types of investments and may impact the Fund’s relative investment
performance depending on whether such sectors or investments are in or out of favor in the market. In addition, there is no guarantee that the construction methodology of the Underlying Index will accurately provide exposure to issuers meeting environmental, social and corporate governance criteria.
Market Risk
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on a Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Underlying Index or the index calculation agent may make errors. The index provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an Index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask” spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized
Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her Shares at a market price that is more than their value, and selling those Shares at a market price that is less than their value.
Small- and/or Mid-Capitalization Companies Risk
Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Performance Information
The bar chart that follows shows the annual total returns of the Fund for a full calendar year. The table that follows the bar chart shows the Fund’s average annual total return, both before and after taxes. The bar chart and table provide an indication of the risks of investing in the Fund by comparing the Fund’s performance from year to year and by showing how the Fund’s average annual returns for one calendar year compared with its benchmark and additional broad measures of market performance. The MSCI EAFE® Index consists of international stocks representing the developed world outside of North America.
All returns assume reinvestment of dividends and distributions. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Performance reflects fee waivers and/or expense reimbursement in effect, if such waivers or reimbursements were not in place, the Fund’s performance would be reduced. Fund performance current to the most recent month-end is available by calling 1-888-474-7725 or by visiting newyorklifeinvestments.com.
The Fund’s year-to-date total return as of June 30, 2021 was 9.47%.
Best and Worst Quarter Returns (for the period reflected in the bar chart above)
| | | Return | | | Quarter/Year | |
Highest Return | | | | | 15.87% | | | | | | 2Q/2020 | | |
Lowest Return | | | | | -21.43% | | | | | | 1Q/2020 | | |
Average Annual Total Returns as of December 31, 2020
| | | 1 Year | | | Since Inception(1) | |
Returns before taxes | | | | | 10.44% | | | | | | 10.26% | | |
Returns after taxes on distributions(2) | | | | | 9.91% | | | | | | 9.73% | | |
Returns after taxes on distributions and sale of Fund Shares(2) | | | | | 6.41% | | | | | | 7.69% | | |
IQ Candriam ESG International Equity Index (reflects no deduction for fees, expenses or taxes) | | | | | 10.51% | | | | | | 10.31% | | |
MSCI EAFE® Index (reflects no deduction for fees, expenses or taxes) | | | | | 7.82% | | | | | | 7.77% | | |
(3)
(4)
Investment Advisor
IndexIQ Advisors LLC (the “Advisor”) is the investment advisor to the Fund.
Portfolio Manager
The professionals jointly and primarily responsible for the day-to-day management of the Fund are Greg Barrato and James Harrison. Both Mr. Barrato, Senior Vice President of the Advisor, and Mr. Harrison, Vice President of the Advisor, have been a portfolio manager of the Fund since its inception.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units.” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
Overview
The Trust is an investment company consisting of a number of separate investment portfolios (each, a “Fund” and together, the “Funds”) that are structured as exchange-traded funds (“ETFs”). Each share of a Fund represents an ownership interest in the securities and other instruments comprising a Fund’s portfolio. Unlike shares of a mutual fund, which can be bought and redeemed from the issuing fund by all shareholders at a price based on net asset value (“NAV”), shares of an ETF (such as the Funds) are listed on a national securities exchange and trade in the secondary market at market prices that change throughout the day, and may differ from a Fund’s NAV. IndexIQ Advisors LLC (the “Advisor”) is the investment advisor to each Fund.
Each Fund has a distinct investment objective and policies. Each of the policies described herein, including the investment objective of each Fund, constitutes a non-fundamental policy that may be changed by the Board of Trustees of the Trust (the “Board”) without shareholder approval. Certain fundamental policies of the Funds are set forth in the Funds’ Statement of Additional Information (the “SAI”) under “Investment Restrictions.” There can be no assurance that a Fund’s objective will be achieved.
Description of the Principal Investment Strategies of the Funds
Each Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index (each, an “Underlying Index”). Each Underlying Index consists of a number of components (“Underlying Index Components”) selected in accordance with each Underlying Index’s rules-based methodology. Each Fund employs a “passive management” — or indexing — investment approach designed to track the performance of its Underlying Index. Under normal circumstances, each Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the components that make up its Underlying Index or in depositary receipts based on the securities in its Underlying Index. In determining a Fund’s net assets for the purposes of this 80% threshold, accounting practices do not include collateral held under a Fund’s securities lending program, as such collateral does not represent a true asset of a Fund.
Each Fund will generally invest in all of the constituents comprising its Underlying Index in proportion to its weightings in the Underlying Index; however, under various circumstances, it may not be possible or practicable to purchase all of the securities in the Underlying Index in those weightings. In those circumstances, a Fund may purchase a sample of the securities in its Underlying Index or utilize various combinations of other available investment techniques in seeking to replicate generally the performance of the Underlying Index as a whole. This is known as “representative sampling” and may be utilized by a Fund. A Fund using a representative sampling strategy generally will invest in a sample of securities that collectively has an investment profile similar to that of the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (including, but not limited to, return variability, duration, maturity, credit ratings and yield) and liquidity measures similar to those of the Underlying Index. A Fund may also invest in credit default swaps and futures contracts to seek to track the Underlying Index.
There also may be instances in which the Advisor may choose to (i) overweight a security in the Underlying Index, (ii) purchase securities not contained in the Underlying Index that the Advisor believes are appropriate to substitute for certain securities in the Underlying Index, or (iii) utilize various combinations of other available investment techniques in seeking to track the Underlying Index. A Fund may sell securities that are represented in its Underlying Index in anticipation of their removal from the Underlying Index or purchase securities not represented in the Underlying Index in anticipation of their addition to the Underlying Index.
To the extent that a Fund’s Underlying Index concentrates (i.e., holds 25% or more of its total assets) in the securities of a particular industry or group of industries, the Fund will concentrate its investment to approximately the same extent as its Underlying Index.
Each Fund may invest up to 20% of its net assets in investments not included in its Underlying Index, but which the Advisor believes will help the Fund track its Underlying Index. Such investments may include the use of one or more financial instruments, including but not limited to futures contracts and swap agreements (collectively, “Financial Instruments”). The Funds will not directly employ leverage in their investment strategies; nevertheless, a Fund may indirectly be leveraged if and to the extent the Fund invests in Financial Instruments to replicate an exposure to an inverse ETF that is leveraged.
In accordance with Rule 35d-1 under the Investment Company Act of 1940 (the “1940 Act”), each Fund has adopted a policy that each will, under normal circumstances, invest at least 80% of the value of its assets (net assets plus the amount of any borrowings for investment purposes) in investments of the type suggested by the Fund’s name. Each such policy is “non-fundamental,” which means that it may be changed without the vote of a majority of the Fund’s outstanding shares as defined in the 1940 Act. Such policies generally provide a fund’s shareholders with at least 60 days’ prior notice of any changes in a fund’s non-fundamental investment policy with respect to investments of the type suggested by its name. A Fund may count investments in underlying funds toward various guideline tests (such as the 80% test required under Rule 35d-1 under the 1940 Act).
The IQ Candriam ESG International Equity ETF has adopted a policy that it will, under normal circumstances, invest at least 80% of the value of its assets (net assets plus the amount of any borrowings for investment purposes) in non-U.S. equity securities.
The IQ Candriam ESG US Equity ETF has adopted a policy that it will, under normal circumstances, invest at least 80% of the value of its assets (net assets plus the amount of any borrowings for investment purposes) in U.S. equity securities.
IndexIQ determines the “domicile” of the Underlying Index Component by using data provided by an unaffiliated third-party data service, which, in turn, uses the following criteria to determine a company’s domicile:
•
the country where the company is incorporated;
•
the country where the company is headquartered;
•
the country where the company has a majority of its operations;
•
the country where the company generates the largest proportion of its sales; and
•
the country where the company’s shares are traded in the most liquid manner.
Each Fund’s investments are subject to certain requirements imposed by law and regulation, as well as a Fund’s investment strategy. These requirements are generally applied at the time a Fund invests its assets. If, subsequent to an investment by a Fund, this requirement is no longer met, the Fund’s future investments will be made in a manner that will bring the Fund into compliance with this requirement.
Additional Investment Strategies
In addition to its principal investment strategies, each Fund may also invest in money market instruments, including short-term debt instruments and repurchase agreements or other funds that invest exclusively in money market instruments (subject to applicable limitations under the 1940 Act, or exemptions therefrom), rather than Underlying Index Components, when it would be more efficient or less expensive for a Fund to do so, or as cover for Financial Instruments, for liquidity purposes, or to earn interest. Swaps and other Financial Instruments may be used by a Fund to seek performance that corresponds to its Underlying Index and to manage cash flows.
Borrowing Money
Each Fund may borrow money from a bank as permitted by the 1940 Act or the rules thereunder, or by the U.S. Securities and Exchange Commission (“SEC”) or other regulatory agency with authority over the Fund, but only for temporary or emergency purposes. The 1940 Act presently allows a fund to borrow from any bank (including pledging, mortgaging or hypothecating assets) in an amount up to 33 1/3% of its total assets (not including temporary borrowings not in excess of 5% of its total assets).
Securities Lending
A Fund may lend its portfolio securities. A securities lending program allows a Fund to receive a portion of the income generated by lending its securities and investing the respective collateral. In connection with such loans, a Fund receives liquid collateral equal to at least 102% (105% for foreign securities) of the value of the portfolio securities being lent. This collateral is marked to market on each trading day.
Description of the Principal Risks of the Funds
Investors in the Funds should carefully consider the risks of investing in the Funds as set forth in each Fund’s Summary Information section under “Principal Risks.”
Authorized Participant Concentration Risk
Only an Authorized Participant may engage in creation or redemption transactions directly with a Fund. Each Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with a Fund and no other Authorized Participant is able to step forward to create or redeem Creation Units, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting. This risk may be heightened for ETFs that invest in non-U.S. securities because such securities often involve greater settlement and operational issues for Authorized Participants that may further limit the availability of Authorized Participants.
Currency Risk
The following risk applies to IQ Candriam ESG International Equity ETF.
Investments directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign (non-U.S.) currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including national debt levels and trade deficits, changes in balances of payments and trade, domestic and foreign interest and inflation rates, global or regional political, economic or financial events, monetary policies of governments, actual or potential government intervention and global energy prices. Political instability, the possibility of government intervention and restrictive or opaque business and investment policies may also reduce the value of a country’s currency. Government monetary policies and the buying or selling of currency by a country’s government may also influence exchange rates. As a result, a Fund’s investments in foreign currency denominated securities may reduce the return of such Fund. Because a Fund’s NAV is determined on the basis of U.S. dollars, the Fund’s NAV may decrease if the value of the non-U.S. currency to which the Fund has exposure depreciates in value relative to the U.S. dollar. This may occur even if the value of the underlying non-U.S. securities increases. Conversely, a Fund’s NAV may increase if the value of a non-U.S. currency appreciates relative to the U.S. dollar.
Cyber Security Risk
The Funds are susceptible to operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a Fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. These risks typically are not covered by insurance. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber incidents include, but are not limited to, gaining unauthorized access to digital systems (e.g., through “hacking” or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data or causing operational disruption. Cyber attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make network services unavailable to intended users). Cyber security failures by or breaches of the systems of security issuers, the Advisor, distributor and other service providers (including, but not limited to, sub-advisors, index providers, fund accountants, custodians, transfer agents and administrators), market makers, Authorized Participants or the issuers of securities in which a Fund invests, have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with a Fund’s ability to calculate its NAV, disclosure of confidential trading information, impediments to trading, submission of erroneous trades or erroneous creation or redemption orders, the inability of a Fund or its service providers to transact business, violations of applicable privacy and other laws, regulatory fines and other penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs. Substantial costs may be incurred by a Fund in order to resolve or prevent cyber incidents in the future. While the Funds have established business continuity plans in the event of, and risk management systems to prevent, such cyber attacks, there are inherent limitations in such plans and systems, including the possibility that certain risks have not been identified and that prevention and remediation efforts will not be successful. Furthermore, the Funds cannot control the cyber security plans and systems put in place by service providers to the Funds, issuers in which the Funds invest, Authorized Participants or market makers. There is no guarantee that such preventative efforts will succeed, and the Funds and their shareholders could be negatively impacted as a result.
Depositary Receipts Risk
The following risk applies to the IQ Candriam ESG International Equity ETF.
A Fund may invest in listed and liquid depositary receipts, including listed unsponsored depositary receipts. Unsponsored depositary receipts may be established by a depositary without participation by the underlying issuer. Holders of an unsponsored depositary receipt generally bear all the costs associated with establishing the unsponsored depositary receipt. These investments may involve additional risks and considerations including, for example, risks related to adverse political and economic developments unique to a country or region, currency fluctuations or controls and the possibility of expropriation, nationalization or confiscatory taxation. The issuers of the securities underlying unsponsored depositary receipts are not obligated to disclose material information in the United States and, therefore, there may be less information available regarding such issuers and there may not be a correlation between such information and the market value of the depositary receipts. Additionally, to the extent the value of a depositary receipt held by a Fund fails to track that of the underlying security, the use of the depositary receipt may result in tracking error. Depositary receipts may be less liquid than the underlying shares in their primary trading market. Any distributions paid to the holders of depositary receipts are usually subject to a fee charged by the depositary. Holders of depositary receipts may have limited voting rights, and investment restrictions in certain countries may adversely impact the value of depositary receipts because such restrictions may limit the ability to convert the equity shares into depositary receipts and vice versa. Such restrictions may cause the equity shares of the underlying issuer to trade at a discount or premium to the market price of the depositary receipts.
Equity Securities Risk
The value of equity securities held by a Fund may fall due to general market and economic conditions, perceptions regarding the industries in which the issuers of securities held by the Fund participate or factors relating to specific companies in which the Fund invests. For example, an adverse event, such as an unfavorable earnings report, may depress the value of equity securities of an issuer held by a Fund; the price of common stock of an issuer may be particularly sensitive to general movements in the stock market; or a drop in the stock market may depress the price of most or all of the common stocks and other equity securities held by a Fund. In addition, common stock of an issuer in a Fund’s portfolio may decline in price if the issuer fails to make anticipated dividend payments because, among other reasons, the issuer of the security experiences a decline in its financial condition. Holders of an issuer’s common stock may also be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
Foreign Securities Risk
The following risk applies to the IQ Candriam ESG International Equity ETF.
Investments in the securities of non-U.S. issuers involve risks beyond those associated with investments in U.S. securities. These additional risks include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Some countries and regions have experienced security concerns, war or threats of war and aggression, terrorism, economic uncertainty, natural and environmental disasters and/or systemic market dislocations that have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on the U.S. and world economies and markets generally. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing, custody, financial reporting and record keeping than are U.S. issuers, and therefore not all material information will be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact a Fund’s ability to invest in foreign securities or may prevent a Fund from repatriating its investments. Non-U.S. transaction costs, such as brokerage commissions and custody costs, may be higher than in the United States. In some non-U.S. markets, custody arrangements for securities provide significantly less protection than custody arrangements in U.S. markets. Prevailing custody and trade settlement practices (e.g., the requirement to pay for securities prior to receipt) could similarly expose a Fund to credit and other risks it does not have in the United States with respect to participating brokers, custodians, clearing banks or other clearing agents, escrow agents and issuers. In addition, a Fund may not receive shareholder communications or be permitted to vote the securities it holds, as the issuers may be under no legal obligation to distribute them.
Less developed securities markets are more likely to experience problems with the clearing and settling of trades, as well as the holding of securities by local banks, agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle, and governments or trade
groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. Local agents are held only to the standards of care of their local markets. The less developed a country’s securities market is, the greater the likelihood of custody problems.
Foreign Securities Valuation Risk
The following risk applies to the IQ Candriam ESG International Equity ETF.
A Fund’s value may be impacted by events that cause the fair value of foreign securities to materially change between the close of the local exchange on which they trade and the time at which the Fund prices its Shares. Additionally, because foreign exchanges on which securities held by a Fund may be open on days when such Fund does not price its Shares, the potential exists for the value of the securities in a Fund’s portfolio to change on days when shareholders will not be able to purchase or sell such Shares. To the extent a Fund calculates its NAV based on fair value prices and the value of the Underlying Index is based on the securities’ closing price on foreign securities markets (i.e., the value of the Underlying Index is not based on fair value prices), the valuation of a Fund’s NAV may deviate from the calculation of the Underlying Index.
Geographic Concentration Risk
The following risk applies to the IQ Candriam ESG International Equity ETF.
A Fund may invest a substantial amount of its assets in securities of issuers located in a single country or geographic region. As a result, any changes to the regulatory, political, social or economic conditions in such country or geographic region will generally have greater impact on such Fund than such changes would have on a more geographically diversified fund and may result in increased volatility and greater losses. This risk may be especially pronounced to the extent a Fund invests in countries and regions experiencing, or likely to experience, security concerns, war, threats of war, terrorism, economic uncertainty and natural disasters.
•
Japan Concentration Risk. A Fund is subject to various risks associated specifically with investments in the securities of Japanese issuers. A Fund’s performance may be particularly affected by social, political and economic conditions within Japan and to be more volatile than the performance of more geographically diversified funds. The Japanese economy has only recently emerged from a prolonged economic downturn. Since the year 2000, Japan’s economic growth rate has remained relatively low. Japan’s economy is characterized by government intervention and protectionism, an unstable financial services sector, and relatively high unemployment. Economic growth is heavily dependent on international trade, government support of the financial services sector and other troubled sectors, and consistent government policy. The United States is Japan’s largest single trading partner, but close to half of Japan’s trade is conducted with developing nations, almost all of which are in Southeast Asia.
Slowdowns in the United States, China and countries in Southeast Asia, or disruptions to trade caused by trade tariffs, other protectionist measures, and competition from emerging economies, could have a negative impact on Japan. Exposure to China, in terms of both imports and exports, has been increasing in recent years. Japan’s economic prospects may be also affected by the political and military situations of its near neighbors, notably North and South Korea, China and Russia. In addition, Japan’s labor market is adapting to an aging workforce, declining population, and demand for increased labor mobility. These demographic shifts and fundamental structural changes to the labor markets may negatively impact Japan’s economic competitiveness. Japan is located in a seismically active area and in 2011 experienced an earthquake of a sizeable magnitude and a tsunami that significantly affected important elements of its infrastructure and resulted in a nuclear crisis. The risks of natural disaster of varying degrees, such as earthquakes and tsunamis, and the resulting damage, continue to exist.
Index Risk
There is no guarantee that a Fund’s investment results will have a high degree of correlation to those of its Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on a Fund’s ability to adjust its exposure to the required levels in order to track its Underlying Index. Errors in index data, index computations or the construction of an Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on a Fund and its shareholders. Apart from scheduled rebalances, an Underlying Index may undergo additional ad hoc rebalances in order, for example, to correct an error in the selection of index constituents. When a Fund’s Underlying Index is rebalanced and the Fund in turn rebalances its portfolio to attempt to increase the correlation between the Fund’s portfolio and the
Underlying Index, any transaction costs and market exposure arising from such portfolio rebalancing will be borne directly by the Fund and its shareholders. Unscheduled rebalances to a Fund’s Underlying Index may expose the Fund to additional tracking error risk, which is the risk that the Fund’s returns may not track those of the Underlying Index. Therefore, index errors and additional ad hoc rebalances may increase the costs to and the tracking error risk of the Fund.
In constructing an Underlying Index, the index provider may utilize quantitative models or methodologies that may be proprietary or developed by third-parties. These models and methodologies are used to determine the composition of an Underlying Index and may not adequately take into account certain factors, resulting in a decline in the value of the Underlying Index and, therefore, a Fund. Models rely on accurate financial and market data inputs. If inaccurate data is entered into a model, the resulting information will be incorrect. In addition, the models used by be predictive and nature and such models may result in an incorrect assessment of future events. The models evaluate securities or securities markets based on certain assumptions concerning the interplay of market factors. The markets or prices of individual securities may be affected by factors not foreseen in developing the models. The historical correlations and relationships between individual securities or asset classes, upon which a model may be based, may not continue in the future.
Industry/Sector Concentration Risk
A Fund’s investment of a large percentage of its assets in the securities of issuers within the same industry or sector means that an adverse economic, business or political development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. A concentration makes a Fund more susceptible to any single occurrence and may subject the Fund to greater market risk than a fund that is not so concentrated.
•
Communication Services Sector Risk. The following risk applies to the IQ Candriam ESG US Equity ETF.
Communication services companies may be affected by legislative or regulatory changes, adverse market conditions, and/or increased competition. Rapid advancements in technology, innovation of competitors, product obsolescence and government regulation make communication services companies particularly vulnerable. Communication services companies also rely on the use of intellectual property such as patents, copyrights and trademarks owned internationally or licensed through third-parties. Infringement of intellectual property claims could have an adverse effect on the company. Changes in domestic and international demand, shifting demographics and unpredictable changes in consumer tastes can drastically affect a communication services company’s profitability. While all companies may be susceptible to network security breaches, certain communication services companies may be particular targets of hacking and potential theft of proprietary or consumer information or disruptions in service, which could have a material adverse effect on their businesses.
•
Financials Sector Risk. The following risk applies to the IQ Candriam ESG International Equity ETF.
Companies in the financials sector, including retail and commercial banks, insurance companies and financial services companies, may be adversely impacted by many factors, including, among others, government regulations, economic conditions, credit rating downgrades, changes in currency exchange rates, volatile interest rates, decreased liquidity in credit markets and competition from new entrants. Profitability of these companies is largely dependent on the availability and cost of capital and can fluctuate significantly when interest rates change. Credit losses resulting from financial difficulties of borrowers also can negatively impact the sector. Companies in the financials sector 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 financials 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 financials 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 financials sector may also be adversely affected by increases in interest rates and loan losses, decreases in the availability of money or asset valuations 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. The financials sector has been subject to increased scrutiny by international regulators and future regulations could be imposed that would have an adverse economic impact on financial
companies. Recently, the financials sector has been prone to cyber attacks and technology malfunctions and failures, which have caused losses to financial companies.
•
Health Care Sector Risk. The following risk applies to the IQ Candriam ESG US Equity ETF and IQ Candriam ESG International Equity ETF.
The health care sector includes companies that provide medical and health care goods and services, engage in manufacturing medical equipment, supplies and pharmaceuticals and operate health care facilities. Health care companies may be affected by, among other things, extensive, costly and uncertain government regulation, restrictions on government reimbursement for medical expenses, product obsolescence, increased emphasis on outpatient services, limited number of products and fluctuations in the costs of medical products. Many health care companies are heavily dependent on intellectual property protection, and the expiration of a company’s patent may impact that company’s profitability. Many health care companies are subject to extensive litigation based on product liability and similar claims. Health care companies are subject to competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting. Many new products in the health care sector may be subject to regulatory approvals. The process for health care companies to obtain regulatory approvals may be time- and cost-prohibitive, and such efforts ultimately may be unsuccessful.
•
Industrials Sector Risk. The following risk applies to the IQ Candriam ESG International Equity ETF.
The industrials sector can be significantly affected by supply and demand for specific products and services. Rapid technological developments and new product introduction may cause products of manufacturing companies to become obsolete. World economic growth, international political and economic developments, environmental issues and tax and governmental regulatory policies may adversely affect industrials companies. Changes or trends in commodity prices, which may be influenced by unpredictable factors, may adversely affect these companies. Companies in the industrials sector may also be impacted by liabilities from environmental damage and product liability claims. Government spending policies may impact the profitability of the industrials sector since industrials companies, especially aerospace and defense companies, often rely on government demand for their products and services.
•
Information Technology Sector Risk. The following risk applies to the IQ Candriam ESG US Equity ETF.
Information technology companies face intense competition, both domestically and internationally, which may have an adverse effect on their profit margins. Like other technology companies, information technology companies may have limited product lines, markets, financial resources or personnel. The products of information technology companies may face obsolescence due to rapid technological developments, frequent new product introduction, unpredictable changes in growth rates and competition for the services of qualified personnel. Companies in the information technology sector are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies. Information technology companies having high market valuations may appear less attractive to investors, which may cause sharp decreases in their market prices. The market prices of information technology securities may exhibit a greater degree of market risk and more frequent, sharp price fluctuations than other types of securities. These securities may fall in and out of favor with investors rapidly, which may cause sudden selling and dramatically lower market prices.
Investment Style Risk
One or more Underlying Indexes seek to allocate investment exposure based upon a particular style of investing. Different investment styles tend to shift in and out of favor depending upon market and economic conditions and investor sentiment. As a consequence, a Fund tracking such an Underlying Index may underperform as compared to the market generally or to other funds that invest in similar asset classes but employ different investment styles. Further, there is no guarantee that an Underlying Index will accurately or optimally utilize the investment style or that it will successfully provide the desired investment exposure.
ESG Investing Style Risk. Each Fund’s Underlying Index seeks to provide exposure to the equity securities of companies meeting certain sustainable and responsible investing criteria. Each Fund’s Underlying Index excludes or limits exposure to securities of certain issuers for non-financial reasons, and a Fund may forgo some market opportunities available to funds that do not use these criteria. The application of sustainable
and responsible investing criteria may affect a Fund’s exposure to certain sectors or types of investments and may impact the Fund’s relative investment performance depending on whether such sectors or investments are in or out of favor in the market. In addition, there is no guarantee that the construction methodology of an Underlying Index will accurately provide exposure to sustainable and responsible issuers.
Market Risk
The value of a Fund’s investments may fluctuate and/or decline because of changes in the markets in which the Fund invests, which could cause the Fund to underperform other funds with similar investment objectives and strategies. Security markets are volatile and may decline significantly in response to adverse issuer, regulatory, political, or economic developments. Different sectors of the market and different security types may react differently to such developments. Changes in these markets may be rapid and unpredictable. Fluctuations in the markets generally or in a specific industry or sector may impact the securities in which a Fund invests. From time to time, markets may experience periods of stress for potentially prolonged periods that may result in: (i) increased market volatility; (ii) reduced market liquidity; and (iii) increased redemptions of Fund shares. Such conditions may add significantly to the risk of volatility in the NAV of a Fund’s Shares and the market prices at which Shares of a Fund trade on a securities exchange. During periods of market stress Shares of a Fund may also experience significantly wider “bid/ask” spreads and premiums and discounts between a Fund’s NAV and market price.
Market changes may impact equity and fixed income securities in different and, at times, conflicting manners. A Fund potentially will be prevented from executing investment decisions at an advantageous time or price as a result of any domestic or global market disruptions, particularly disruptions causing heightened market volatility and reduced market liquidity, as well as increased or changing regulations or market closures. Thus, investments that the Advisor believes best enable a Fund to track the performance of its Underlying Index may be unavailable entirely or in the specific quantities sought by the Advisor and the Fund may need to obtain the exposure through less advantageous or indirect investments or forgo the investment at the time. Securities and investments included as components of an Underlying Index may be susceptible to declines in value, including declines in value that are not believed to be representative of the issuer’s value or fundamentals, due to investor reactions to such events. In response to market volatility and disruption, an Underlying Index may delay rebalancing, implement temporary or permanent modifications to its methodology or take other actions.
Political and diplomatic events within the United States and abroad, such as the U.S. budget and deficit reduction plans, protectionist measures, trade tensions central bank policy and government intervention in the economy, has in the past resulted, and may in the future result, in developments that present additional risks to a Fund’s investments and operations. Geopolitical and other events, such as war, acts of terrorism, natural disasters, the spread of infectious illnesses, epidemics and pandemics, environmental and other public health issues, recessions or other events, and governments’ reactions to such events, may lead to increased market volatility and instability in world economies and markets generally and may have adverse effects on the performance of the Fund and its investments. Additional and/or prolonged geopolitical or other events may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. Any such market, economic and other disruptions could also prevent a Fund from executing its investment strategies and processes in a timely manner.
An investment in a Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. When you sell your Shares, they could be worth less than what you paid for them.
Market Disruption Risk and Recent Market Events
Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on a Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets. Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant restrictions, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on
large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. A Fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in a Fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.
Operational Risk
Each Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Funds are not actively managed and instead seek to track the performance of an index. Passive management has the following risks associated with it:
•
Each Fund invests in the securities included in, or representative of, its applicable Underlying Index. The provider of the Underlying Index or the index calculation agent may make errors. The index provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in a Fund, in turn, being correctly positioned to an Index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track its Underlying Index’s performance, a Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of its Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in a Fund’s portfolio and those included in an Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and a Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to an Underlying Index or the costs to a Fund of complying with various new or existing regulatory requirements. Tracking error also may result because a Fund incurs fees and expenses, while an Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
Each Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Secondary Market Trading Risk
Although each Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. The trading of Shares on securities exchanges is subject to the risk of irregular trading activity. Additionally, market makers are under no obligation to make a market in a Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in a Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, such Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value.
Buying or selling Shares on an exchange involves two types of costs that apply to all securities transactions. When buying or selling Shares through a broker, you will likely incur a brokerage commission and other charges. In addition, you may incur the cost of the “spread” — the difference between what investors are willing to pay
for Shares (the “bid” price) and the price at which they are willing to sell Fund shares (the “ask” price). The spread, which varies over time for Shares based on trading volume and market liquidity, is generally narrower if the Fund has more trading volume and market liquidity and wider if the Fund has less trading volume and market liquidity. The risk of wide bid and ask spreads may be especially pronounced for smaller funds. In addition, increased market volatility may cause wider spreads. There may also be regulatory and other charges that are incurred as a result of trading activity. Because of the costs inherent in buying or selling Shares, frequent trading may detract significantly from investment results and an investment in Shares may not be advisable for investors who anticipate regularly making small investments through a brokerage account.
Securities exchanges have requirements that must be met in order for Shares to be listed. There can be no assurance that the requirements of an exchange necessary to maintain the listing of Shares will continue to be met. This risk is particularly acute for funds that fail to attract a large number of shareholders. Pursuant to an exchange’s “circuit breaker” rules, trading in a Fund’s Shares may be halted due to extraordinary market volatility.
Small- and/or Mid-Capitalization Companies Risk
Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies as a result of several factors, including narrower markets for their goods and/or services, more limited managerial and financial resources, limited product lines, services, markets, financial resources or are dependent on a small management group. Because these stocks may not be well known to the investing public, do not have significant institutional ownership and are followed by relatively few security analysts, there will normally be less publicly available information concerning these securities compared to what is available for the securities of larger companies. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, can decrease the value and liquidity of securities held by a Fund, resulting in more volatile performance. Accordingly, such companies are generally subject to greater market risk than larger, more established companies.
Trading Price Risk
Shares of a Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of a Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of a Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the Fund’s NAV. As a result, the trading prices of a Fund’s Shares may deviate significantly from NAV during periods of market volatility. The market price of a Fund’s 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 Shares. In times of severe market disruption, the bid/ask spread can increase significantly. At those times, Shares are most likely to be traded at a discount to NAV, and the discount is likely to be greatest when the price of Shares is falling fastest, which may be the time that an investor most wants to sell their Shares. Although it is generally expected that the market price of a Fund’s Shares will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares. While the creation/redemption feature is designed to make it more likely that a Fund’s Shares normally will trade on securities exchanges at prices close to the Fund’s next calculated NAV, exchange prices are not expected to correlate exactly with the Fund’s NAV due to timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions at market makers, Authorized Participants, or other market participants, and during periods of significant market volatility, may result in trading prices for Shares of a Fund that differ significantly from its NAV. Authorized Participants may be less willing to create or redeem Shares if there is a lack of an active market for such Shares or its underlying investments, which may contribute to the Fund’s Shares trading at a premium or discount to NAV. Additionally, similar to shares of other issuers listed on a securities exchange, a Fund’s Shares may be sold short and are therefore subject to the risk of increased volatility and price decreases associated with being sold short. Any of these factors, among others, may lead to a Fund’s Shares trading at a premium or discount to NAV.
Additional Risks
Large Investments Risk
From time to time, a Fund may receive large purchase or redemption orders from affiliated or unaffiliated funds or other investors. In addition, any third-party investor, investment advisor affiliate, authorized participant, lead market maker or other entity may make a large investment in a Fund and hold its investment for any number of
reasons, including to facilitate such Fund’s commencement of operations or to facilitate the Fund’s achieving a specified size or scale. There can be no assurance that any large shareholder would not sell or redeem its investment at any given time, either in a single transaction or over time. These large transactions, and particularly redemptions, could have adverse effects on a Fund, including: (i) negative impacts to performance if the Fund were required to sell securities, invest cash or hold significant cash at times when it otherwise would not do so; (ii) wider price spreads or greater premiums/discounts that could materialize as a result of lower secondary market volume of shares; and (iii) negative federal income tax consequences if this activity accelerated the realization of capital gains.
Securities Lending Risk
Securities lending involves the risk that the borrower of the loaned securities fails to return the securities in a timely manner or at all. A Fund could also lose money due to a decline in the value of collateral provided for loaned securities or any investments made with cash collateral. These events could also trigger adverse tax consequences for a Fund. To the extent the collateral provided or investments made with cash collateral differ from securities included in a Fund’s Underlying Index, such collateral or investments may have a greater risk of loss than the securities included in the Underlying Index.
Underinvestment Risk
If certain aggregate ownership thresholds are reached either through the actions of the Advisor and its affiliates or a Fund, or as a result of third-party transactions, the ability of the Advisor on behalf of clients (including a Fund) to purchase or dispose of investments, or exercise rights or undertake business transactions, may be restricted by regulation or otherwise impaired. The capacity of the Fund to make investments in certain securities may be affected by the relevant limits, and such limitations may have adverse effects on the liquidity and performance of a Fund’s portfolio holdings compared to the performance of the Underlying Index. This may increase the risk of the Fund being underinvested to the Underlying Index and increase the risk of tracking error.
U.S. Tax Risks
To qualify for the favorable U.S. federal income tax treatment accorded to regulated investment companies, a Fund must satisfy certain income, asset diversification and distribution requirements. If for any taxable year, a Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) for that year would be subject to tax at regular corporate rates without any deduction for distributions to its shareholders, and such distributions would be taxable to its shareholders as dividend income to the extent of a Fund’s current and accumulated earnings and profits. To the extent a Fund engages in derivatives transactions, the tax treatment such derivatives transactions is unclear for purposes of determining a Fund’s tax status. To the extent a Fund engages in transactions in financial instruments, including, but not limited to, options, futures contracts, hedging transactions, forward contracts and swap contracts, the Fund will be subject to special tax rules (which may include mark-to-market, constructive sale, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund’s securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could, therefore, affect the amount, timing and character of distributions to a Fund’s shareholders. A Fund’s use of such transactions may result in the Fund realizing more short-term capital gains and ordinary income, in each case subject to U.S. federal income tax at higher ordinary income tax rates, than it would if it did not engage in such transactions. Please refer to the SAI for a more complete discussion of the risks of investing in Shares.
Buying and Selling Shares in the Secondary Market
Most investors will buy and sell Shares of each Fund in Secondary Market transactions through brokers. Shares of each Fund will be listed for trading on the Secondary Market on the NYSE Arca. Shares can be bought and sold throughout the trading day like other publicly-traded shares. Unless imposed by your broker or dealer, there is no minimum dollar amount you must invest and no minimum number of Shares you must buy in the Secondary Market. 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 spread between the bid and the offered price in the Secondary Market on each leg of a round trip (purchase and sale) transaction. In addition, because transactions in the Secondary Market occur at market prices, you may pay more than NAV when you buy Shares and receive less than NAV when you sell those Shares.
Share prices are reported in dollars and cents per Share. For information about buying and selling Shares in the Secondary Market, please contact your broker or dealer.
Book Entry
Shares of each Fund are held in book-entry form and no stock certificates are issued. DTC, through its nominee Cede & Co., 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. Participants in DTC 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 securities that you hold in book-entry or “street name” form for any publicly-traded company. Specifically, in the case of a shareholder meeting of a Fund, DTC assigns applicable Cede & Co. voting rights to its participants that have Shares credited to their accounts on the record date, issues an omnibus proxy and forwards the omnibus proxy to the Fund. The omnibus proxy transfers the voting authority from Cede & Co. to the DTC participant. This gives the DTC participant through whom you own Shares (namely, your broker, dealer, bank, trust company or other nominee) authority to vote the shares, and, in turn, the DTC participant is obligated to follow the voting instructions you provide.
Management
The Board is responsible for the general supervision of the Funds. The Board appoints officers who are responsible for the day-to-day operations of the Funds.
Investment Advisor
The Advisor has been registered as an investment advisor with the SEC since August 2007, has provided investment advisory services to registered investment companies since June 2008, and is a wholly-owned indirect subsidiary of New York Life Investment Management Holdings LLC. The Advisor’s principal office is located at 51 Madison Avenue, New York, New York 10010. As of June 30, 2021, the Advisor had approximately $4.7 billion in assets under management.
The Advisor has overall responsibility for the general management and administration of the Trust. The Advisor provides an investment program for the Funds. The Advisor has arranged for custody, fund administration, transfer agency and all other non-distribution related services necessary for the Funds to operate.
As compensation for its services and its assumption of certain expenses, each Fund pays the Advisor a management fee equal to a percentage of a Fund’s average daily net assets that is calculated daily and paid monthly, as follows:
Fund Name | | | Management Fee | |
IQ Candriam ESG US Equity ETF | | | | | 0.09% | | |
IQ Candriam ESG International Equity ETF | | | | | 0.15% | | |
The Advisor may voluntarily waive any portion of its advisory fee from time to time, and may discontinue or modify any such voluntary limitations in the future at its discretion.
The Advisor serves as investment advisor to each Fund pursuant to an Investment Advisory Agreement (the “Advisory Agreement”). The Advisory Agreement was approved by the Independent Trustees of the Trust at its annual meeting. The basis for the Board’s approval of the Advisory Agreement will be available in the Trust’s Annual or Semiannual Report to shareholders.
Under the Advisory Agreement, the Advisor agrees to pay all expenses of the Trust, except brokerage and other transaction expenses including taxes; extraordinary legal fees or expenses, such as those for litigation or arbitration; compensation and expenses of the Independent Trustees, counsel to the Independent Trustees, and the Trust’s chief compliance officer; extraordinary expenses; distribution fees and expenses paid by the Trust under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act; and the advisory fee payable to the Advisor hereunder.
The Advisor and its affiliates deal, trade and invest for their own accounts in the types of securities in which the Funds also may invest. The Advisor does not use inside information in making investment decisions on behalf of the Funds.
Section 15(a) of the 1940 Act requires that all contracts pursuant to which persons serve as investment advisors to investment companies be approved by shareholders. As interpreted, this requirement also applies to the appointment of any subadvisor to a Fund. The Advisor and the Trust have obtained an exemptive order (the “Order”) from the SEC permitting the Advisor, on behalf of a Fund and subject to the approval of the Board, including a majority of the Independent Trustees, to hire or terminate unaffiliated subadvisors and to modify any existing or future subadvisory agreement with unaffiliated subadvisors without shareholder approval. This authority is subject to certain conditions. A Fund will notify shareholders and provide them with certain information required by the Order within 90 days of hiring a new subadvisor. Each Fund’s sole shareholder has approved the use of the Order. Please see the SAI for more information on the Order.
Expense Limitation Agreement
The Advisor has entered into Expense Limitation Agreements with the Funds under which it has agreed to waive or reduce its fees and to assume other expenses of the Funds in an amount that limits “Total Annual Fund Operating Expenses” (exclusive of interest, taxes, brokerage commissions and other expenses that are capitalized in accordance with generally accepted accounting principles, dividends, interest and brokerage expenses paid on short sales, acquired und fees and expenses, extraordinary expenses, if any, and payments, if any, under the Rule 12b-1 Plan) to not more than the percentage of the average daily net assets of such Funds until August 31, 2022, as follows:
Fund Name | | | Total Annual Fund Operating Expenses After Expense Waiver/Reimbursement | |
IQ Candriam ESG US Equity ETF | | | | | 0.09% | | |
IQ Candriam ESG International Equity ETF | | | | | 0.15% | | |
Portfolio Management
The portfolio managers jointly and primarily responsible for the day-to-day management of the Funds’ portfolios are Greg Barrato and James Harrison.
Greg Barrato joined the Advisor as Vice President in November 2010 and has been Senior Vice President of the Advisor since August 2013. Prior to joining the Advisor, Mr. Barrato served as Head Global Equity Trader and Trader at Lucerne Capital Management, LLC from 2008 to 2010 and as Assistant Trader and Operations Manager at ReachCapital Management, LP from 2004 to 2008. Mr. Barrato is a graduate of the University of Connecticut.
James Harrison has been a member of the portfolio management team of the Advisor since 2015 and a portfolio manager of the Funds since inception. Prior to joining the Advisor, Mr. Harrison served as a New York Stock Exchange member Floor Broker and Equity Sales Trader for Cuttone and Company from 2010 to 2015. Mr. Harrison is a graduate of St. Lawrence University.
For more information about the portfolio managers’ compensation, other accounts managed by the portfolio managers and the portfolio managers’ ownership of securities in the Funds, see the SAI.
Other Service Providers
Index Provider
IndexIQ is the index provider for the Funds. IndexIQ is in the business of developing and maintaining financial indices, including the Underlying Indices. Presently, IndexIQ has developed and is maintaining a number of indices in addition to the Underlying Indices, of which 13 are currently being used by registered investment companies.
IndexIQ has entered into an index licensing agreement (the “Licensing Agreement”) with the Advisor to allow the Advisor’s use of the Underlying Indices for the operation of the Funds. The Advisor pays licensing fees to IndexIQ from the Advisor’s management fees or other resources. The Advisor has, in turn, entered into a sub-licensing agreement (the “Sub-Licensing Agreement”) with the Trust to allow the Funds to utilize the Underlying Indices. The Funds pay no fees to IndexIQ or the Advisor under the Sub-Licensing Agreement. Additional information regarding the Underlying Indices developed and maintained by IndexIQ, including the index methodology and composition, is available at newyorklifeinvestments.com.
Solactive AG is the Index calculator and benchmark administrator. The value of an Underlying Index is calculated every weekday (“Business Day”) based on the prices on the respective Exchanges on which the Component Securities are listed. For each update, the most recent prices of all Component Securities are used. Prices of Component Securities not listed in U.S. Dollars are converted using spot foreign exchange rates quoted by Reuters. The daily index closing value is calculated using WM/Reuters closing spot rates from 4:00 pm London time. Should there be no current price available on Reuters, the most recent price or the Trading Price (as defined below) on Reuters for the preceding Trading Day (as defined below) is used in the calculation. The Underlying Indices are calculated continuously every Business Day from 9:00 am to 10:30 pm, CET, with updates every 15 seconds. In the event that data cannot be provided to Reuters or to the pricing services of Boerse Stuttgart AG, an Underlying Index cannot be distributed.
Any incorrect calculation is adjusted on a retrospective basis. At the time of the calculation and publication of an Underlying Index, the prices used for the calculation may already have changed. A committee (the “Committee”) composed of staff from Solactive AG is responsible for any amendments to the rules; provided that the starting universe for the composition of an Underlying Index and its relevant specifications are established by IndexIQ. The composition of an Underlying Index is determined according to the procedures outlined in the Underlying Index rulebook. Solactive AG may consult IndexIQ for decisions regarding the composition of an Underlying Index. All specifications and information relevant for calculating an Underlying Index are made available on Solactive AG’s website.
The financial instrument 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 an Underlying Index and/or Underlying Index trade mark or an Underlying Index price at any time or in any other respect. The Underlying Indices are calculated and published by Solactive AG. Solactive AG uses its best efforts to ensure that the Underlying Indices are calculated correctly. Irrespective of its obligations towards the Issuer, Solactive AG has no obligation to point out errors in an Underlying Index to third-parties including but not limited to investors and/or financial intermediaries of the financial instrument. Neither publication of an Underlying Index by Solactive AG nor the licensing of an Underlying Index or Underlying Index trade mark for the purpose of use in connection with the financial instrument constitutes a recommendation by Solactive AG to invest capital in said financial instrument nor does it in any way represent an assurance or opinion of Solactive AG with regard to any investment in this financial instrument.
Index Consultant
Candriam serves as the index consultant to IndexIQ for the Underlying Indices. In its role as index consultant, Candriam assists IndexIQ with the development, calculation and maintenance of the Underlying Indices. Candriam is an investment advisor with experience with equity securities of companies meeting environmental, social and corporate governance investing strategies.
Fund Administrator, Custodian, Transfer Agent and Securities Lending Agent
The Bank of New York Mellon (“BNY Mellon”), located at 240 Greenwich Street, New York, New York 10286, serves as the Funds’ Administrator, Custodian, Transfer Agent and Securities Lending Agent. BNY Mellon is the principal operating subsidiary of The Bank of New York Mellon Corporation.
Distributor
ALPS Distributors, Inc. (“ALPS” or the “Distributor”), located at 1290 Broadway, Suite 1100, Denver, Colorado 80203 serves as the Distributor of Creation Units for the Funds on an agency basis. The Distributor does not maintain a Secondary Market in the Funds’ Shares. NYLIFE Distributors LLC has entered into a Services Agreement with ALPS to market the Funds.
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP, located at 300 Madison Avenue, New York, NY 10017, serves as the independent registered public accounting firm for the Trust.
Legal Counsel
Chapman and Cutler LLP, located at 1717 Rhode Island Avenue, Washington, D.C. 20036, serves as counsel to the Trust and the Funds.
Frequent Trading
The Board has not adopted policies and procedures with respect to frequent purchases and redemptions of Shares by Fund shareholders (“market timing”). In determining not to adopt market timing policies and procedures, the Board noted that the Funds are expected to be attractive to active institutional and retail
investors interested in buying and selling Shares on a short-term basis. In addition, the Board considered that, unlike traditional mutual funds, Shares can only be purchased and redeemed directly from the Fund in Creation Units by Authorized Participants, and that the vast majority of trading in Shares occurs on the Secondary Market. Because Secondary Market trades do not involve a Fund directly, it is unlikely those trades would cause many of the harmful effects of market timing, including dilution, disruption of portfolio management, increases in a Fund’s trading costs and the realization of capital gains. With respect to trades directly with the Funds, to the extent effected in-kind (namely, for securities), those trades do not cause any of the harmful effects that may result from frequent cash trades. To the extent trades are effected in whole or in part in cash, the Board noted that those trades could result in dilution of a Fund and increased transaction costs (a Fund may impose higher transaction fees to offset these increased costs, which could negatively impact a Fund’s ability to achieve its investment objective. However, the Board also noted that direct trading on a short-term basis by Authorized Participants is critical to ensuring that Shares trade at or close to NAV. Given this structure, the Board determined that it is not necessary to adopt market timing policies and procedures. Each Fund reserves the right to reject any purchase order at any time and reserves the right to impose restrictions on disruptive or excessive trading in Creation Units.
The Board has instructed the officers of the Trust to review reports of purchases and redemptions of Creation Units on a regular basis to determine if there is any unusual trading in the Funds. The officers of the Trust will report to the Board any such unusual trading in Creation Units that is disruptive to the Funds. In such event, the Board may reconsider its decision not to adopt market timing policies and procedures.
Distribution and Service Plan
The Board has adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with its Rule 12b-1 plan, each Fund is authorized to pay an amount up to 0.10% of its average daily net assets each year to finance activities primarily intended to result in the sale of Creation Units of each Fund or the provision of investor services. No Rule 12b-1 fees are currently paid by the Funds and there are no plans to impose these fees. However, in the event Rule 12b-1 fees are charged in the future, they will be paid out of the respective Fund’s assets, and over time these fees will increase the cost of your investment and they may cost you more than certain other types of sales charges.
The Advisor and its affiliates may, out of their own resources, pay amounts (“Payments”) to third-parties for distribution or marketing services on behalf of the Funds. The making of these payments could create a conflict of interest for a financial intermediary receiving such payments. The Advisor may make Payments for such third-parties to organize or participate in activities that are designed to make registered representatives, other professionals and individual investors more knowledgeable about ETFs, including ETFs advised by the Advisor, or for other activities, such as participation in marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems. The Advisor also may make Payments to third-parties to help defray costs typically covered by a trading commission, such as certain printing, publishing and mailing costs or materials relating to the marketing of services related to exchange-traded products (such as commission-free trading platforms) or exchange-traded products in general.
Determination of Net Asset Value (NAV)
The NAV of the Shares for a Fund is equal to the Fund’s total assets minus its total liabilities divided by the total number of Shares outstanding. Interest and investment income on a Fund’s assets accrue daily and are included in the Fund’s total assets. Expenses and fees (including investment advisory, management, administration and distribution fees, if any) accrue daily and are included in the applicable Fund’s total liabilities. The NAV that is published is rounded to the nearest cent; however, for purposes of determining the price of Creation Units, the NAV is calculated to five decimal places. The NAV is calculated by the Administrator and Custodian and determined each Business Day as of the close of regular trading on the NYSE Arca (ordinarily 4:00 p.m. Eastern time).
In calculating NAV, each Fund’s investments are valued using market quotations when available. Equity securities are generally valued at the closing price of the security on the security’s primary exchange. The primary exchanges for a Fund’s foreign equity securities may close for trading at various times prior to close of
regular trading on the NYSE Arca, and the value of such securities used in computing the Fund’s NAV are generally determined as of such times. A Fund’s foreign securities may trade on weekends or other days when Shares do not trade. Consequently, the value of portfolio securities of a Fund may change on days when Shares of the Fund cannot be purchased or sold.
When market quotations are not readily available or are deemed unreliable or not representative of an investment’s fair value, investments are valued using fair value pricing as determined in good faith by the Advisor under procedures established by and under the general supervision and responsibility of the Board. Investments that may be valued using fair value pricing include, but are not limited to: (1) securities that are not actively traded, including “restricted” securities and securities received in private placements for which there is no public market; (2) securities of an issuer that becomes bankrupt or enters into a restructuring; (3) securities whose trading has been halted or suspended; and (4) foreign securities traded on exchanges that close before each Fund’s NAV is calculated.
The frequency with which the Funds’ investments are valued using fair value pricing is primarily a function of the types of securities and other assets in which the respective Fund invests pursuant to its investment objective, strategies and limitations. If the Funds invest in other open-end management investment companies registered under the 1940 Act, they may rely on the NAVs of those companies to value the shares they hold of them. Those companies may also use fair value pricing under some circumstances.
Valuing each Fund’s investments using fair value pricing results in using prices for those investments that may differ from current market valuations. Accordingly, fair value pricing could result in a difference between the prices used to calculate NAV and the prices used to determine each Fund’s indicative intra-day value (“IIV”), which could result in the market prices for Shares deviating from NAV.
Indicative Intra-Day Value
The approximate value of a Fund’s investments on a per-Share basis, the Indicative Intra-Day Value, or IIV, is disseminated every 15 seconds during hours of trading on the NYSE Arca. The IIV should not be viewed as a “real-time” update of NAV because the IIV may not be calculated in the same manner as NAV, which is computed once per day.
Solactive AG, an independent third party calculator calculates the IIV for each Fund during hours of trading on the NYSE Arca by dividing the “Estimated Fund Value” as of the time of the calculation by the total number of outstanding Shares of that Fund. “Estimated Fund Value” is the sum of the estimated amount of cash held in a Fund’s portfolio, the estimated amount of accrued interest owed to the Fund and the estimated value of the securities held in the Fund’s portfolio, minus the estimated amount of the Fund’s liabilities. The IIV will be calculated based on the same portfolio holdings disclosed on the Trust’s website.
Each Fund provides the independent third party calculator with information to calculate the IIV, but the Funds are not involved the actual calculation of the IIV and is not responsible for the calculation or dissemination of the IIV. The Funds make no warranty as to the accuracy of the IIV.
Premium/Discount Information
Information regarding the extent and frequency with which market prices of Shares has tracked the relevant Fund’s NAV for the most recently completed calendar year and the quarters since that year will be available without charge on the Funds’ website at newyorklifeinvestments.com.
Dividends, Distributions and Taxes
Net Investment Income and Capital Gains
As a Fund shareholder, you are entitled to your share of the Fund’s distributions of net investment income and net realized capital gains on its investments. The Funds pay out substantially all of their net earnings to their shareholders as “distributions.”
The Funds typically earn income dividends from stocks and interest from debt securities. These amounts, net of expenses, typically are passed along to Fund shareholders as dividends from net investment income. The Funds realize capital gains or losses whenever they sell securities. Net capital gains typically are passed along to shareholders as “capital gain distributions.”
Net investment income and net capital gains typically are distributed to shareholders at least annually. Dividends may be declared and paid more frequently to improve index tracking or to comply with the distribution requirements of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). In addition, the Funds may decide to distribute at least annually amounts representing the full dividend yield net of expenses on the underlying investment securities, as if the Funds owned the underlying investment securities for the entire dividend period, in which case some portion of each distribution may result in a return of capital. You will be notified regarding the portion of a distribution that represents a return of capital.
Distributions in cash may be reinvested automatically in additional Shares of a Fund only if the broker through which you purchased Shares makes such option available. Distributions which are reinvested nevertheless will be subject to U.S. federal income tax to the same extent as if such distributions had not been reinvested.
U.S. Federal Income Taxation
The following is a summary of the material U.S. federal income tax considerations applicable to an investment in Shares of a Fund. The summary is based on the laws in effect on the date of this Prospectus and existing judicial and administrative interpretations thereof, all of which are subject to change, possibly with retroactive effect. In addition, this summary assumes that a Fund shareholder holds Shares as capital assets within the meaning of the Code and does not hold Shares in connection with a trade or business. This summary does not address all potential U.S. federal income tax considerations possibly applicable to an investment in Shares of a Fund, and does not address the consequences to Fund shareholders subject to special tax rules, including, but not limited to, partnerships and the partners therein, tax-exempt shareholders, regulated investment companies (“RICs”, real estate investment trusts (“REITS”), real estate mortgage investment conduits (“REMICs”), those who hold Shares through an IRA, 401(k) plan or other tax-advantaged account, and, except to the extent discussed below, “non-U.S. shareholder” (as defined below). This discussion does not discuss any aspect of U.S. state, local, estate, gift, or non-U.S. tax law. Furthermore, this discussion is not intended or written to be legal or tax advice to any shareholder in a Fund or other person and is not intended or written to be used or relied on, and cannot be used or relied on, by any such person for the purpose of avoiding any U.S. federal tax penalties that may be imposed on such person. Prospective Fund shareholders are urged to consult their own tax advisors with respect to the specific U.S. federal, state, local and non-U.S. tax consequences of investing in Shares, based on their particular circumstances.
The Funds have not requested and will not request an advance ruling from the U.S. Internal Revenue Service (the “IRS”) as to the U.S. federal income tax matters described below. The IRS could adopt positions contrary to those discussed below and such positions could be sustained. Prospective investors should consult their own tax advisors with regard to the U.S. federal tax consequences of the purchase, ownership and disposition of Shares, as well as the tax consequences arising under the laws of any state, locality, non-U.S. or other taxing jurisdiction. The following information supplements and should be read in conjunction with the section in the SAI entitled “U.S. Federal Income Taxation.”
Tax Treatment of a Fund
Each Fund intends to continue to qualify and elect to be treated as a separate RIC under the Code. To qualify and remain eligible for the special tax treatment accorded to RICs, each Fund must meet certain annual income and quarterly asset diversification requirements and must distribute annually at least 90% of the sum of (i) its “investment company taxable income” (which includes dividends, interest and net short-term capital gains) and (ii) certain net tax-exempt income, if any.
As a RIC, a Fund generally will not be required to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes to its shareholders. If a Fund fails to qualify as a RIC for any year (subject to certain curative measures allowed by the Code), the Fund will be subject to regular corporate-level U.S. federal income tax in that year on all of its taxable income, regardless of whether the Fund makes any distributions to its shareholders. In addition, in such case, distributions will be taxable to a Fund’s shareholders generally as ordinary dividends to the extent of the Fund’s current and accumulated earnings and profits. The remainder of this discussion assumes that the Funds will qualify for the special tax treatment accorded to RICs.
A Fund generally will be subject to a 4% excise tax on certain undistributed income if the Fund does not distribute to its shareholders in each calendar year an amount at least equal to the sum of 98% of its ordinary income for the calendar year (taking into account certain deferrals and elections), 98.2% of its capital gain net income (adjusted for certain ordinary losses) for the twelve months ended October 31 of such year (or later if the Fund is permitted to elect and no elects), plus 100% of any undistributed amounts from prior years. For these
purposes, a Fund will be treated as having distributed any amount on which it has been subject to U.S. corporate income tax for the taxable year ending within the calendar year. Each Fund intends to make distributions necessary to avoid this 4% excise tax, although there can be no assurance that it will be able to do so.
A Fund may be required to recognize taxable income in advance of receiving the related cash payment. For example, if a Fund invests in original issue discount obligations (such as zero coupon debt instruments or debt instruments with payment-in-kind interest), the Fund will be required to include in income each year a portion of the original issue discount that accrues over the term of the obligation, even if the related cash payment is not received by the Fund until a later year. Under the “wash sale” rules, a Fund may not be able to deduct a loss on a disposition of a portfolio security. As a result, the Fund may be required to make an annual income distribution greater than the total cash actually received during the year. Such distribution may be made from the cash assets of the Fund or by selling portfolio securities. The Fund may realize gains or losses from such sales, in which event its shareholders may receive a larger capital gain distribution than they would in the absence of such transactions.
Tax Treatment of Fund Shareholders
Taxation of U.S. Shareholders
The following is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Shares applicable to “U.S. shareholders.” For purposes of this discussion, a “U.S. shareholder” is a beneficial owners of Shares who, for U.S. federal income tax purposes, is (i) an individual who is a citizen or resident of the United States; (ii) a corporation (or an entity treated as a corporation for U.S. federal tax purposes) created or organized in the United States or under the laws of the United States, or of any state thereof, or the District of Columbia; (iii) an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or (iv) a trust, if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (2) the trust has a valid election in place to be treated as a U.S. person.
Fund Distributions. In general, Fund distributions are subject to U.S. federal income tax when paid, regardless of whether they consist of cash or property, and regardless of whether they are re-invested in Shares. However, any Fund distribution declared in October, November or December of any calendar year and payable to shareholders of record on a specified date during such month will be deemed to have been received by each Fund shareholder on December 31 of such calendar year, provided such dividend is actually paid during January of the following calendar year.
Distributions of a Fund’s net investment income and net short-term capital gains in excess of net long-term capital losses (collectively referred to as “ordinary income dividends”) are taxable as ordinary income to the extent of the Fund’s current and accumulated earnings and profits (subject to an exception for distributions of “qualified dividend income,” as discussed below). To the extent designated as capital gain dividend by a Fund, distributions of a Fund’s net long-term capital gains in excess of net short-term capital losses (“net capital gain”) are taxable at long-term capital gain tax rates to the extent of the Fund’s current and accumulated earnings and profits, regardless of a Fund shareholder’s holding period in the Fund’s Shares. Distributions of “qualified dividend income” (defined below) are, to the extent of a Fund’s current and accumulated earnings and profits, taxed to certain non-corporate Fund shareholders at the rates generally applicable to long-term capital gain, provided that the Fund shareholder meeting certain holding period and of the requirements with respect to the distributing Fund’s Shares and the distributing Fund meeting certain holdings period and other requirements with respect to its dividend-paying stocks. For this purpose, “qualified dividend income” generally means income from dividends received by a Fund from U.S. corporations and qualified non-U.S. corporations. Substitute payments received on Shares that are lent out will be ineligible for being reported as qualified dividend income. If a Fund pays a dividend that would be “qualified” dividend income for individuals, corporate shareholders may be entitled to a dividend received deduction.
Each Fund intends to distribute its net capital gain at least annually. However, by providing written notice to its shareholders no later than 60 days after its year-end, a Fund may elect to retain some or all of its net capital gain and designate the retained amount as a “deemed distribution.” In that event, the Fund pays U.S. federal income tax on the retained net capital gain, and each Fund shareholder recognizes a proportionate share of the Fund’s undistributed net capital gain. In addition, each Fund shareholder can claim a tax credit or refund
for the shareholder’s proportionate share of the Fund’s U.S. federal income taxes paid on the undistributed net capital gain and increase the shareholder’s tax basis of the Shares by an amount equal to shareholder’s proportionate share of the Fund’s undistributed net capital gain, reduced by the amount of the shareholder’s tax credit or refund.
Distributions in excess of a Fund’s current and accumulated earns and profits will, as to each shareholder, be treated as a tax-free return of capital to the extent of the shareholders tax basis in its shares of the fund, and generally as capital gain thereafter. Any such distribution will reduce the shareholder’s tax basis in the Shares, and thus will increase the shareholder’s capital gain, or decrease the capital loss, recognized upon a sale or exchange of Shares.
In addition, individuals with adjusted gross incomes above certain threshold amounts (and certain trusts and estates) generally are be subject to a 3.8% Medicare tax on net investment income in addition to otherwise applicable U.S. federal income tax. “Net investment income” generally will include dividends (including capital gain dividends) received from a Fund and net gains from the redemption or other disposition of Shares. Please consult your tax advisor regarding this tax.
If a Fund is a “qualified fund of funds” (i.e., a RIC at least 50% of the value of the total assets of which, at the close of each quarter of the taxable year, is represented by interests in other RICs) or more than 50% of a Fund’s total assets at the end of a taxable year consist of non-U.S. stock or securities, the Fund may elect to “pass through” to its shareholders certain non-U.S. income taxes paid by the Fund. This means that each shareholder will be required to (i) include in gross income, even though not actually received, the shareholder’s pro rata share of the Fund’s non-U.S. income taxes, and (ii) either take a corresponding deduction (in calculating U.S. federal taxable income) or credit (in calculating U.S. federal income tax), subject to certain limitations.
Investors considering buying Shares just prior to a distribution should be aware that, although the price of the Shares purchased at such time may reflect the forthcoming distribution, such distribution nevertheless may be taxable (as opposed to a non-taxable return of capital).
Sales or Exchange of Shares. Any capital gain or loss realized upon a sale or exchange of Shares (including an exchange of Shares of one Fund for Shares of another Fund) generally is treated as a long-term gain or loss if the Shares have been held for more than one year. Any capital gain or loss realized upon a sale or exchange of Shares held for one year or less generally is treated as a short-term gain or loss, except that any capital loss on the sale or exchange of Shares held for six months or less is treated as long-term capital loss to the extent that capital gain dividends were paid (or deemed to be paid) with respect to the Shares.
Creation Unit Issues and Redemptions. On an issue of Shares of a Fund as part of a Creation Unit where the creation is conducted in-kind, an Authorized Participant generally recognizes capital gain or loss equal to the difference between (i) the fair market value (at issue) of the issued Shares (plus any cash received by the Authorized Participant as part of the issue) and (ii) the Authorized Participant’s aggregate basis in the exchanged securities (plus any cash paid by the Authorized Participant as part of the issue). On a redemption of Shares as part of a Creation Unit where the redemption is conducted in-kind, an Authorized Participant recognizes capital gain or loss equal to the difference between (i) the fair market value (at redemption) of the securities received (plus any cash received by the Authorized Participant as part of the redemption) and (ii) the Authorized Participant’s basis in the redeemed Shares (plus any cash paid by the Authorized Participant as part of the redemption). However, the IRS may assert, under the “wash sale” rules or on the basis that there has been no significant change in the Authorized Participant’s economic position, that any loss on creation or redemption of Creation Units cannot be deducted currently.
In general, any capital gain or loss recognized upon the issue or redemption of Shares (as components of a Creation Unit) is treated either as long-term capital gain or loss, if the deposited securities (in the case of an issue) or the Shares (in the case of a redemption) have been held for more than one year, or otherwise as short-term capital gain or loss. However, any capital loss on a redemption of Shares held for six months or less is treated as long-term capital loss to the extent that capital gain dividends were paid (or deemed to be paid) with respect to such Shares.
Back-Up Withholding. A Fund (or a financial intermediary such as a broker through which a shareholder holds Shares in a Fund) may be required to report certain information on a Fund shareholder to the IRS and withhold
U.S. federal income tax (“backup withholding”) at a current rate of 24% from taxable distributions and redemption or sale proceeds payable to the Fund shareholder if (i) the Fund shareholder fails to provide the Fund with a correct taxpayer identification number or make required certifications, or if the IRS notifies the Fund
that the Fund shareholder is otherwise subject to backup withholding, and (ii) the Fund shareholder is not otherwise exempt from backup withholding. Non-U.S. shareholders can qualify for exemption from backup withholding by submitting a properly completed IRS Form W-8BEN or W-8BEN-E. Backup withholding is not an additional tax and any amount withheld may be credited against a Fund shareholder’s U.S. federal income tax liability.
Taxation of Non-U.S. Shareholders
The following is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Shares applicable to “non-U.S. shareholders.” For purposes of this discussion, a “non-U.S. shareholder” is a beneficial owner of Shares that is not a U.S. shareholder (as defined above) and is not an entity or arrangement treated as a partnership for U.S. federal income tax purposes. The following discussion is based on current law and is for general information only. If addresses only selected, and not all, aspects of U.S. federal income taxation applicable to non-U.S. shareholders.
With respect to non-U.S. shareholders of a Fund, the Fund’s ordinary income dividends generally will be subject to U.S. federal withholding tax at a rate of 30% (or at a lower rate established under an applicable tax treaty), subject to certain exceptions for “interest-related dividends” and “short-term capital gain dividends” discussed below. The Funds will not pay any additional amounts to shareholders in respect of any amounts withheld.
U.S. federal withholdings tax generally will not apply to any gain realized by a non-U.S. shareholder in receipt of a Fund’s net capital gain. Special rules (not discussed herein) apply with respect to dividends of a Fund that are attributable to gain from the sale or exchange of “U.S. real property interests.”
In general, all “interest related dividends” and “short-term capital gains dividends” (each defined below) will not be subject to U.S. federal withholding tax, provided that, among other requirements, the non-U.S. shareholder furnished the Fund with a completed IRS Form W8BEN or W-8BEN-E, as applicable, (or acceptable substitute documentation) establishing the non-U.S. shareholder’s non-U.S. status and the Fund does not have actual knowledge or reason to know that the non-U.S. shareholder would be subject to such withholding tax if the non-U.S. shareholder were to receive the related amounts directly rather than as dividends from the Fund. “Interest-related dividends” generally means dividends designated by a Fund as attributable to such Fund’s U.S.-source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which such Fund is at least 10% shareholder, reduced by expenses that are allocable to such income. “Short-term capital gain dividends” generally means dividends designated by a Fund as attributable to the excess of such Fund’s net short-term capital gain over its net long-term capital loss. Depending on its circumstances, a Fund may treat such dividends, in whole or in part, as ineligible for these exceptions from withholding.
In general, subject to certain exceptions, non-U.S. shareholders will not be subject to U.S. federal income or withholdings tax in respect of a sale or other disposition of Shares of a Fund.
To claim a credit or refund for any Fund-level taxes on any undistributed net capital gain (as discussed above) or any taxes collected through back-up withholdings (discussed below), a non-U.S. shareholder must obtain a U.S. taxpayer identification number and file a U.S. federal income tax return even if the non-U.S. shareholder would not otherwise be required to do so.
Foreign Account Tax Compliance Act. The U.S. Foreign Account Tax Compliance Act (“FATCA”) generally imposes a 30% withholding tax on “withholdable payments” (defined below) made to (i) a “foreign financial institution” (“FFI”), unless the FFI enters into an agreement with the IRS to provide information regarding certain of direct and indirect its U.S. accounts and satisfy certain due diligence and other specified requirements, and (ii) a “non-financial foreign entity” (“NFFE”) unless such NFFE provides certain information about its direct and indirect “substantial U.S. owners” to the withholding agent or certifies that it has no such U.S. owners. The beneficial owner of a “withholdable payment” may be eligible for a refund or credit of the withheld tax. The U.S. government also has entered into intergovernmental agreements with other jurisdictions to provide an alternative, and generally easier, approach for FFIs to comply with FATCA. If the shareholder is a tax resident in a jurisdiction that has entered into an intergovernmental agreement with the U.S. government, the shareholder will be required to provide information about the shareholder’s classification and compliance with the intergovernmental agreement.
“Withholdable payments” generally include, among other items, U.S.-source interest and dividends, and gross proceeds from the sale or disposition of property of a type that can produce U.S. source interest or dividends. However. Proposed regulations may eliminate the requirement to withhold on payments of gross proceeds from dispositions.
A Fund or a shareholder’s broker may be required to impose a 30% withholding tax on withholdable payments to a shareholder if the shareholder fails to provide the Fund with the information, certifications or documentation required under FATCA, including information, certification or documentation necessary for the Fund to determine if the shareholder is a non-U.S. shareholder or a U.S. shareholder and, if it is a non-U.S. shareholder, if the non-U.S. shareholder has “substantial U.S. owners” and/or is in compliance with (or meets an exception from) FATCA requirements. A Fund will not pay any additional amounts to shareholders in respect of any amounts withheld. The Fund may disclose any shareholder information, certifications or documentation to the IRS or other parties as necessary to comply with FATCA.
The requirements of, and exceptions from, FATCA are complex. All prospective shareholders are urged to consult their own tax advisors regarding the potential application of FATCA with respect to their own situation.
For a more detailed tax discussion regarding an investment in the Funds Please see the section of the SAI entitled “U.S. Federal Income Taxation.”
Code of Ethics
The Trust, Advisor and Distributor each have adopted a code of ethics under Rule 17j-1 of the 1940 Act that is designed to prevent affiliated persons of the Trust, the Advisor and the Distributor from engaging in deceptive, manipulative or fraudulent activities in connection with securities held or to be acquired by the Funds (which may also be held by persons subject to a code). There can be no assurance that the codes will be effective in preventing such activities.
The codes permit personnel subject to them to invest in securities, including securities that may be held or purchased by the Funds. The codes are on file with the SEC and are available to the public.
Fund Website and Disclosure of Portfolio Holdings
The Advisor maintains a website for the Funds at newyorklifeinvestments.com. The website for the Funds contains the following information, on a per-Share basis, for each Fund: (1) the prior Business Day’s NAV; (2) the reported mid-point of the bid-ask spread at the time of NAV calculation (the “Bid-Ask Price”); (3) a calculation of the premium or discount of the Bid-Ask Price against such NAV; and (4) data in chart format displaying the frequency distribution of discounts and premiums of the Bid-Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters (or for the life of a Fund if, shorter). In addition, on each Business Day, before the commencement of trading in Shares on the NYSE Arca, each Fund will disclose on its website (newyorklifeinvestments.com) the identities and quantities of the portfolio securities and other assets held by each Fund that will form the basis for the calculation of NAV at the end of the Business Day.
A description of each Fund’s policies and procedures with respect to the disclosure of the Fund’s portfolio securities is available in the SAI.
Other Information
The Funds are not sponsored, endorsed, sold or promoted by the NYSE Arca. The NYSE Arca makes 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 Funds particularly or the ability of the Funds to achieve their objectives. The NYSE Arca has no obligation or liability in connection with the administration, marketing or trading of the Funds.
For purposes of the 1940 Act, the Funds are registered investment companies, and the acquisition of Shares by other registered investment companies and companies relying on exemption from registration as investment companies under Section 3(c)(1) or 3 (c)(7) of the 1940 Act is subject to the restrictions of Section 12(d)(1) of the 1940 Act, except as permitted by an exemptive order that permits registered investment companies to invest in the Funds beyond those limitations.
Financial Highlights
Selected Data for a Share of Capital Stock Outstanding
The financial highlights tables are intended to help you understand the Funds’ financial performance for the past five fiscal years or, if shorter, the period of the Funds’ operations. Certain information reflects financial results for a single Fund Share. The total returns in the tables represent the rate that an investor would have earned (or lost) on an investment in the respective Fund (assuming reinvestment of all dividends and distributions). This information has been audited by PricewaterhouseCoopers LLP, whose report, along with each Fund’s financial statements, is included in the Funds’ Annual Report, which is available upon request.
| | | IQ Candriam ESG U.S. Equity ETF | |
| | | For the Year Ended April 30, 2021 | | | For the Period December 17, 2019(a) to April 30, 2020 | |
Net asset value, beginning of period | | | | $ | 24.13 | | | | | $ | 25.18 | | |
Income from Investment Operations | | | | | | | | | | | | | |
Net investment income(b)(c) | | | | | 0.42 | | | | | | 0.15 | | |
Net realized and unrealized gain (loss) | | | | | 11.32 | | | | | | (1.08) | | |
Net increase (decrease) in net assets resulting from investment operations | | | | | 11.74 | | | | | | (0.93) | | |
Distributions from: | | | | | | | | | | | | | |
Net investment income | | | | | (0.31) | | | | | | (0.12) | | |
Net asset value, end of period | | | | $ | 35.56 | | | | | $ | 24.13 | | |
Market price, end of period | | | | $ | 35.57 | | | | | $ | 24.12 | | |
Total Return | | | | | | | | | | | | | |
Total investment return based on net asset value(d) | | | | | 48.85% | | | | | | (3.59)% | | |
Total investment return based on market price(e) | | | | | 49.00% | | | | | | (3.64)%(f) | | |
Ratios/Supplemental Data | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | | $ | 410,702 | | | | | $ | 6,034 | | |
Ratio to average net assets of: | | | | | | | | | | | | | |
Expenses net of waivers/reimbursements(g) | | | | | 0.09% | | | | | | 0.09%(h) | | |
Expenses excluding waivers/reimbursements(g) | | | | | 0.10% | | | | | | 0.11%(h) | | |
Net investment income (loss)(c) | | | | | 1.35% | | | | | | 1.67%(h) | | |
Portfolio turnover rate(i) | | | | | 21% | | | | | | 12% | | |
(a)
Commencement of operations.
(b)
Based on average shares outstanding.
(c)
Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the investment companies in which the Fund invests.
(d)
Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, if any, at net asset value during the period, and redemption on the last day of the period. Total return calculated for a period less than one year is not annualized.
(e)
The market price returns are calculated using the mean between the last bid and ask prices.
(f)
Since the Shares of the Fund did not trade in the secondary market until the day after the Fund’s inception, for the period from the inception to the first day of the secondary market trading, the NAV is used as a proxy for the secondary market trading price to calculate the market returns.
(g)
In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a prorated share of the fees and expenses of the underlying funds in which it invests. Such indirect expenses are not included in the above expense ratios.
(h)
Annualized.
(i)
Portfolio turnover rate is not annualized and excludes the value of portfolio securities received or delivered as in-kind creations or redemptions in connection with the Fund’s capital share transactions.
Financial Highlights (continued)
Selected Data for a Share of Capital Stock Outstanding
| | | IQ Candriam ESG International Equity ETF | |
| | | For the Year Ended April 30, 2021 | | | For the Period December 17, 2019(a) to April 30, 2020 | |
Net asset value, beginning of period | | | | $ | 21.00 | | | | | $ | 25.19 | | |
Income from Investment Operations | | | | | | | | | | | | | |
Net investment income(b)(c) | | | | | 0.62 | | | | | | 0.26 | | |
Net realized and unrealized gain (loss) | | | | | 8.01 | | | | | | (4.34) | | |
Net increase (decrease) in net assets resulting from investment operations | | | | | 8.63 | | | | | | (4.08) | | |
Distributions from: | | | | | | | | | | | | | |
Net investment income | | | | | (0.42) | | | | | | (0.11) | | |
Net asset value, end of period | | | | $ | 29.21 | | | | | $ | 21.00 | | |
Market price, end of period | | | | $ | 29.25 | | | | | $ | 20.87 | | |
Total Return | | | | | | | | | | | | | |
Total investment return based on net asset value(d) | | | | | 41.45% | | | | | | (16.18)% | | |
Total investment return based on market price(e) | | | | | 42.51% | | | | | | (16.68)%(f) | | |
Ratios/Supplemental Data | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | | $ | 186,951 | | | | | $ | 46,196 | | |
Ratio to average net assets of: | | | | | | | | | | | | | |
Expenses net of waivers/reimbursements(g) | | | | | 0.15% | | | | | | 0.15%(h) | | |
Expenses excluding waivers/reimbursements(g) | | | | | 0.16% | | | | | | 0.16%(h) | | |
Net investment income (loss)(c) | | | | | 2.41% | | | | | | 3.20%(h) | | |
Portfolio turnover rate(i) | | | | | 21% | | | | | | 3% | | |
(a)
Commencement of operations.
(b)
Based on average shares outstanding.
(c)
Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the investment companies in which the Fund invests.
(d)
Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, if any, at net asset value during the period, and redemption on the last day of the period. Total return calculated for a period less than one year is not annualized.
(e)
The market price returns are calculated using the mean between the last bid and ask prices.
(f)
Since the Shares of the Fund did not trade in the secondary market until the day after the Fund’s inception, for the period from the inception to the first day of the secondary market trading, the NAV is used as a proxy for the secondary market trading price to calculate the market returns.
(g)
In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a prorated share of the fees and expenses of the underlying funds in which it invests. Such indirect expenses are not included in the above expense ratios.
(h)
Annualized.
(i)
Portfolio turnover rate is not annualized and excludes the value of portfolio securities received or delivered as in-kind creations or redemptions in connection with the Fund’s capital share transactions.
Privacy Policy
The following notice does not constitute part of the Prospectus, nor is it incorporated into the Prospectus.
The Trust is committed to respecting the privacy of personal information you entrust to us in the course of doing business with us.
The Trust may collect non-public personal information from various sources. The Trust uses such information provided by you or your representative to process transactions, to respond to inquiries from you, to deliver reports, products, and services, and to fulfill legal and regulatory requirements.
We do not disclose any non-public personal information about our customers to anyone unless permitted by law or approved by the customer. We may share this information within the Trust’s family of companies in the course of providing services and products to best meet your investing needs. We may share information with certain third-parties who are not affiliated with the Trust to perform marketing services, to process or service a transaction at your request or as permitted by law. For example, sharing information with companies that maintain or service customer accounts for the Trust is essential. We may also share information with companies that perform administrative or marketing services for the Trust, including research firms. When we enter into such a relationship, we restrict the companies’ use of our customers’ information and prohibit them from sharing it or using it for any purposes other than those for which they were hired.
We maintain physical, electronic, and procedural safeguards to protect your personal information. Within the Trust, we restrict access to personal information to those employees who require access to that information in order to provide products or services to our customers, such as handling inquiries. Our employment policies restrict the use of customer information and require that it be held in strict confidence.
We will adhere to the policies and practices described in this notice for both current and former customers of the Trust.
Frequently Used Terms
| Trust | | | IndexIQ ETF Trust, a registered open-end investment company | |
| Fund | | | The investment portfolios of the Trust | |
| Shares | | | Shares of the Funds offered to investors | |
| Advisor | | | IndexIQ Advisors LLC | |
| Custodian | | | The Bank of New York Mellon, the custodian of the Funds’ assets | |
| Distributor | | | ALPS Distributors, Inc., the distributor of the Funds | |
| AP or Authorized Participant | | | Certain large institutional investors such as brokers, dealers, banks or other entities that have entered into authorized participant agreements with the Distributor | |
| NYSE Arca | | | NYSE Arca, Inc., the primary market on which Shares are listed for trading | |
| IIV | | | The Indicative Intra-Day Value, an appropriate per-Share value based on the Funds’ portfolio | |
| 1940 Act | | | Investment Company Act of 1940 | |
| NAV | | | Net asset value | |
| SAI | | | Statement of Additional Information | |
| SEC | | | Securities and Exchange Commission | |
| Secondary Market | | | A national securities exchange, national securities association or over-the counter trading system where Shares may trade from time to time | |
| Securities Act | | | Securities Act of 1933 | |
IndexIQ ETF Trust
Mailing Address
51 Madison Avenue
New York, New York 10010
newyorklifeinvestments.com
IndexIQ ETF Trust
PROSPECTUS | August 31, 2021
FOR MORE INFORMATION
If you would like more information about the Trust, the Funds and the Shares, the following documents are available free upon request:
Annual/Semi-annual Report
Additional information about a Fund’s investments is available in the Fund’s annual and semi-annual reports to shareholders (once available). In the Fund’s annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund’s performance during the last fiscal year.
Statement of Additional Information
Additional information about the Funds and their policies is also available in the Funds’ SAI. The SAI is incorporated by reference into this Prospectus (and is legally considered part of this Prospectus). The Funds’ annual and semi-annual reports (once available) and the SAI are available free upon request by calling IndexIQ at 1-888-474-7725. You can also access and download the annual and semi-annual reports (once available) and the SAI at the Funds’ website: newyorklifeinvestments.com.
To obtain other information and for shareholder inquiries:
By telephone: 1-888-474-7725
By mail: IndexIQ ETF Trust
c/o IndexIQ
51 Madison Avenue,
New York, NY 10010
On the Internet: SEC Edgar database: http://www.sec.gov; or newyorklifeinvestments.com
You may review and obtain copies of Fund documents (including the SAI) by visiting the SEC’s public reference room in Washington, D.C. You may also obtain copies of Fund documents, after paying a duplicating fee, by writing to the SEC’s Public Reference Section, Washington, D.C. 20549-0102 or by electronic request to: publicinfo@sec.gov. Information on the operation of the public reference room may be obtained by calling the SEC at (202) 551-8090.
No person is authorized to give any information or to make any representations about the Funds and their Shares not contained in this Prospectus and you should not rely on any other information. Read and keep the Prospectus for future reference.
Dealers effecting transactions in the Funds’ Shares, whether or not participating in this distribution, may be generally required to deliver a Prospectus. This is in addition to any obligation dealers have to deliver a Prospectus when acting as underwriters.
“New York Life Investments” is both a servicemark, and the common trade name, of certain investment advisors affiliated with New York Life Insurance Company.
IQ® and IndexIQ® are registered servicemarks of New York Life Insurance Company.
The Trust’s investment company registration number is 811-22227.
IndexIQ ETF Trust
Prospectus
August 31, 2021
| IQ Healthy Hearts ETF (HART) In alignment with American Heart Association® | | | | |
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
As permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you hold accounts through a financial intermediary, you may contact your financial intermediary to enroll in electronic delivery. Please note that not all financial intermediaries may offer this service.
You may elect to receive all future reports in paper free of charge. If you hold accounts through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held with your financial intermediary.
Not FDIC Insured | May Lose Value | No Bank Guarantee
IndexIQ ETF Trust (the “Trust”) is a registered investment company that consists of separate investment portfolios, each of which is called a “Fund”. This Prospectus relates to the following Fund:
Name | | | CUSIP | | | Symbol | |
IQ Healthy Hearts ETF | | | 45409B321 | | | HART | |
In alignment with American Heart Association® | | | | | | | |
The Fund is an exchange-traded fund. This means that shares of the Fund are listed on a national securities exchange, such as the NYSE Arca, Inc. (“NYSE Arca”), and trade at market prices. The market price for the Fund’s shares may be different from its net asset value per share (the “NAV”). The Fund has its own CUSIP number and exchange trading symbol.
| | | | | | 4 | | |
| | | | | | 12 | | |
| | | | | | 12 | | |
| | | | | | 13 | | |
| | | | | | 13 | | |
| | | | | | 20 | | |
| | | | | | 21 | | |
| | | | | | 22 | | |
| | | | | | 23 | | |
| | | | | | 25 | | |
| | | | | | 25 | | |
| | | | | | 26 | | |
| | | | | | 26 | | |
| | | | | | 27 | | |
| | | | | | 27 | | |
| | | | | | 27 | | |
| | | | | | 31 | | |
| | | | | | 32 | | |
| | | | | | 32 | | |
| | | | | | 32 | | |
| | | | | | 34 | | |
| | | | | | 35 | | |
IQ Healthy Hearts ETF
In alignment with American Heart Association®
Investment Objective
The Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index, the IQ Candriam Healthy Hearts Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy, sell or hold shares of the Fund (“Shares”). Investors may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee | | | | | 0.45% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses | | | | | 0.46% | | |
| Expense Waiver/Reimbursement(a) | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses After Waiver/Reimbursement) | | | | | 0.45% | | |
(a)
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$46 |
|
|
$147 |
|
|
$257 |
|
|
$578 |
|
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities or other instruments (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. This rate excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Shares. During the most recent fiscal year, the Fund’s portfolio turnover rate was 14% of the average value of the portfolio.
Principal Investment Strategies
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the Underlying Index, which was developed by IndexIQ LLC (“IndexIQ”) with Candriam Belgium S.A. (“Candriam”) acting as index consultant to IndexIQ. The Underlying Index incorporates thematic selection criteria designed to provide exposure to equity securities of companies that are making a positive contribution to global health-related goals, such as by providing solutions for monitoring and curing heart diseases or helping people adopt a healthy lifestyle that limits cardiovascular risks. As of June 30, 2021, the
primary sectors within the Underlying Index are health care, consumer discretionary and consumer staples. The Underlying Index includes securities of large-, mid- and small-capitalization companies that trade in the U.S. and foreign markets, including emerging markets other than China, Egypt, India, Kuwait, Pakistan, Qatar, Saudi Arabia and United Arab Emirates. As of June 30, 2021, the market capitalization range of the Underlying Index was approximately $1.3 billion to $2.3 trillion. The initial universe for the Underlying Index consists of the constituents of a third-party index designed to track the performance of the investable universe covering approximately the largest 99% of the free-float market capitalization in the global markets.
The Underlying Index includes thematic selection criteria developed by IndexIQ and Candriam that reflect initiatives, research and programs of the American Heart Association, Inc., a 501(c)(3) public charity, (“American Heart Association®”). Each of the thematic screens addresses issues or areas historically supported by the American Heart Association®. The American Heart Association® is the nation’s oldest and largest voluntary organization dedicated to fighting heart disease and stroke.
The thematic selection criteria used by the Underlying Index to identify and score companies for potential inclusion in the Index are:
•
Diagnosis and/or treatment of cardiovascular diseases, such as atherosclerosis, thrombosis, heart attack and vascular surgery;
•
Manufacturing and distribution of healthy food;
•
Manufacturing and distribution of wellness products;
•
Providing services allowing people to access information about health and thereby make better informed decisions; and
•
Providing solutions for people to track their fitness and engage in healthy lifestyle.
Each eligible company is assigned a score between 0-10 for determining which constituents are to be included in the Underlying Index. This scoring is based upon either: (i) the percentage or dollar value of revenue that the company derives from activities relevant to the theme; or (ii) a measure of the impact a company’s activity has on the theme.
The security selection process also includes an exclusionary screen based on any continued and significant non-compliance with the principles within the United Nation’s Global Compact as well as the exclusion of companies engaged in certain businesses beyond minimum thresholds (e.g., companies that operate in countries with oppressive regimes, that operate in adult content, alcohol, vaping, armament, gambling, nuclear, and tobacco and non-research, non-prescription or recreational cannabis sectors, or that utilize animal testing or genetic modification in research and development).
Following the application of the exclusionary screens, the Underlying Index selects the top-ranked 50 to 80 companies for inclusion based on the thematic selection criteria scoring. The number of companies selected for inclusion in the Underlying Index will vary depending on the number of companies that exceed the thematic screening score required for inclusion in the Underlying Index.
Securities selected for inclusion in the Underlying Index are weighted using a modified market capitalization-weighting methodology, with a minimum component weight of 0.5% and maximum component weight of 5% at the time of rebalance.
The Underlying Index is rebalanced quarterly. The Underlying Index applies the exclusionary screen on a monthly basis and any company identified in the exclusionary screen is removed from the Underlying Index. The Underlying Index may include as a component one or more ETFs advised by the Advisor (“Affiliated ETFs”) and the Fund will typically invest in any Affiliated ETF included in the Underlying Index. The Fund also may invest in Affiliated ETFs that are not components of the index if such an investment will help the Fund track the Underlying Index.
For additional information about the Fund’s principal investment strategies, see “Description of the Principal Strategies of the Fund.”
Principal Risks
Investors in the Fund should be willing to accept a high degree of volatility in the price of the Fund’s Shares and the possibility of significant losses. An investment in the Fund involves a substantial degree of risk and the Fund does not represent a complete investment program. As with all investments, you may lose money in the Fund.
An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Therefore, you should consider carefully the following risks before investing in the Fund. A more complete discussion of Principal Risks is included under “Description of the Principal Risks of the Fund.”
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Currency Risk
Investments directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign (non-U.S.) currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Depositary Receipts Risk
Sponsored and unsponsored depositary receipts involve risk not experienced when investing directly in the equity securities of an issuer. Depositary receipts may be less liquid than the underlying shares in their primary trading market. Any distributions paid to the holders of depositary receipts are usually subject to a fee charged by the depositary. Holders of depositary receipts may have limited voting rights, and investment restrictions in certain countries may adversely impact the value of depositary receipts.
Emerging Markets Securities Risk
Securities of issuers based in countries with developing economies (emerging market countries) may present market, credit, currency, liquidity, legal, political and other risks different from, or greater than, the risks of investing in developed market countries and are generally considered speculative in nature. Emerging market countries are subject to greater market volatility, lower trading volume, political and economic instability, uncertainty regarding the existence of trading markets, rapid inflation, possible repatriation of investment income and capital, currency convertibility issues, less uniform accounting standards and more governmental limitations on foreign investment than more developed markets. Laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder rights may change quickly and unpredictably. In addition, the enforcement of systems of taxation at federal, regional and local levels in emerging market countries may be inconsistent and subject to sudden change.
Equity Securities Risk
Investments in common stocks and other equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Holders of an issuer’s common stock may be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
Focused Investment Risk
To the extent that the Fund invests a large percentage of its assets in a single asset class or the securities of issuers within the same country, group of countries, region, industry, group of industries or sector, an adverse economic, market, political or regulatory development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. Different asset classes, countries, groups of countries, regions, industries, groups of industries or sectors tend to go through cycles of outperformance and underperformance in comparison to each other and to the general financial markets.
Foreign Securities Risk
Investments in the securities of non-U.S. issuers involve risks beyond those associated with investments in U.S. securities. These additional risks include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Some countries and regions have experienced security concerns, war or threats of war and aggression, terrorism, economic uncertainty, natural and environmental disasters and/or systemic market dislocations that have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on the U.S. and world economies and markets generally. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing, financial reporting and record keeping than are U.S. issuers, and therefore not all material information will be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact the Fund’s ability to invest in foreign securities or may prevent the Fund from repatriating its investments. Less developed securities markets are more likely to experience problems with the clearing and settling of trades, as well as the holding of securities by local banks, agents and depositories. The less developed a country’s securities market is, the greater the likelihood of custody problems.
Foreign Securities Valuation Risk
The Fund’s value may be impacted by events that cause the fair value of foreign securities to materially change between the close of the local exchange on which they trade and the time at which the Fund prices its Shares. Additionally, because foreign exchanges on which securities held by the Fund may be open on days when the Fund does not price its Shares, the potential exists for the value of the securities in the Fund’s portfolio to change on days when shareholders will not be able to purchase or sell the Fund’s Shares. To the extent the Fund calculates its NAV based on fair value prices and the value of the Underlying Index is based on the securities’ closing price on foreign securities markets (i.e., the value of the Underlying Index is not based on fair value prices), the valuation of the Fund’s NAV may deviate from the calculation of the Underlying Index.
Geographic Concentration Risk
The Fund may invest a substantial amount of its assets in securities of issuers located in a single country or geographic region. As a result, any changes to the regulatory, political, social or economic conditions in such country or geographic region will generally have greater impact on the Fund than such changes would have on a more geographically diversified fund and may result in increased volatility and greater losses. This risk may be especially pronounced to the extent the Fund invests in countries and regions experiencing, or likely to experience, security concerns, war, threats of war, terrorism, economic uncertainty and natural disasters.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
•
Industry/Sector Concentration Risk. The Fund’s investment of a large percentage of its assets in the securities of issuers within the same industry or sector means that an adverse economic, business or political development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. A concentration makes the Fund more susceptible to any single occurrence and may subject the Fund to greater market risk than a fund that is not so concentrated.
•
Health Care Sector Risk. Companies in the health care sector may be adversely affected by, among other things, extensive, costly and uncertain government regulation, restrictions on government reimbursement for medical expenses, product obsolescence, increased emphasis on outpatient
services, limited number of products and fluctuations in the costs of medical products. Many health care companies are heavily dependent on intellectual property protection, and the expiration of a company’s patent may impact that company’s profitability. Many health care companies are subject to extensive litigation based on product liability and similar claims. Health care companies are subject to competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting. Many new products in the health care sector may be subject to regulatory approvals. The process of obtaining such approvals may be long and costly with no guarantee that any product will come to market.
•
Consumer Discretionary Sector Risk. Companies in the consumer discretionary sector may be adversely affected by, among other things, the performance of domestic and international economies, exchange and interest rates, worldwide demand, competition, consumer confidence, consumers’ disposable income levels, propensity to spend and consumer preferences, social trends and marketing campaigns.
•
Consumer Staples Sector Risk. Companies in the consumer staples sector may be adversely affected by, among other things, changes in domestic and international economies, exchange and interest rates, worldwide demand, competition, consumers’ disposable income levels, propensity to spend and consumer preferences, social trends and marketing campaigns. Companies in the consumer staples sector have historically been characterized as relatively cyclical and therefore more volatile in times of change.
Investment Style Risk
The Underlying Index seeks to allocate investment exposure based upon a particular style of investing. Different investment styles tend to shift in and out of favor depending upon market and economic conditions and investor sentiment. As a consequence, the Fund may underperform as compared to the market generally or to other funds that invest in similar asset classes but employ different investment styles. Further, there is no guarantee that the Underlying Index will accurately or optimally utilize the investment style or that it will successfully provide the desired investment exposure. The degree to which the Underlying Index accurately or optimally utilizes the investment style is dependent upon information and data that may be incomplete, inaccurate or unavailable, which could adversely affect the analysis of the factors relevant to a particular investment.
•
Health-Related Investing Style Risk. Companies involved in health and wellness activities include companies that diagnose and treat diseases, operate gyms and fitness/wellness facilities as well as companies that provide, manufacture or distribute natural/organic foods, sports/fitness equipment, wearable fitness technology, fitness/athletic apparel, nutritional supplements, anti-aging products and dietary services. The risks related to investing in such companies include rapid changes in medical and pharmaceutical advancements, consumer trends, social trends, marketing campaigns, and consumers’ disposable income. The customers and/or suppliers of health-related companies may be concentrated in a particular country, region or industry. Any adverse event affecting one of these countries, regions or industries could have a negative impact on health and wellness companies.
•
ESG Investing Style Risk. The Underlying Index seeks to provide exposure to the equity securities of companies meeting environmental, social and corporate governance investing criteria. The Underlying Index excludes or limits exposure to securities of certain issuers for non-financial reasons, and the Fund may forgo some market opportunities available to funds that do not use these criteria. The application of environmental, social and corporate governance investing criteria may affect the Fund’s exposure to certain sectors or types of investments and may impact the Fund’s relative investment performance depending on whether such sectors or investments are in or out of favor in the market. In addition, there is no guarantee that the construction methodology of the Underlying Index will accurately provide exposure to issuers meeting environmental, social and corporate governance criteria.
Issuer Risk
The performance of the Fund depends on the performance of individual securities to which the Fund has exposure. Changes to the financial condition or credit rating of an issuer of those securities may cause the value of the securities to decline.
Large-Capitalization Companies Risk
Large-capitalization companies may be less able than smaller capitalization companies to adapt to changing market conditions. Large-capitalization companies may be more mature and subject to more limited growth
potential compared with smaller capitalization companies. During different market cycles, the performance of large-capitalization companies has trailed the overall performance of the broader securities markets.
Market Risk
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the U.S. and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
New Fund Risk
As a new fund, there can be no assurance that it will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index or it could ultimately liquidate. Like other new funds, large inflows and outflows may impact the Fund’s market exposure for limited periods of time. This impact may be positive or negative, depending on the direction of market movement during the period affected.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an Index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Index or the Index calculation agent may make errors. The Index provider may include Index constituents that should have been excluded, or it may exclude Index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an Index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Portfolio Turnover Risk
The Fund’s strategy may frequently involve buying and selling portfolio securities to rebalance the Fund’s investment exposures. High portfolio turnover may result in the Fund paying higher levels of transaction costs and generating greater tax liabilities for shareholders. Portfolio turnover risk may cause the Fund’s performance to be less than expected.
Small- and/or Mid-Capitalization Companies Risk
Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Performance Information
As of the date of this Prospectus, the Fund has not yet completed a full calendar year of operations and therefore does not report its performance information. The Fund’s performance current to the most recent month-end is available by calling 1-888-474-7725 or by visiting newyorklifeinvestments.com.
Investment Advisor
IndexIQ Advisors LLC is the investment advisor to the Fund.
Portfolio Manager
The professionals jointly and primarily responsible for the day-to-day management of the Fund are Greg Barrato and James Harrison. Mr. Barrato, Senior Vice President of the Advisor, has been a portfolio manager of the Fund since inception and Mr. Harrison, Vice President of the Advisor, has been a portfolio manager of the Fund since inception.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units.” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Shares of the Fund will trade at market price rather than NAV. As such, Shares may trade at a price greater than NAV (premium) or less than NAV (discount).
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
Shares of the Fund are not sponsored, endorsed or promoted by American Heart Association, Inc. (“AHA”). The Fund’s sponsor, IndexIQ, and its affiliates are donors to and supporters of AHA’s Social Impact Fund and are making a substantial contribution to the Social Impact Fund. AHA makes no representation or warranty, express or implied, to prospective or actual investors in the Fund or to any member of the public regarding the advisability of investing in any financial product, including one seeking to track the Underlying Index, the ability of the Fund to track the performance of the Underlying Index, the ability of the Underlying Index to meet or exceed stock market performance, the suitability of the Fund or the ability of the Underlying Index or Fund to achieve its investment goals. AHA has no obligation or liability in connection with the administration, marketing or trading of shares of the Fund. AHA is not an investment adviser or a fund distributor or service provider. Inclusion of a security within the Underlying Index is not a recommendation by AHA to buy, sell or hold such security, nor is it considered to be investment advice or a guarantee that the investment goals of the Underlying Index will be achieved. AHA does not guarantee the accuracy and/or the completeness of the Underlying Index or any data included therein.
Overview
The Trust is an investment company consisting of a number of separate investment portfolios (each, a “Fund” and collectively, the “Funds”) that are exchange-traded funds (“ETFs”). ETFs are index funds whose shares are listed on a stock exchange and traded like equity securities at market prices. ETFs, such as the Fund, allow you to buy or sell shares that represent the collective performance of a selected group of securities. ETFs are designed to add the flexibility, ease and liquidity of stock-trading to the benefits of traditional index fund investing. The investment objective of the Fund is to replicate as closely as possible, before fees and expenses, the price and yield performance of a particular index (each, an “Underlying Index”) developed by IndexIQ LLC (“IndexIQ”), an affiliate of the Fund’s investment advisor.
This Prospectus provides the information you need to make an informed decision about investing in the Fund. It contains important facts about the Trust as a whole and the Fund in particular.
IndexIQ Advisors LLC (the “Advisor”) is the investment advisor to the Fund.
Description of the Principal Investment Strategies of the Fund
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of its Underlying Index. The Advisor seeks a correlation over time of 0.95 or better between the Fund’s performance, before fees and expenses, and the performance of its Underlying Index. A figure of 1.00 would represent perfect correlation.
The Fund generally will invest in all of the securities that comprises its Underlying Index in proportion to their weightings in the Underlying Index; however, under various circumstances, it may not be possible or practicable to purchase all of the securities in the Underlying Index in those weightings. In those circumstances, the Fund may purchase a sample of the securities in the Underlying Index or utilize various combinations of other available investment techniques in seeking to replicate generally the performance of the Underlying Index as a whole.
There also may be instances in which the Advisor, as applicable, may choose to (i) overweight a security in the Underlying Index, purchase securities not contained in the Underlying Index that the Advisor believes are appropriate to substitute for certain securities in the Underlying Index or (iii) utilize various combinations of other available investment techniques in seeking to track the Underlying Index. The Fund may sell securities that are represented in the applicable Underlying Index in anticipation of their removal from the Underlying Index or purchase securities not represented in the Underlying Index in anticipation of their addition to the Underlying Index.
Under normal circumstances, the Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the securities and other instruments that make up its Underlying Index (the “Underlying Index Components”). In determining the Fund’s net assets for the purposes of this 80% threshold, accounting practices do not include collateral held under the Fund’s securities lending program, as such collateral does not represent a true asset of the relevant Fund.
The Fund may invest up to 20% of its net assets in investments not included in the Underlying Index, but which the Advisor believes will help the Fund track its Underlying Index. For example, there may be instances in which the Advisor may choose to purchase (or sell) securities not in the Underlying Index which the Advisor believes are appropriate to substitute for one or more Underlying Index Components in seeking to replicate, before fees and expenses, the performance of the Underlying Index.
To the extent that the Fund’s Underlying Index concentrates (i.e., holds 25% or more of its total assets) in the securities of a particular industry or group of industries, the Fund will concentrate its investment to approximately the same extent as its Underlying Index.
As Fund cash flows permit, the Advisor may use cash flows to adjust the weights of the Fund’s Underlying investments in an effort to minimize any differences in weights between the Fund and its respective Underlying Index.
In accordance with Rule 35d-1 under the Investment Company Act of 1940, as amended (the “1940 Act”), the Fund has adopted a policy that it will, under normal circumstances, invest at least 80% of the value of its assets (net assets plus the amount of any borrowings for investment purposes) in securities of companies that are
making a positive contribution to addressing global health-related sustainability goals by providing solutions for monitoring and curing heart diseases or helping people adopt a healthy lifestyle that limits cardiovascular risks. This policy is “non-fundamental,” which means that it may be changed without the vote of a majority of the Fund’s outstanding shares as defined in the 1940 Act. The Fund has adopted a policy to provide the Fund’s shareholders with at least 60 days’ prior notice of any changes in the Fund’s non-fundamental investment policy with respect to investments of the type suggested by its name. The Fund may count investments in underlying funds toward various guideline tests (such as the 80% test required under Rule 35d-1 under the 1940 Act).
To the extent the Advisor to the Fund makes investments on behalf of the Fund that are regulated by the Commodities Futures Trading Commission, it intends to do so in accordance with Rule 4.5 under the Commodity Exchange Act (“CEA”). The Advisor has filed a notice of eligibility for exclusion from the definition of the term “commodity pool operator” in accordance with Rule 4.5 and is therefore not subject to registration as a commodity pool operator under the CEA.
The Fund’s portfolio holdings will be disclosed on the Trust’s website (newyorklifeinvestments.com) daily after the close of trading on the NYSE Arca, Inc. (“NYSE” or the “Exchange”) and prior to the opening of trading on the Exchange the following day.
Additional Investment Strategies
In addition to its principal investment strategies, the Fund may also invest in money market instruments, including short-term debt instruments and repurchase agreements or other funds which invest exclusively in money market instruments (subject to applicable limitations under the 1940 Act, or exemptions therefrom), rather than Underlying Index Components, when it would be more efficient or less expensive for the Fund to do so, for liquidity purposes, or to earn interest. In addition to investing directly in the Underlying Index Components, the Fund may invest in Underlying Index Components indirectly through ETPs. Swaps may be used by the Fund to seek performance that tracks its Underlying Index and to manage cash flows. The Advisor anticipates that it may take approximately two business days (i.e., each day the NYSE is open for trading) for additions and deletions to the Fund’s Underlying Index to be reflected in the portfolio composition of that Fund.
Each of the policies described herein, including the investment objective of the Fund, constitutes a non-fundamental policy that may be changed by the Board of Trustees of the Trust (the “Board”) without shareholder approval. Certain fundamental policies of the Fund are set forth in the Fund’s Statement of Additional Information (the “SAI”) under “Investment Restrictions.”
Securities Lending
The Fund may lend its portfolio securities. In connection with such loans, the Fund receives liquid collateral equal to at least 102% (105% for foreign securities) of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis.
Description of the Principal Risks of the Fund
Investors in the Fund should carefully consider the risks of investing in the Fund as set forth in the Fund’s Summary Information section under “Principal Risks.”
Authorized Participant Concentration Risk
Only an Authorized Participant may engage in creation or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to create or redeem Creation Units, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting. This risk may be heightened for ETFs that invest in non-U.S. securities because such securities often involve greater settlement and operational issues for Authorized Participants that may further limit the availability of Authorized Participants.
Currency Risk
Investments directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign (non-U.S.) currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged.
Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including national debt levels and trade deficits, changes in balances of payments and trade, domestic and foreign interest and inflation rates, global or regional political, economic or financial events, monetary policies of governments, actual or potential government intervention and global energy prices. Political instability, the possibility of government intervention and restrictive or opaque business and investment policies may also reduce the value of a country’s currency. Government monetary policies and the buying or selling of currency by a country’s government may also influence exchange rates. As a result, the Fund’s investments in foreign currency denominated securities may reduce the return of such Fund. Because the Fund’s NAV is determined on the basis of U.S. dollars, the Fund’s NAV may decrease if the value of the non-U.S. currency to which the Fund has exposure depreciates in value relative to the U.S. dollar. This may occur even if the value of the underlying non-U.S. securities increases. Conversely, the Fund’s NAV may increase if the value of a non-U.S. currency appreciates relative to the U.S. dollar.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. These risks typically are not covered by insurance. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber incidents include, but are not limited to, gaining unauthorized access to digital systems (e.g., through “hacking” or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data or causing operational disruption. Cyber attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make network services unavailable to intended users). Cyber security failures by or breaches of the systems of security issuers, the Advisor, distributor and other service providers (including, but not limited to, sub-advisors, index providers, fund accountants, custodians, transfer agents and administrators), market makers, Authorized Participants or the issuers of securities in which the Fund invests, have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Fund’s ability to calculate its NAV, disclosure of confidential trading information, impediments to trading, submission of erroneous trades or erroneous creation or redemption orders, the inability of the Fund or its service providers to transact business, violations of applicable privacy and other laws, regulatory fines and other penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs. Substantial costs may be incurred by the Fund in order to resolve or prevent cyber incidents in the future. While the Fund has established business continuity plans in the event of, and risk management systems to prevent, such cyber attacks, there are inherent limitations in such plans and systems, including the possibility that certain risks have not been identified and that prevention and remediation efforts will not be successful. Furthermore, the Fund cannot control the cyber security plans and systems put in place by service providers to the Fund, issuers in which the Fund invests, Authorized Participants or market makers. There is no guarantee that such preventative efforts will succeed, and the Fund and its shareholders could be negatively impacted as a result.
Depositary Receipts Risk
The Fund may invest in listed and liquid depositary receipts, including listed unsponsored depositary receipts. Unsponsored depositary receipts may be established by a depositary without participation by the underlying issuer. Holders of an unsponsored depositary receipt generally bear all the costs associated with establishing the unsponsored depositary receipt. These investments may involve additional risks and considerations including, for example, risks related to adverse political and economic developments unique to a country or region, currency fluctuations or controls and the possibility of expropriation, nationalization or confiscatory taxation. The issuers of the securities underlying unsponsored depositary receipts are not obligated to disclose material information in the United States and, therefore, there may be less information available regarding such issuers and there may not be a correlation between such information and the market value of the depositary receipts. Additionally, to the extent the value of a depositary receipt held by the Fund fails to track that of the underlying security, the use of the depositary receipt may result in tracking error. Depositary receipts may be less liquid than the underlying shares in their primary trading market. Any distributions paid to the holders of depositary receipts are usually subject to a fee charged by the depositary. Holders of depositary receipts may have limited voting rights, and investment restrictions in certain countries may adversely impact the value of depositary receipts because such restrictions may limit the ability to convert the equity shares into depositary receipts and vice versa. Such restrictions may cause the equity shares of the underlying issuer to trade at a discount or premium to the market price of the depositary receipts.
Emerging Markets Securities Risk
Securities of issuers based in countries with developing economies (emerging market countries) may present market, credit, currency, liquidity, legal, political and other risks different from, or greater than, the risks of investing in developed market countries and are generally considered speculative in nature. Emerging market countries are subject to greater market volatility, lower trading volume, political and economic instability, uncertainty regarding the existence of trading markets, rapid inflation, possible repatriation of investment income and capital, currency convertibility issues and more governmental limitations on foreign investment than more developed markets. Emerging market countries often have less uniformity in accounting and reporting requirements, less reliable securities valuations and greater risk associated with the custody of securities than developed market countries. Furthermore, investors may be required to register the proceeds of sales; future economic or political crises could lead to price controls, forced mergers, expropriation or confiscatory taxation, seizure, nationalization or creation of government monopolies. Securities law in many emerging market countries is relatively new and unsettled. Therefore, laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder rights may change quickly and unpredictably. In addition, the enforcement of systems of taxation at federal, regional and local levels in emerging market countries may be inconsistent and subject to sudden change.
Equity Securities Risk
The value of equity securities held by the Fund may fall due to general market and economic conditions, perceptions regarding the industries in which the issuers of securities held by the Fund participate or factors relating to specific companies in which the Fund invests. For example, an adverse event, such as an unfavorable earnings report, may depress the value of equity securities of an issuer held by the Fund; the price of common stock of an issuer may be particularly sensitive to general movements in the stock market; or a drop in the stock market may depress the price of most or all of the common stocks and other equity securities held by the Fund. In addition, common stock of an issuer in the Fund’s portfolio may decline in price if the issuer fails to make anticipated dividend payments because, among other reasons, the issuer of the security experiences a decline in its financial condition. Holders of an issuer’s common stock may also be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
Focused Investment Risk
To the extent that the Fund invests a large percentage of its assets in a single asset class or the securities of issuers within the same country, group of countries, region, industry, group of industries or sector, an adverse economic, market, political or regulatory development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. Different asset classes, countries, groups of countries, regions, industries, groups of industries or sectors tend to go through cycles of outperformance and underperformance in comparison to each other and to the general financial markets.
Foreign Securities Risk
Investments in the securities of non-U.S. issuers involve risks beyond those associated with investments in U.S. securities. These additional risks include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Some countries and regions have experienced security concerns, war or threats of war and aggression, terrorism, economic uncertainty, natural and environmental disasters and/or systemic market dislocations that have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on the U.S. and world economies and markets generally. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing, custody, financial reporting and record keeping than are U.S. issuers, and therefore not all material information will be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact the Fund’s ability to invest in foreign securities or may prevent the Fund from repatriating its investments. Non-U.S. transaction costs, such as brokerage commissions and custody costs, may be higher than in the United States. In some non-U.S. markets, custody arrangements for securities provide significantly less protection than custody arrangements in U.S. markets. Prevailing custody and trade settlement practices (e.g., the requirement to pay for securities prior to receipt) could similarly expose the Fund to credit and other risks it does not have in the United States with respect to participating brokers, custodians, clearing banks or other clearing agents, escrow agents and issuers. In addition, the Fund may not receive shareholder communications or be permitted to vote the securities it holds, as the issuers may be under no legal obligation to distribute them.
Less developed securities markets are more likely to experience problems with the clearing and settling of trades, as well as the holding of securities by local banks, agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle, and governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. Local agents are held only to the standards of care of their local markets. The less developed a country’s securities market is, the greater the likelihood of custody problems.
Foreign Securities Valuation Risk
The Fund’s value may be impacted by events that cause the fair value of foreign securities to materially change between the close of the local exchange on which they trade and the time at which the Fund prices its Shares. Additionally, because foreign exchanges on which securities held by the Fund may be open on days when such Fund does not price its Shares, the potential exists for the value of the securities in the Fund’s portfolio to change on days when shareholders will not be able to purchase or sell such Shares. To the extent the Fund calculates its NAV based on fair value prices and the value of the Underlying Index is based on the securities’ closing price on foreign securities markets (i.e., the value of the Underlying Index is not based on fair value prices), the valuation of the Fund’s NAV may deviate from the calculation of the Underlying Index.
Geographic Concentration Risk
The Fund may invest a substantial amount of its assets in securities of issuers located in a single country or geographic region. As a result, any changes to the regulatory, political, social or economic conditions in such country or geographic region will generally have greater impact on such Fund than such changes would have on a more geographically diversified fund and may result in increased volatility and greater losses. This risk may be especially pronounced to the extent the Fund invests in countries and regions experiencing, or likely to experience, security concerns, war, threats of war, terrorism, economic uncertainty and natural disasters.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of its Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track its Underlying Index. Errors in index data, index computations or the construction of an Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders. Apart from scheduled rebalances, an Underlying Index may undergo additional ad hoc rebalances in order, for example, to correct an error in the selection of index constituents. When the Fund’s Underlying Index is rebalanced and the Fund in turn rebalances its portfolio to attempt to increase the correlation between the Fund’s portfolio and the Underlying Index, any transaction costs and market exposure arising from such portfolio rebalancing will be borne directly by the Fund and its shareholders. Unscheduled rebalances to the Fund’s Underlying Index may expose the Fund to additional tracking error risk, which is the risk that the Fund’s returns may not track those of the Underlying Index. Therefore, index errors and additional ad hoc rebalances may increase the costs to and the tracking error risk of the Fund.
In constructing an Underlying Index, the index provider may utilize quantitative models or methodologies that may be proprietary or developed by third-parties. These models and methodologies are used to determine the composition of an Underlying Index and may not adequately take into account certain factors, resulting in a decline in the value of the Underlying Index and, therefore, the Fund. Models rely on accurate financial and market data inputs. If inaccurate data is entered into a model, the resulting information will be incorrect. In addition, the models used by be predictive and nature and such models may result in an incorrect assessment of future events. The models evaluate securities or securities markets based on certain assumptions concerning the interplay of market factors. The markets or prices of individual securities may be affected by factors not foreseen in developing the models. The historical correlations and relationships between individual securities or asset classes, upon which a model may be based, may not continue in the future.
Industry/Sector Concentration Risk
The Fund’s investment of a large percentage of its assets in the securities of issuers within the same industry or sector means that an adverse economic, business or political development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. A concentration makes the Fund more susceptible to any single occurrence and may subject the Fund to greater market risk than a fund that is not so concentrated.
Health Care Sector Risk. Companies in the health care sector may be adversely affected by, among other things, extensive, costly and uncertain government regulation, restrictions on government reimbursement for medical expenses, product obsolescence, increased emphasis on outpatient services, limited number of products and fluctuations in the costs of medical products. Many health care companies are heavily dependent on intellectual property protection, and the expiration of a company’s patent may impact that company’s profitability. Many health care companies are subject to extensive litigation based on product liability and similar claims. Health care companies are subject to competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting. Many new products in the health care sector may be subject to regulatory approvals. The process of obtaining such approvals may be long and costly with no guarantee that any product will come to market.
Consumer Discretionary Sector Risk. The consumer discretionary sector includes companies that provide discretionary, non-essential goods and services to consumers. The consumer discretionary sector may be affected by, among other things, the performance of domestic and international economies, exchange and interest rates, worldwide demand, competition, consumer confidence, consumers’ disposable income levels, propensity to spend and consumer preferences, social trends and marketing campaigns. Severe competition within the industry may significantly impact the profitability of consumer discretionary companies. Companies may also be affected by social trends and marketing campaigns. Changes in consumer tastes and demographics can also impact the demand for these products. Historically, consumer discretionary companies have been characterized as relatively cyclical, and therefore, more volatile in times of change.
Consumer Staples Sector Risk. The consumer staples sector may be affected by changes in domestic and international economies, exchange and interest rates, worldwide demand, competition, consumers’ disposable income levels, propensity to spend and consumer preferences, social trends and marketing campaigns. Companies in the consumer staples sector have historically been characterized as relatively cyclical and therefore more volatile in times of change. Additionally, government regulation, including new laws, affecting the permissibility of using various production methods or other types of inputs such as materials, may adversely impact companies in the consumer staples sector. Changes or trends in commodity prices, which may be influenced or characterized by unpredictable factors may adversely impact companies in the consumer staples sector as well.
Investment Style Risk
One or more Underlying Indexes seek to allocate investment exposure based upon a particular style of investing. Different investment styles tend to shift in and out of favor depending upon market and economic conditions and investor sentiment. As a consequence, the Fund tracking such an Underlying Index may underperform as compared to the market generally or to other funds that invest in similar asset classes but employ different investment styles. Further, there is no guarantee that an Underlying Index will accurately or optimally utilize the investment style or that it will successfully provide the desired investment exposure. The degree to which the Underlying Index accurately or optimally utilizes the investment style is dependent upon information and data that may be incomplete, inaccurate or unavailable, which could adversely affect the analysis of the factors relevant to a particular investment.
Health and Wellness Investing Style Risk. Health and wellness companies include companies that diagnose and treat diseases, operate gyms and fitness/wellness facilities as well as companies that provide, manufacture or distribute natural/organic foods, sports/fitness equipment, wearable fitness technology, fitness/athletic apparel, nutritional supplements, anti-aging products and dietary services. The risks related to investing in such companies include rapid changes in medical and pharmaceutical advancements, consumer trends, social trends, marketing campaigns, and consumers’ disposable income. The customers and/or suppliers of health and wellness companies may be concentrated in a particular country, region or industry. Any adverse event affecting one of these countries, regions or industries could have a negative impact on health and wellness companies.
ESG Investing Style Risk. The Fund’s Underlying Index seeks to provide exposure to the equity securities of companies meeting sustainable and responsible investing criteria. The Fund’s Underlying Index excludes or limits exposure to securities of certain issuers for non-financial reasons, and the Fund may forgo some market opportunities available to funds that do not use these criteria. The application of sustainable and responsible investing criteria may affect the Fund’s exposure to certain sectors or types of investments and
may impact the Fund’s relative investment performance depending on whether such sectors or investments are in or out of favor in the market. In addition, there is no guarantee that the construction methodology of an Underlying Index will accurately provide exposure to sustainable and responsible issuers.
Large-Capitalization Companies Risk
Large-capitalization companies may be unable to respond quickly to new competitive challenges such as changes in technology and consumer tastes. Larger companies also may not be able to attain the high growth rates of successful smaller companies, especially during periods of economic expansion. Large capitalization companies may go in and out of favor based on market and economic conditions. Although the securities of larger companies may, on average, be less volatile than those of companies with smaller market capitalizations, during different market cycles, the performance of large-capitalization companies has trailed the overall performance of the broader securities markets and the securities of smaller companies.
Market Risk
The value of the Fund’s investments may fluctuate and/or decline because of changes in the markets in which the Fund invests, which could cause the Fund to underperform other funds with similar investment objectives and strategies. Security markets are volatile and may decline significantly in response to adverse issuer, regulatory, political, or economic developments. Different sectors of the market and different security types may react differently to such developments. Changes in these markets may be rapid and unpredictable. Fluctuations in the markets generally or in a specific industry or sector may impact the securities in which the Fund invests. From time to time, markets may experience periods of stress for potentially prolonged periods that may result in: (i) increased market volatility; (ii) reduced market liquidity; and (iii) increased redemptions of Fund shares. Such conditions may add significantly to the risk of volatility in the net asset value of a Fund’s shares and the market prices at which shares of the Fund trade on a securities exchange. During periods of market stress shares of the Fund may also experience significantly wider “bid/ask” spreads and premiums and discounts between the Fund’s net asset value and market price.
Market changes may impact equity and fixed income securities in different and, at times, conflicting manners. The Fund potentially will be prevented from executing investment decisions at an advantageous time or price as a result of any domestic or global market disruptions, particularly disruptions causing heightened market volatility and reduced market liquidity, as well as increased or changing regulations or market closures. Thus, investments that the Advisor or Subadvisor believes best enable the Fund to track the performance of its Underlying Index may be unavailable entirely or in the specific quantities sought by the Advisor or Subadvisor and the Fund may need to obtain the exposure through less advantageous or indirect investments or forgo the investment at the time. Securities and investments included as components of an Underlying Index may be susceptible to declines in value, including declines in value that are not believed to be representative of the issuer’s value or fundamentals, due to investor reactions to such events. In response to market volatility and disruption, an Underlying Index may delay rebalancing, implement temporary or permanent modifications to its methodology or take other actions.
Political and diplomatic events within the United States and abroad, such as the U.S. budget and deficit reduction plans, protectionist measures, trade tensions central bank policy and government intervention in the economy, has in the past resulted, and may in the future result, in developments that present additional risks to the Fund’s investments and operations. Geopolitical and other events, such as war, acts of terrorism, natural disasters, the spread of infectious illnesses, epidemics and pandemics, environmental and other public health issues, recessions or other events, and governments’ reactions to such events, may lead to increased market volatility and instability in world economies and markets generally and may have adverse effects on the performance of the Fund and its investments. Additional and/or prolonged geopolitical or other events may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. Any such market, economic and other disruptions could also prevent the Fund from executing its investment strategies and processes in a timely manner.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. When you sell your Shares, they could be worth less than what you paid for them.
Market Disruption Risk and Recent Market Events
Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or
indirect effects on the Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets. Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant restrictions, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The Fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the Fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.
New Fund Risk
As a new fund, there can be no assurance that the Fund will grow to or maintain an economically viable size, in which case it could ultimately liquidate. Like other new funds, large inflows and outflows may impact the Fund’s market exposure for limited periods of time. This impact may be positive or negative, depending on the direction of market movement during the period affected. An Authorized Participant, the Advisor or an affiliate of the Advisor may invest in the Fund and hold its investments for a specific period of time in order to facilitate commencement of the Fund’s operations or for the Fund to achieve size or scale. There can be no assurance that any such entity would not redeem its investment or that the size of the Fund would be maintained at such levels which could negatively impact the Fund.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an Index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The provider of the Index or the Index calculation agent may make errors. The Index provider may include Index constituents that should have been excluded, or it may exclude Index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an Index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions.
•
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Portfolio Turnover Risk
The Fund’s strategy may frequently involve buying and selling portfolio securities to rebalance the Fund’s investment exposures. High portfolio turnover may result in the Fund paying higher levels of transaction costs and generating greater tax liabilities for shareholders. Portfolio turnover risk may cause the Fund’s performance to be less than expected.
Small- and/or Mid-Capitalization Companies Risk
Small- and mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies as a result of several factors, including narrower markets for their goods and/or services, more limited managerial and financial resources, limited product lines, services, markets, financial resources or are dependent on a small management group. Because these stocks may not be well known to the investing public, do not have significant institutional ownership and are followed by relatively few security analysts, there will normally be less publicly available information concerning these securities compared to what is available for the securities of larger companies. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, can decrease the value and liquidity of securities held by the Fund, resulting in more volatile performance. Accordingly, such companies are generally subject to greater market risk than larger, more established companies.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the Fund’s NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. The market price of the Fund’s 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 Shares. In times of severe market disruption, the bid/ask spread can increase significantly. At those times, Shares are most likely to be traded at a discount to NAV, and the discount is likely to be greatest when the price of Shares is falling fastest, which may be the time that an investor most wants to sell their Shares. Although it is generally expected that the market price of the Fund’s Shares will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares. While the creation/redemption feature is designed to make it more likely that the Fund’s Shares normally will trade on securities exchanges at prices close to the Fund’s next calculated NAV, exchange prices are not expected to correlate exactly with the Fund’s NAV due to timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions at market makers, Authorized Participants, or other market participants, and during periods of significant market volatility, may result in trading prices for Shares of the Fund that differ significantly from its NAV. Authorized Participants may be less willing to create or redeem Shares if there is a lack of an active market for such Shares or its underlying investments, which may contribute to the Fund’s Shares trading at a premium or discount to NAV. Additionally, similar to shares of other issuers listed on a securities exchange, the Fund’s Shares may be sold short and are therefore subject to the risk of increased volatility and price decreases associated with being sold short. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV.
Additional Risks
Large Investments Risk
From time to time, the Fund may receive large purchase or redemption orders from affiliated or unaffiliated funds or other investors. In addition, any third-party investor, investment advisor affiliate, authorized participant, lead market maker or other entity may make a large investment in the Fund and hold its investment for any number of reasons, including to facilitate the Fund’s commencement of operations or to facilitate the Fund’s achieving a specified size or scale. There can be no assurance that any large shareholder would not sell or redeem its investment at any given time, either in a single transaction or over time. These large transactions, and particularly redemptions, could have adverse effects on the Fund, including: (i) negative impacts to
performance if the Fund were required to sell securities, invest cash or hold significant cash at times when it otherwise would not do so; (ii) wider price spreads or greater premiums/discounts that could materialize as a result of lower secondary market volume of shares; and (iii) negative federal income tax consequences if this activity accelerated the realization of capital gains.
Securities Lending Risk
Securities lending involves the risk that the borrower of the loaned securities fails to return the securities in a timely manner or at all. The Fund could also lose money due to a decline in the value of collateral provided for loaned securities or any investments made with cash collateral. These events could also trigger adverse tax consequences for the Fund. To the extent the collateral provided or investments made with cash collateral differ from securities included in the Fund’s Underlying Index, such collateral or investments may have a greater risk of loss than the securities included in the Underlying Index.
Underinvestment Risk
If certain aggregate ownership thresholds are reached either through the actions of the Advisor and its affiliates or the Fund, or as a result of third-party transactions, the ability of the Advisor on behalf of clients (including the Fund) to purchase or dispose of investments, or exercise rights or undertake business transactions, may be restricted by regulation or otherwise impaired. The capacity of the Fund to make investments in certain securities may be affected by the relevant limits, and such limitations may have adverse effects on the liquidity and performance of the Fund’s portfolio holdings compared to the performance of the Underlying Index. This may increase the risk of the Fund being underinvested to the Underlying Index and increase the risk of tracking error.
U.S. Tax Risks
To qualify for the favorable U.S. federal income tax treatment accorded to regulated investment companies, the Fund must satisfy certain income, asset diversification and distribution requirements. If for any taxable year, the Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) for that year would be subject to tax at regular corporate rates without any deduction for distributions to its shareholders, and such distributions would be taxable to its shareholders as dividend income to the extent of the Fund’s current and accumulated earnings and profits. To the extent the Fund engages in derivatives transactions, the tax treatment such derivatives transactions is unclear for purposes of determining the Fund’s tax status. To the extent the Fund engages in transactions in financial instruments, including, but not limited to, options, futures contracts, hedging transactions, forward contracts and swap contracts, the Fund will be subject to special tax rules (which may include mark-to-market, constructive sale, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund’s securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could, therefore, affect the amount, timing and character of distributions to the Fund’s shareholders. The Fund’s use of such transactions may result in the Fund realizing more short-term capital gains and ordinary income, in each case subject to U.S. federal income tax at higher ordinary income tax rates, than it would if it did not engage in such transactions. Please refer to the SAI for a more complete discussion of the risks of investing in Shares.
Buying and Selling Shares in the Secondary Market
Most investors will buy and sell Shares of the Fund in Secondary Market transactions through brokers. Shares of the Fund will be listed for trading on the Secondary Market on the NYSE Arca. Shares can be bought and sold throughout the trading day like other publicly-traded shares. Unless imposed by your broker or dealer, there is no minimum dollar amount you must invest and no minimum number of Shares you must buy in the Secondary Market. 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 spread between the bid and the offered price in the Secondary Market on each leg of a round trip (purchase and sale) transaction. In addition, because transactions in the Secondary Market occur at market prices, you may pay more than NAV when you buy Shares and receive less than NAV when you sell those Shares.
Share prices are reported in dollars and cents per Share. For information about buying and selling Shares in the Secondary Market, please contact your broker or dealer.
Book Entry
Shares of the Fund are held in book-entry form and no stock certificates are issued. DTC, through its nominee Cede & Co., 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. Participants in DTC 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 securities that you hold in book-entry or “street name” form for any publicly-traded company. Specifically, in the case of a shareholder meeting of the Fund, DTC assigns applicable Cede & Co. voting rights to its participants that have Shares credited to their accounts on the record date, issues an omnibus proxy and forwards the omnibus proxy to the Fund. The omnibus proxy transfers the voting authority from Cede & Co. to the DTC participant. This gives the DTC participant through whom you own Shares (namely, your broker, dealer, bank, trust company or other nominee) authority to vote the shares, and, in turn, the DTC participant is obligated to follow the voting instructions you provide.
Management
The Board is responsible for the general supervision of the Fund. The Board appoints officers who are responsible for the day-to-day operations of the Fund.
Investment Advisor
The Advisor has been registered as an investment advisor with the SEC since August 2007, has provided investment advisory services to registered investment companies since June 2008, and is a wholly-owned indirect subsidiary of New York Life Investment Management Holdings LLC. The Advisor’s principal office is located at 51 Madison Avenue, New York, New York 10010. As of June 30, 2021 the Advisor had approximately $4.7 billion in assets under management.
The Advisor has overall responsibility for the general management and administration of the Trust. The Advisor provides an investment program for the Fund. The Advisor has arranged for custody, fund administration, transfer agency and all other non-distribution related services necessary for the Fund to operate.
As compensation for its services and its assumption of certain expenses, the Fund pays the Advisor a management fee equal to a percentage of the Fund’s average daily net assets that is calculated daily and paid monthly, as follows:
Fund Name | | | Management Fee | |
IQ Healthy Hearts ETF | | | | | 0.45% | | |
The Advisor may voluntarily waive any portion of its advisory fee from time to time, and may discontinue or modify any such voluntary limitations in the future at its discretion.
The Advisor serves as investment advisor to the Fund pursuant to an Investment Advisory Agreement (the “Advisory Agreement”). The Advisory Agreement was approved by the Independent Trustees of the Trust at its annual meeting. The basis for the Board’s approval of the Advisory Agreement will be available in the Trust’s Annual or Semiannual Report to shareholders.
Under the Advisory Agreement, the Advisor agrees to pay all expenses of the Trust, except brokerage and other transaction expenses including taxes; extraordinary legal fees or expenses, such as those for litigation or arbitration; compensation and expenses of the Independent Trustees, counsel to the Independent Trustees, and the Trust’s chief compliance officer; extraordinary expenses; distribution fees and expenses paid by the Trust under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act; and the advisory fee payable to the Advisor hereunder.
The Advisor and its affiliates deal, trade and invest for their own accounts in the types of securities in which the Fund also may invest. The Advisor does not use inside information in making investment decisions on behalf of the Fund.
Section 15(a) of the 1940 Act requires that all contracts pursuant to which persons serve as investment advisors to investment companies be approved by shareholders. As interpreted, this requirement also applies to the appointment of any subadvisor to the Fund. The Advisor and the Trust have obtained an exemptive order (the
“Order”) from the SEC permitting the Advisor, on behalf of the Fund and subject to the approval of the Board, including a majority of the Independent Trustees, to hire or terminate unaffiliated subadvisors and to modify any existing or future subadvisory agreement with unaffiliated subadvisors without shareholder approval. This authority is subject to certain conditions. The Fund will notify shareholders and provide them with certain information required by the Order within 90 days of hiring a new subadvisor. The Fund’s sole shareholder has approved the use of the Order. Please see the SAI for more information on the Order.
Expense Limitation Agreement
The Advisor has entered into Expense Limitation Agreements with the Fund under which it has agreed to waive or reduce its fees and to assume other expenses of the Fund in an amount that limits “Total Annual Fund Operating Expenses” (exclusive of interest, taxes, brokerage commissions and other expenses that are capitalized in accordance with generally accepted accounting principles, dividends, interest and brokerage expenses paid on short sales, acquired und fees and expenses, extraordinary expenses, if any, and payments, if any, under the Rule 12b-1 Plan) to not more than the percentage of the average daily net assets of the Fund until August 31, 2022 as follows:
Fund Name | | | Total Annual Fund Operating Expenses After Expense Waiver/Reimbursement | |
IQ Healthy Hearts ETF | | | | | 0.45% | | |
Portfolio Management
The Advisor acts as investment advisor to the Fund and is responsible for managing the investment portfolios of the Fund and the purchase and sale of the Fund’s investment securities. The Advisor utilizes a team of investment professionals acting together to manage the assets of the Fund. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the portfolio as they deem appropriate in the pursuit of the Fund’s investment objective. For these services, the Advisor is paid a monthly management fee by the Fund.
The portfolio managers jointly and primarily responsible for the day-to-day management of the Fund’s portfolios are Greg Barrato and James Harrison.
Greg Barrato joined the Advisor as Vice President in November 2010 and has been Senior Vice President of the Advisor since August 2013. Prior to joining the Advisor, Mr. Barrato served as Head Global Equity Trader and Trader at Lucerne Capital Management, LLC from 2008 to 2010 and as Assistant Trader and Operations Manager at ReachCapital Management, LP from 2004 to 2008. Mr. Barrato is a graduate of the University of Connecticut.
James Harrison has been a member of the portfolio management team of the Advisor since 2015. Prior to joining the Advisor, Mr. Harrison served as a New York Stock Exchange member Floor Broker and Equity Sales Trader for Cuttone and Company from 2010 to 2015. Mr. Harrison is a graduate of St. Lawrence University.
For more information about the portfolio managers’ compensation, other accounts managed by the portfolio managers and the portfolio managers’ ownership of securities in the Fund, see the SAI.
Other Service Providers
Index Provider
IndexIQ is the index provider for the Fund. IndexIQ is in the business of developing and maintaining financial indices, including the Underlying Indices. Presently, IndexIQ has developed and is maintaining a number of indices in addition to the Underlying Indices, of which 13 are currently being used by registered investment companies.
IndexIQ has entered into an index licensing agreement (the “Licensing Agreement”) with the Advisor to allow the Advisor’s use of the Underlying Indices for the operation of the Fund. The Advisor pays licensing fees to IndexIQ from the Advisor’s management fees or other resources. The Advisor has, in turn, entered into a sub-licensing agreement (the “Sub-Licensing Agreement”) with the Trust to allow the Fund to utilize the Underlying Indices. The Fund pay no fees to IndexIQ or the Advisor under the Sub-Licensing Agreement. Additional information regarding the Underlying Indices developed and maintained by IndexIQ, including the index methodology and composition, is available at nylinvestments.com.
Calculation Agent and Benchmark Administrator
Solactive AG is the Index calculator and benchmark administrator. The value of an Underlying Index is calculated every weekday (“Business Day”) based on the prices on the respective Exchanges on which the Component Securities are listed. For each update, the most recent prices of all Component Securities are used. Prices of Component Securities not listed in U.S. Dollars are converted using spot foreign exchange rates quoted by Reuters. The daily index closing value is calculated using WM/Reuters closing spot rates from 4:00 pm London time. Should there be no current price available on Reuters, the most recent price or the Trading Price (as defined below) on Reuters for the preceding Trading Day (as defined below) is used in the calculation. The Underlying Indices are calculated continuously every Business Day from 9:00 am to 10:30 pm, CET, with updates every 15 seconds. In the event that data cannot be provided to Reuters or to the pricing services of Boerse Stuttgart AG, an Underlying Index cannot be distributed.
Any incorrect calculation is adjusted on a retrospective basis. At the time of the calculation and publication of an Underlying Index, the prices used for the calculation may already have changed. A committee (the “Committee”) composed of staff from Solactive AG is responsible for any amendments to the rules; provided that the starting universe for the composition of an Underlying Index and its relevant specifications are established by IndexIQ. The composition of an Underlying Index is determined according to the procedures outlined in the Underlying Index rulebook. Solactive AG may consult IndexIQ for decisions regarding the composition of an Underlying Index. All specifications and information relevant for calculating an Underlying Index are made available on Solactive AG’s website.
The financial instrument 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 an Underlying Index and/or Underlying Index trademark or an Underlying Index price at any time or in any other respect. The Underlying Indices are calculated and published by Solactive AG. Solactive AG uses its best efforts to ensure that the Underlying Indices are calculated correctly. Irrespective of its obligations towards the Issuer, Solactive AG has no obligation to point out errors in an Underlying Index to third parties including but not limited to investors and/or financial intermediaries of the financial instrument. Neither publication of an Underlying Index by Solactive AG nor the licensing of an Underlying Index or Underlying Index trademark for the purpose of use in connection with the financial instrument constitutes a recommendation by Solactive AG to invest capital in said financial instrument nor does it in any way represent an assurance or opinion of Solactive AG with regard to any investment in this financial instrument.
Index Consultant
Candriam serves as the index consultant to IndexIQ for the Underlying Index. In its role as index consultant, Candriam assists IndexIQ with the development, calculation and maintenance of the Underlying Index. Candriam is an investment advisor with experience with equity securities of companies meeting environmental, social and corporate governance investing strategies.
Fund Administrator, Custodian, Transfer Agent and Securities Lending Agent
The Bank of New York Mellon (“BNY Mellon”), located at 240 Greenwich Street, New York, New York 10286, serves as the Fund’s Administrator, Custodian, Transfer Agent and Securities Lending Agent. BNY Mellon is the principal operating subsidiary of The Bank of New York Mellon Corporation.
Distributor
ALPS Distributors, Inc. (“ALPS” or the “Distributor”), located at 1290 Broadway, Suite 1100, Denver, Colorado 80203 serves as the Distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a Secondary Market in the Fund’s Shares. NYLIFE Distributors LLC has entered into a Services Agreement with ALPS to market the Fund.
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP, located at 300 Madison Avenue, New York, NY 10017, serves as the independent registered public accounting firm for the Trust.
Legal Counsel
Chapman and Cutler LLP, located at 1717 Rhode Island Avenue, Washington, D.C. 20036, serves as counsel to the Trust and the Fund.
About the American Heart Association®
The American Heart Association® (“AHA”) is the nation’s oldest and largest voluntary organization dedicated to fighting heart disease and stroke. Founded by six cardiologists in 1924, the organization now includes more than 40 million volunteers and supporters. Its mission is “To be a relentless force for a world of longer, healthier lives.”
AHA is a tax-exempt under Section 501(c)(3) of the Code. AHA will enter into a support agreement (the “Agreement”) with the Advisor and New York Life Investment Management LLC (“NYLIM”). Pursuant to the Agreement, AHA will grant the Advisor and NYLIM a license permitting the Fund to use AHA’s name and logo in connection with its donation payments to American Heart Association and support of its mission. AHA has reviewed and provided feedback to IndexIQ on the thematic selection criteria used by the Underlying Index to identify and score companies for potential inclusion in the Underlying Index. AHA will not: (i) select any individual companies for inclusion or exclusion from the Underlying Index or (ii) have any right to approve or modify the Index, once constructed. AHA will not have any influence on the day-to-day operations of the Fund or the Advisor’s management of the Fund. AHA will not provide any investment advisory services to the Advisor, the Fund or any potential or current investors in the Fund. AHA will have no equity ownership or other financial interest in the Advisor.
Shares of the Fund are not sponsored, endorsed or promoted by the AHA. The Fund’s sponsor, IndexIQ, and its affiliates are donors to and supporters of AHA’s Social Impact Fund and are making a substantial contribution to the Social Impact Fund. AHA makes no representation or warranty, express or implied, to prospective or actual investors in the Fund or to any member of the public regarding the advisability of investing in any financial product, including one seeking to track the Underlying Index, the ability of the Fund to track the performance of the Underlying Index, the ability of the Underlying Index to meet or exceed stock market performance, the suitability of the Fund or the ability of the Underlying Index or Fund to achieve its investment goals. AHA has no obligation or liability in connection with the administration, marketing or trading of shares of the Fund. AHA is not an investment adviser or a fund distributor or service provider. Inclusion of a security within the Underlying Index is not a recommendation by AHA to buy, sell or hold such security, nor is it considered to be investment advice or a guarantee that the investment goals of the Underlying Index will be achieved. AHA does not guarantee the accuracy and/or the completeness of the Underlying Index or any data included therein.
Frequent Trading
The Board has not adopted policies and procedures with respect to frequent purchases and redemptions of Shares by Fund shareholders (“market timing”). In determining not to adopt market timing policies and procedures, the Board noted that the Fund is expected to be attractive to active institutional and retail investors interested in buying and selling Shares on a short-term basis. In addition, the Board considered that, unlike traditional mutual funds, Shares can only be purchased and redeemed directly from the Fund in Creation Units by Authorized Participants, and that the vast majority of trading in Shares occurs on the Secondary Market. Because Secondary Market trades do not involve the Fund directly, it is unlikely those trades would cause many of the harmful effects of market timing, including dilution, disruption of portfolio management, increases in the Fund’s trading costs and the realization of capital gains. With respect to trades directly with the Fund, to the extent effected in-kind (namely, for securities), those trades do not cause any of the harmful effects that may result from frequent cash trades. To the extent trades are effected in whole or in part in cash, the Board noted that those trades could result in dilution of the Fund and increased transaction costs (the Fund may impose higher transaction fees to offset these increased costs, which could negatively impact the Fund’s ability to achieve its investment objective. However, the Board also noted that direct trading on a short-term basis by Authorized Participants is critical to ensuring that Shares trade at or close to NAV. Given this structure, the Board determined that it is not necessary to adopt market timing policies and procedures. The Fund reserves the right to reject any purchase order at any time and reserves the right to impose restrictions on disruptive or excessive trading in Creation Units.
The Board has instructed the officers of the Trust to review reports of purchases and redemptions of Creation Units on a regular basis to determine if there is any unusual trading in the Fund. The officers of the Trust will report to the Board any such unusual trading in Creation Units that is disruptive to the Fund. In such event, the Board may reconsider its decision not to adopt market timing policies and procedures.
Distribution and Service Plan
The Board has adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with its Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.10% of its average daily net assets each year to finance activities primarily intended to result in the sale of Creation Units of the Fund or the provision of investor 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, they will be paid out of the respective Fund’s assets, and over time these fees will increase the cost of your investment and they may cost you more than certain other types of sales charges.
The Advisor and its affiliates may, out of their own resources, pay amounts (“Payments”) to third parties for distribution or marketing services on behalf of the Fund. The making of these payments could create a conflict of interest for a financial intermediary receiving such payments. The Advisor may make Payments for such third parties to organize or participate in activities that are designed to make registered representatives, other professionals and individual investors more knowledgeable about ETFs, including ETFs advised by the Advisor, or for other activities, such as participation in marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems (“Education Costs”). The Advisor also may make Payments to third parties to help defray costs typically covered by a trading commission, such as certain printing, publishing and mailing costs or materials relating to the marketing of services related to exchange-traded products (such as commission-free trading platforms) or exchange-traded products in general (“Administrative Costs”).
Determination of Net Asset Value (NAV)
The NAV of the Shares for the Fund is equal to the Fund’s total assets minus its total liabilities divided by the total number of Shares outstanding. Interest and investment income on the Fund’s assets accrue daily and are included in the Fund’s total assets. Expenses and fees (including investment advisory, management, administration and distribution fees, if any) accrue daily and are included in the applicable Fund’s total liabilities. The NAV that is published is rounded to the nearest cent; however, for purposes of determining the price of Creation Units, the NAV is calculated to five decimal places. The NAV is calculated by the Administrator and Custodian and determined each Business Day as of the close of regular trading on the NYSE Arca (ordinarily 4:00 p.m. Eastern time).
In calculating NAV, the Fund’s investments are valued using market quotations when available. Equity securities are generally valued at the closing price of the security on the security’s primary exchange. The primary exchanges for the Fund’s foreign equity securities may close for trading at various times prior to close of regular trading on the NYSE Arca, and the value of such securities used in computing the Fund’s NAV are generally determined as of such times. The Fund’s foreign securities may trade on weekends or other days when Shares do not trade. Consequently, the value of portfolio securities of the Fund may change on days when Shares of the Fund cannot be purchased or sold.
When market quotations are not readily available or are deemed unreliable or not representative of an investment’s fair value, investments are valued using fair value pricing as determined in good faith by the Advisor under procedures established by and under the general supervision and responsibility of the Board. Investments that may be valued using fair value pricing include, but are not limited to: (1) securities that are not actively traded, including “restricted” securities and securities received in private placements for which there is no public market; (2) securities of an issuer that becomes bankrupt or enters into a restructuring; (3) securities whose trading has been halted or suspended; and (4) foreign securities traded on exchanges that close before the Fund’s NAV is calculated.
The frequency with which the Fund’s investments are valued using fair value pricing is primarily a function of the types of securities and other assets in which the respective Fund invests pursuant to its investment objective, strategies and limitations. If the Fund invests in other open-end management investment companies registered under the 1940 Act, they may rely on the NAVs of those companies to value the shares they hold of them. Those companies may also use fair value pricing under some circumstances.
Valuing the Fund’s investments using fair value pricing results in using prices for those investments that may differ from current market valuations. Accordingly, fair value pricing could result in a difference between the prices used to calculate NAV and the prices used to determine the Fund’s indicative intra-day value (“IIV”), which could result in the market prices for Shares deviating from NAV.
Indicative Intra-Day Value
The approximate value of the Fund’s investments on a per-Share basis, the Indicative Intra-Day Value, or IIV, is disseminated every 15 seconds during hours of trading on the NYSE Arca. The IIV should not be viewed as a “real-time” update of NAV because the IIV may not be calculated in the same manner as NAV, which is computed once per day.
Solactive AG, an independent third party calculator calculates the IIV for the Fund during hours of trading on the NYSE Arca by dividing the “Estimated Fund Value” as of the time of the calculation by the total number of outstanding Shares of that Fund. “Estimated Fund Value” is the sum of the estimated amount of cash held in the Fund’s portfolio, the estimated amount of accrued interest owed to the Fund and the estimated value of the securities held in the Fund’s portfolio, minus the estimated amount of the Fund’s liabilities. The IIV will be calculated based on the same portfolio holdings disclosed on the Trust’s website.
The Fund provides the independent third-party calculator with information to calculate the IIV, but the Fund is not involved in the actual calculation of the IIV and is not responsible for the calculation or dissemination of the IIV. The Fund makes no warranty as to the accuracy of the IIV.
Premium/Discount Information
Information regarding the extent and frequency with which market prices of Shares has tracked the relevant Fund’s NAV for the most recently completed calendar year and the quarters since that year will be available without charge on the Fund’s website at newyorklifeinvestments.com.
Dividends, Distributions and Taxes
Net Investment Income and Capital Gains
As a Fund shareholder, you are entitled to your share of the Fund’s distributions of net investment income and net realized capital gains on its investments. The Fund pay out substantially all of their net earnings to their shareholders as “distributions.”
The Fund typically earns income dividends from stocks and interest from debt securities. These amounts, net of expenses, typically are passed along to Fund shareholders as dividends from net investment income. The Fund realizes capital gains or losses whenever they sell securities. Net capital gains typically are passed along to shareholders as “capital gain distributions.”
Net investment income and net capital gains typically are distributed to shareholders at least annually. Dividends may be declared and paid more frequently to improve index tracking or to comply with the distribution requirements of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). In addition, the Fund may decide to distribute at least annually amounts representing the full dividend yield net of expenses on the underlying investment securities, as if the Fund owned the underlying investment securities for the entire dividend period, in which case some portion of each distribution may result in a return of capital. You will be notified regarding the portion of a distribution that represents a return of capital.
Distributions in cash may be reinvested automatically in additional Shares of the Fund only if the broker through which you purchased Shares makes such option available. Distributions which are reinvested nevertheless will be subject to U.S. federal income tax to the same extent as if such distributions had not been reinvested.
U.S. Federal Income Taxation
The following is a summary of the material U.S. federal income tax considerations applicable to an investment in Shares of the Fund. The summary is based on the laws in effect on the date of this Prospectus and existing judicial and administrative interpretations thereof, all of which are subject to change, possibly with retroactive effect. In addition, this summary assumes that a Fund shareholder holds Shares as capital assets within the meaning of the Code and does not hold Shares in connection with a trade or business. This summary does not address all potential U.S. federal income tax considerations possibly applicable to an investment in Shares of the Fund, and does not address the consequences to Fund shareholders subject to special tax rules, including, but not limited to, partnerships and the partners therein, tax-exempt shareholders, regulated investment companies (“RICs”, real estate investment trusts (“REITS”), real estate mortgage investment conduits (“REMICs”), those who hold Shares through an IRA, 401(k) plan or other tax-advantaged account, and, except to the extent discussed below, “non-U.S. shareholder” (as defined below). This discussion does not discuss any
aspect of U.S. state, local, estate, gift, or non-U.S. tax law. Furthermore, this discussion is not intended or written to be legal or tax advice to any shareholder in the Fund or other person and is not intended or written to be used or relied on, and cannot be used or relied on, by any such person for the purpose of avoiding any U.S. federal tax penalties that may be imposed on such person. Prospective Fund shareholders are urged to consult their own tax advisors with respect to the specific U.S. federal, state, local and non-U.S. tax consequences of investing in Shares, based on their particular circumstances.
The Fund has not requested and will not request an advance ruling from the U.S. Internal Revenue Service (the “IRS”) as to the U.S. federal income tax matters described below. The IRS could adopt positions contrary to those discussed below and such positions could be sustained. Prospective investors should consult their own tax advisors with regard to the U.S. federal tax consequences of the purchase, ownership and disposition of Shares, as well as the tax consequences arising under the laws of any state, locality, non-U.S. or other taxing jurisdiction. The following information supplements and should be read in conjunction with the section in the SAI entitled “U.S. Federal Income Taxation.”
Tax Treatment of the Fund
The Fund intends to qualify and elect to be treated as a separate RIC under the Code. To qualify and remain eligible for the special tax treatment accorded to RICs, the Fund must meet certain annual income and quarterly asset diversification requirements and must distribute annually at least 90% of the sum of (i) its “investment company taxable income” (which includes dividends, interest and net short-term capital gains) and (ii) certain net tax-exempt income, if any.
As a RIC, the Fund generally will not be required to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes to its shareholders. If the Fund fails to qualify as a RIC for any year (subject to certain curative measures allowed by the Code), the Fund will be subject to regular corporate-level U.S. federal income tax in that year on all of its taxable income, regardless of whether the Fund makes any distributions to its shareholders. In addition, in such case, distributions will be taxable to the Fund’s shareholders generally as ordinary dividends to the extent of the Fund’s current and accumulated earnings and profits. The remainder of this discussion assumes that the Fund will qualify for the special tax treatment accorded to RICs.
The Fund generally will be subject to a 4% excise tax on certain undistributed income if the Fund does not distribute to its shareholders in each calendar year an amount at least equal to the sum of 98% of its ordinary income for the calendar year (taking into account certain deferrals and elections), 98.2% of its capital gain net income (adjusted for certain ordinary losses) for the twelve months ended October 31 of such year (or later if the Fund is permitted to elect and no elects), plus 100% of any undistributed amounts from prior years. For these purposes, a Fund will be treated as having distributed any amount on which it has been subject to U.S. corporate income tax for the taxable year ending within the calendar year. The Fund intends to make distributions necessary to avoid this 4% excise tax, although there can be no assurance that it will be able to do so.
The Fund may be required to recognize taxable income in advance of receiving the related cash payment. For example, if the Fund invests in original issue discount obligations (such as zero coupon debt instruments or debt instruments with payment-in-kind interest), the Fund will be required to include in income each year a portion of the original issue discount that accrues over the term of the obligation, even if the related cash payment is not received by the Fund until a later year. Under the “wash sale” rules, the Fund may not be able to deduct a loss on a disposition of a portfolio security. As a result, the Fund may be required to make an annual income distribution greater than the total cash actually received during the year. Such distribution may be made from the cash assets of the Fund or by selling portfolio securities. The Fund may realize gains or losses from such sales, in which event its shareholders may receive a larger capital gain distribution than they would in the absence of such transactions.
Tax Treatment of Fund Shareholders
Taxation of U.S. Shareholders
The following is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Shares applicable to “U.S. shareholders.” For purposes of this discussion, a “U.S. shareholder” is a beneficial owners of Shares who, for U.S. federal income tax purposes, is (i) an individual who is a citizen or resident of the United States; (ii) a corporation (or an entity treated as a corporation for U.S. federal tax purposes) created or organized in the United States or under the laws of the United States, or of any state
thereof, or the District of Columbia; (iii) an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or (iv) a trust, if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (2) the trust has a valid election in place to be treated as a U.S. person.
Fund Distributions. In general, Fund distributions are subject to U.S. federal income tax when paid, regardless of whether they consist of cash or property, and regardless of whether they are re-invested in Shares. However, any Fund distribution declared in October, November or December of any calendar year and payable to shareholders of record on a specified date during such month will be deemed to have been received by the Fund shareholder on December 31 of such calendar year, provided such dividend is actually paid during January of the following calendar year.
Distributions of the Fund’s net investment income and net short-term capital gains in excess of net long-term capital losses (collectively referred to as “ordinary income dividends”) are taxable as ordinary income to the extent of the Fund’s current and accumulated earnings and profits (subject to an exception for distributions of “qualified dividend income,” as discussed below). To the extent designated as capital gain dividend by the Fund, distributions of the Fund’s net long-term capital gains in excess of net short-term capital losses (“net capital gain”) are taxable at long-term capital gain tax rates to the extent of the Fund’s current and accumulated earnings and profits, regardless of a Fund shareholder’s holding period in the Fund’s Shares. Distributions of “qualified dividend income” (defined below) are, to the extent of the Fund’s current and accumulated earnings and profits, taxed to certain non-corporate Fund shareholders at the rates generally applicable to long-term capital gain, provided that the Fund shareholder meeting certain holding period and of the requirements with respect to the distributing Fund’s Shares and the distributing Fund meeting certain holdings period and other requirements with respect to its dividend-paying stocks. For this purpose, “qualified dividend income” generally means income from dividends received by the Fund from U.S. corporations and qualified non-U.S. corporations. Substitute payments received on Shares that are lent out will be ineligible for being reported as qualified dividend income. If the Fund pays a dividend that would be “qualified” dividend income for individuals, corporate shareholders may be entitled to a dividend received deduction.
The Fund intends to distribute its net capital gain at least annually. However, by providing written notice to its shareholders no later than 60 days after its year-end, the Fund may elect to retain some or all of its net capital gain and designate the retained amount as a “deemed distribution.” In that event, the Fund pays U.S. federal income tax on the retained net capital gain, and the Fund shareholder recognizes a proportionate share of the Fund’s undistributed net capital gain. In addition, each Fund shareholder can claim a tax credit or refund for the shareholder’s proportionate share of the Fund’s U.S. federal income taxes paid on the undistributed net capital gain and increase the shareholder’s tax basis of the Shares by an amount equal to shareholder’s proportionate share of the Fund’s undistributed net capital gain, reduced by the amount of the shareholder’s tax credit or refund.
Distributions in excess of the Fund’s current and accumulated earns and profits will, as to each shareholder, be treated as a tax-free return of capital to the extent of the shareholders tax basis in its shares of the fund, and generally as capital gain thereafter. Any such distribution will reduce the shareholder’s tax basis in the Shares, and thus will increase the shareholder’s capital gain, or decrease the capital loss, recognized upon a sale or exchange of Shares.
In addition, individuals with adjusted gross incomes above certain threshold amounts (and certain trusts and estates) generally are be subject to a 3.8% Medicare tax on net investment income in addition to otherwise applicable U.S. federal income tax. “Net investment income” generally will include dividends (including capital gain dividends) received from the Fund and net gains from the redemption or other disposition of Shares. Please consult your tax advisor regarding this tax.
If the Fund is a “qualified fund of funds” (i.e., a RIC at least 50% of the value of the total assets of which, at the close of each quarter of the taxable year, is represented by interests in other RICs) or more than 50% of the Fund’s total assets at the end of a taxable year consist of non-U.S. stock or securities, the Fund may elect to “pass through” to its shareholders certain non-U.S. income taxes paid by the Fund. This means that each shareholder will be required to (i) include in gross income, even though not actually received, the shareholder’s pro rata share of the Fund’s non-U.S. income taxes, and (ii) either take a corresponding deduction (in calculating U.S. federal taxable income) or credit (in calculating U.S. federal income tax), subject to certain limitations.
Investors considering buying Shares just prior to a distribution should be aware that, although the price of the Shares purchased at such time may reflect the forthcoming distribution, such distribution nevertheless may be taxable (as opposed to a non-taxable return of capital).
Sales or Exchange of Shares. Any capital gain or loss realized upon a sale or exchange of Shares (including an exchange of Shares of one Fund for Shares of another Fund) generally is treated as a long-term gain or loss if the Shares have been held for more than one year. Any capital gain or loss realized upon a sale or exchange of Shares held for one year or less generally is treated as a short-term gain or loss, except that any capital loss on the sale or exchange of Shares held for six months or less is treated as long-term capital loss to the extent that capital gain dividends were paid (or deemed to be paid) with respect to the Shares.
Creation Unit Issues and Redemptions. On an issue of Shares of the Fund as part of a Creation Unit where the creation is conducted in-kind, an Authorized Participant generally recognizes capital gain or loss (assuming the Authorized Participant does not hold the securities as inventory) equal to the difference between (i) the fair market value (at issue) of the issued Shares (plus any cash received by the Authorized Participant as part of the issue) and (ii) the Authorized Participant’s aggregate basis in the exchanged securities (plus any cash paid by the Authorized Participant as part of the issue). On a redemption of Shares as part of a Creation Unit where the redemption is conducted in-kind, an Authorized Participant recognizes capital gain or loss (assuming the Authorized Participant does not hold the securities as inventory) equal to the difference between (i) the fair market value (at redemption) of the securities received (plus any cash received by the Authorized Participant as part of the redemption) and (ii) the Authorized Participant’s basis in the redeemed Shares (plus any cash paid by the Authorized Participant as part of the redemption). However, the IRS may assert, under the “wash sale” rules or on the basis that there has been no significant change in the Authorized Participant’s economic position, that any loss on creation or redemption of Creation Units cannot be deducted currently.
In general, any capital gain or loss recognized upon the issue or redemption of Shares (as components of a Creation Unit) is treated either as long-term capital gain or loss, if the deposited securities (in the case of an issue) or the Shares (in the case of a redemption) have been held for more than one year, or otherwise as short-term capital gain or loss. However, any capital loss on a redemption of Shares held for six months or less is treated as long-term capital loss to the extent that capital gain dividends were paid (or deemed to be paid) with respect to such Shares.
Back-Up Withholding. The Fund (or a financial intermediary such as a broker through which a shareholder holds Shares in the Fund) may be required to report certain information on the Fund shareholder to the IRS and withhold U.S. federal income tax (“backup withholding”) at a current rate of 24% from taxable distributions and redemption or sale proceeds payable to the Fund shareholder if (i) the Fund shareholder fails to provide the Fund with a correct taxpayer identification number or make required certifications, or if the IRS notifies the Fund that the Fund shareholder is otherwise subject to backup withholding, and (ii) the Fund shareholder is not otherwise exempt from backup withholding. Non-U.S. shareholders can qualify for exemption from backup withholding by submitting a properly completed IRS Form W-8BEN or W-8BEN-E. Backup withholding is not an additional tax and any amount withheld may be credited against a Fund shareholder’s U.S. federal income tax liability.
Taxation of Non-U.S. Shareholders
The following is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Shares applicable to “non-U.S. shareholders.” For purposes of this discussion, a “non-U.S. shareholder” is a beneficial owner of Shares that is not a U.S. shareholder (as defined above) and is not an entity or arrangement treated as a partnership for U.S. federal income tax purposes. The following discussion is based on current law and is for general information only. If addresses only selected, and not all, aspects of U.S. federal income taxation applicable to non-U.S. shareholders.
With respect to non-U.S. shareholders of the Fund, the Fund’s ordinary income dividends generally will be subject to U.S. federal withholding tax at a rate of 30% (or at a lower rate established under an applicable tax treaty), subject to certain exceptions for “interest-related dividends” and “short-term capital gain dividends” discussed below. The Fund will not pay any additional amounts to shareholders in respect of any amounts withheld.
U.S. federal withholdings tax generally will not apply to any gain realized by a non-U.S. shareholder in receipt of the Fund’s net capital gain. Special rules (not discussed herein) apply with respect to dividends of the Fund that are attributable to gain from the sale or exchange of “U.S. real property interests.”
In general, all “interest related dividends” and “short-term capital gains dividends” (each defined below) will not be subject to U.S. federal withholding tax, provided that, among other requirements, the non-U.S. shareholder furnished the Fund with a completed IRS Form W8BEN or W-8BEN-E, as applicable, (or acceptable substitute documentation) establishing the non-U.S. shareholder’s non-U.S. status and the Fund does not have actual knowledge or reason to know that the non-U.S. shareholder would be subject to such withholding tax if the non-U.S. shareholder were to receive the related amounts directly rather than as dividends from the Fund. “Interest-related dividends” generally means dividends designated by the Fund as attributable to such Fund’s U.S.-source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which such Fund is at least 10% shareholder, reduced by expenses that are allocable to such income. “Short-term capital gain dividends” generally means dividends designated by the Fund as attributable to the excess of such Fund’s net short-term capital gain over its net long-term capital loss. Depending on its circumstances, the Fund may treat such dividends, in whole or in part, as ineligible for these exceptions from withholding.
In general, subject to certain exceptions, non-U.S. shareholders will not be subject to U.S. federal income or withholdings tax in respect of a sale or other disposition of Shares of the Fund.
To claim a credit or refund for any Fund-level taxes on any undistributed net capital gain (as discussed above) or any taxes collected through back-up withholdings (discussed below), a non-U.S. shareholder must obtain a U.S. taxpayer identification number and file a U.S. federal income tax return even if the non-U.S. shareholder would not otherwise be required to do so.
Foreign Account Tax Compliance Act.
The U.S. Foreign Account Tax Compliance Act (“FATCA”) generally imposes a 30% withholding tax on “withholdable payments” (defined below) made to (i) a “foreign financial institution” (“FFI”), unless the FFI enters into an agreement with the IRS to provide information regarding certain of direct and indirect its U.S. accounts and satisfy certain due diligence and other specified requirements, and (ii) a “non-financial foreign entity” (“NFFE”) unless such NFFE provides certain information about its direct and indirect “substantial U.S. owners” to the withholding agent or certifies that it has no such U.S. owners. The beneficial owner of a “withholdable payment” may be eligible for a refund or credit of the withheld tax. The U.S. government also has entered into intergovernmental agreements with other jurisdictions to provide an alternative, and generally easier, approach for FFIs to comply with FATCA. If the shareholder is a tax resident in a jurisdiction that has entered into an intergovernmental agreement with the U.S. government, the shareholder will be required to provide information about the shareholder’s classification and compliance with the intergovernmental agreement.
“Withholdable payments” generally include, among other items, U.S.-source interest and dividends, and gross proceeds from the sale or disposition of property of a type that can produce U.S. source interest or dividends. However. Proposed regulations may eliminate the requirement to withhold on payments of gross proceeds from dispositions.
The Fund or a shareholder’s broker may be required to impose a 30% withholding tax on withholdable payments to a shareholder if the shareholder fails to provide the Fund with the information, certifications or documentation required under FATCA, including information, certification or documentation necessary for the Fund to determine if the shareholder is a non-U.S. shareholder or a U.S. shareholder and, if it is a non-U.S. shareholder, if the non-U.S. shareholder has “substantial U.S. owners” and/or is in compliance with (or meets an exception from) FATCA requirements. The Fund will not pay any additional amounts to shareholders in respect of any amounts withheld. The Fund may disclose any shareholder information, certifications or documentation to the IRS or other parties as necessary to comply with FATCA.
The requirements of, and exceptions from, FATCA are complex. All prospective shareholders are urged to consult their own tax advisors regarding the potential application of FATCA with respect to their own situation.
For a more detailed tax discussion regarding an investment in the Fund please see the section of the SAI entitled “U.S. Federal Income Taxation.”
Code of Ethics
The Trust, Advisor and Distributor each have adopted a code of ethics under Rule 17j-1 of the 1940 Act that is designed to prevent affiliated persons of the Trust, the Advisor and the Distributor from engaging in deceptive, manipulative or fraudulent activities in connection with securities held or to be acquired by the Fund (which may also be held by persons subject to a code). There can be no assurance that the codes will be effective in preventing such activities.
The codes permit personnel subject to them to invest in securities, including securities that may be held or purchased by the Fund. The codes are on file with the SEC and are available to the public.
Fund Website and Disclosure of Portfolio Holdings
The Advisor maintains a website for the Fund at newyorklifeinvestments.com. The website for the Fund contains the following information, on a per-Share basis, for the Fund: (1) the prior Business Day’s NAV; (2) the reported mid-point of the bid-ask spread at the time of NAV calculation (the “Bid-Ask Price”); (3) a calculation of the premium or discount of the Bid-Ask Price against such NAV; and (4) data in chart format displaying the frequency distribution of discounts and premiums of the Bid-Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters (or for the life of the Fund if, shorter). In addition, on each Business Day, before the commencement of trading in Shares on the NYSE Arca, the Fund will disclose on its website (newyorklifeinvestments.com) the identities and quantities of the portfolio securities and other assets held by each Fund that will form the basis for the calculation of NAV at the end of the Business Day.
A description of the Fund’s policies and procedures with respect to the disclosure of the Fund’s portfolio securities is available in the SAI.
Other Information
The Fund is not sponsored, endorsed, sold or promoted by the NYSE Arca. The NYSE Arca makes 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 or the ability of the Fund to achieve their objectives. NYSE Arca has no obligation or liability in connection with the administration, marketing or trading of the Fund.
For purposes of the 1940 Act, the Fund is registered investment companies, and the acquisition of Shares by other registered investment companies and companies relying on exemption from registration as investment companies under Section 3(c)(1) or 3(c)(7) of the 1940 Act is subject to the restrictions of Section 12(d)(1) of the 1940 Act, except as permitted by an exemptive order that permits registered investment companies to invest in the Fund beyond those limitations.
Financial Highlights
Selected Data for a Share of Capital Stock Outstanding
The financial highlights tables are intended to help you understand the Fund’s financial performance for the past five fiscal years or, if shorter, the period of the Fund’s operations. Certain information reflects financial results for a single Fund Share. The total returns in the table represents 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 PricewaterhouseCoopers LLP, whose report, along with the Fund’s financial statements, is included in the Fund’s Annual Report, which is available upon request.
Financial Highlights (continued)
Selected Data for a Share of Capital Stock Outstanding
| | | IQ Healthy Hearts ETF | |
| | | For the Period January 14, 2021(a) to April 30, 2021 | |
Net asset value, beginning of period | | | | $ | 24.93 | | |
Income from Investment Operations | | |
Net investment income(b)(c) | | | | | 0.14 | | |
Net realized and unrealized gain (loss) | | | | | 1.26 | | |
Net increase (decrease) in net assets resulting from investment operations | | | | | 1.40 | | |
Distributions from: | | |
Net investment income | | | | | (0.09) | | |
Net asset value, end of period | | | | $ | 26.24 | | |
Market price, end of period | | | | $ | 26.28 | | |
Total Return | | | | | | | |
Total investment return based on net asset value(d) | | | | | 5.62% | | |
Total investment return based on market price(e) | | | | | 5.77%(f) | | |
Ratios/Supplemental Data | | | | | | | |
Net assets, end of period (000’s omitted) | | | | $ | 6,559 | | |
Ratio to average net assets of: | | | | | | | |
Expenses net of waivers/reimbursements(g) | | | | | 0.45%(h) | | |
Expenses excluding waivers/reimbursements(g) | | | | | 0.46%(h) | | |
Net investment income (loss)(c) | | | | | 1.92%(h) | | |
Portfolio turnover rate(i) | | | | | 14% | | |
(a)
Commencement of operations.
(b)
Based on average shares outstanding.
(c)
Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the investment companies in which the Fund invests.
(d)
Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, if any, at net asset value during the period, and redemption on the last day of the period. Total return calculated for a period less than one year is not annualized.
(e)
The market price returns are calculated using the mean between the last bid and ask prices.
(f)
Since the Shares of the Fund did not trade in the secondary market until the day after the Fund’s inception, for the period from the inception to the first day of the secondary market trading, the NAV is used as a proxy for the secondary market trading price to calculate the market returns.
(g)
In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a prorated share of the fees and expenses of the underlying funds in which it invests. Such indirect expenses are not included in the above expense ratios.
(h)
Annualized.
(i)
Portfolio turnover rate is not annualized and excludes the value of portfolio securities received or delivered as in-kind creations or redemptions in connection with the Fund’s capital share transactions.
Privacy Policy
The following notice does not constitute part of the Prospectus, nor is it incorporated into the Prospectus.
The Trust is committed to respecting the privacy of personal information you entrust to us in the course of doing business with us.
The Trust may collect non-public personal information from various sources. The Trust uses such information provided by you or your representative to process transactions, to respond to inquiries from you, to deliver reports, products, and services, and to fulfill legal and regulatory requirements.
We do not disclose any non-public personal information about our customers to anyone unless permitted by law or approved by the customer. We may share this information within the Trust’s family of companies in the course of providing services and products to best meet your investing needs. We may share information with certain third parties who are not affiliated with the Trust to perform marketing services, to process or service a transaction at your request or as permitted by law. For example, sharing information with companies that maintain or service customer accounts for the Trust is essential. We may also share information with companies that perform administrative or marketing services for the Trust, including research firms. When we enter into such a relationship, we restrict the companies’ use of our customers’ information and prohibit them from sharing it or using it for any purposes other than those for which they were hired.
We maintain physical, electronic, and procedural safeguards to protect your personal information. Within the Trust, we restrict access to personal information to those employees who require access to that information in order to provide products or services to our customers, such as handling inquiries. Our employment policies restrict the use of customer information and require that it be held in strict confidence.
We will adhere to the policies and practices described in this notice for both current and former customers of the Trust.
Frequently Used Terms
| Trust | | | IndexIQ ETF Trust, a registered open-end investment company | |
| Fund | | | The investment portfolios of the Trust | |
| Shares | | | Shares of the Fund offered to investors | |
| Advisor | | | IndexIQ Advisors LLC | |
| Custodian | | | The Bank of New York Mellon, the custodian of the Fund’s assets | |
| Distributor | | | ALPS Distributors, Inc., the distributor of the Fund | |
| AP or Authorized Participant | | | Certain large institutional investors such as brokers, dealers, banks or other entities that have entered into authorized participant agreements with the Distributor | |
| NYSE Arca | | | NYSE Arca, the primary market on which Shares are listed for trading | |
| IIV | | | The Indicative Intra-Day Value, an appropriate per-Share value based on the Fund’s portfolio | |
| 1940 Act | | | Investment Company Act of 1940, as amended | |
| NAV | | | Net asset value | |
| SAI | | | Statement of Additional Information | |
| SEC | | | Securities and Exchange Commission | |
| Secondary Market | | | A national securities exchange, national securities association or over-the counter trading system where Shares may trade from time to time | |
| Securities Act | | | Securities Act of 1933, as amended | |
IndexIQ ETF Trust
Mailing Address
51 Madison Avenue
New York, New York 10010
newyorklifeinvestments.com
IndexIQ ETF Trust
PROSPECTUS | AUGUST 31, 2021
FOR MORE INFORMATION
If you would like more information about the Trust, the Fund and the Shares, the following documents are available free upon request:
Annual/Semi-annual Report
Additional information about the Fund’s investments is available in the Fund’s annual and semi-annual reports to shareholders (once available). In the Fund’s annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund’s performance during the last fiscal year.
Statement of Additional Information
Additional information about the Fund and its policies is also available in the Fund’s SAI. The SAI is incorporated by reference into this Prospectus (and is legally considered part of this Prospectus). The Fund’s annual and semi-annual reports (once available) and the SAI are available free upon request by calling IndexIQ at 1-888-474-7725. You can also access and download the annual and semi-annual reports (once available) and the SAI at the Fund’s website: newyorklifeinvestments.com.
To obtain other information and for shareholder inquiries:
By telephone: 1-888-474-7725
By mail: IndexIQ ETF Trust
c/o IndexIQ
51 Madison Avenue,
New York, NY 10010
On the Internet: SEC Edgar database: http://www.sec.gov; or newyorklifeinvestments.com
You may review and obtain copies of Fund documents (including the SAI) by visiting the SEC’s public reference room in Washington, D.C. You may also obtain copies of Fund documents, after paying a duplicating fee, by writing to the SEC’s Public Reference Section, Washington, D.C. 20549-0102 or by electronic request to: publicinfo@sec.gov. Information on the operation of the public reference room may be obtained by calling the SEC at (202) 551-8090.
No person is authorized to give any information or to make any representations about the Fund and its Shares not contained in this Prospectus and you should not rely on any other information. Read and keep the Prospectus for future reference.
Dealers effecting transactions in the Fund’s Shares, whether or not participating in this distribution, may be generally required to deliver a Prospectus. This is in addition to any obligation dealers have to deliver a Prospectus when acting as underwriters.
“New York Life Investments” is both a servicemarks, and the common trade name, of certain investment advisors affiliated with New York Life Insurance Company.
IQ® and IndexIQ® are registered servicemarks of New York Life Insurance Company.
The Trust’s investment company registration number is 811-22227.
IndexIQ ETF Trust
Prospectus
August 31, 2021
| IQ S&P High Yield Low Volatility Bond ETF (HYLV) | | | | |
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
As permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you hold accounts through a financial intermediary, you may contact your financial intermediary to enroll in electronic delivery. Please note that not all financial intermediaries may offer this service.
You may elect to receive all future reports in paper free of charge. If you hold accounts through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held with your financial intermediary.
Not FDIC Insured | May Lose Value | No Bank Guarantee
IndexIQ ETF Trust (the “Trust”) is a registered investment company that consists of separate investment portfolios called “Funds.” This Prospectus relates to the following Fund:
Name
|
|
|
CUSIP
|
|
|
Symbol
|
|
IQ S&P High Yield Low Volatility Bond ETF |
|
|
45409B412
|
|
|
HYLV
|
|
The Fund is an exchange-traded fund. This means that shares of the Fund are listed on a national securities exchange, such as the NYSE Arca, Inc. (“NYSE Arca”), and trade at market prices. The market price for the Fund’s shares may be different from its net asset value per share (the “NAV”). The Fund has its own CUSIP number and exchange trading symbol.
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
36
|
|
|
IQ S&P High Yield Low Volatility Bond ETF
Investment Objective
The Fund seeks investment results that track (before fees and expenses) the price and yield performance of its underlying index, the S&P U.S. High Yield Low Volatility Corporate Bond Index (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes fees and expenses that you may pay if you buy, sell or hold shares of the Fund (“Shares”). Investors may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example set forth below.
Shareholder Fees (fees paid directly from your investment):
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
| Management Fee | | | | | 0.40% | | |
| Distribution and/or Service (12b-1) Fees | | | | | 0.00% | | |
| Other Expenses | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses | | | | | 0.41% | | |
| Expense Waiver/Reimbursement(a) | | | | | 0.01% | | |
| Total Annual Fund Operating Expenses After Waiver/Reimbursement | | | | | 0.40% | | |
(a)
Example. This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then 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 at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered indicators of expected Fund expenses or performance, which may be greater or less than the estimates. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$41 |
|
|
$131 |
|
|
$229 |
|
|
$517 |
|
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 105% of the average value of its portfolio. This rate excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Shares.
Principal Investment Strategies
The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of the S&P U.S. High Yield Low Volatility Corporate Bond Index (the “Underlying Index”), which has been developed by S&P Opco LLC (a subsidiary of S&P Dow Jones Indices LLC) (the “Index Provider”). The Underlying Index is comprised of U.S. dollar denominated high yield corporate bonds that have been selected in accordance with a rules-based methodology that seeks to identify securities that, in the aggregate, are expected to have lower volatility relative to the broad U.S. dollar denominated high yield corporate bond market. The Underlying Index is a market value weighted index comprised of bonds included in the S&P U.S. High Yield Corporate Bond Index that meet liquidity and risk-based selection criteria.
The Underlying Index is comprised of U.S. dollar denominated high yield corporate bonds of issuers domiciled in the U.S. and foreign countries classified as developed markets by the Index Provider. To be eligible for inclusion in the Underlying Index, bonds must meet the following criteria: (i) pay fixed-rate coupons; (ii) have at least $400 million of outstanding face value; (iii) have a remaining maturity of at least one month as of the rebalancing date; and (v) have an average rating below investment grade by Moody’s Investors Service, Standard & Poor’s, and/or Fitch Ratings. Eligible U.S. dollar denominated high yield corporate bonds are further screened for liquidity considerations based on their bond type, size, spread, duration and time since issuance.
Once the Underlying Index universe is defined based on the eligibility criteria, each bond is then ranked according to its marginal contribution to risk (“MCR”). MCR is a measurement of the amount of risk a security contributes to a portfolio of securities. MCR is calculated using a bond’s duration and the difference between the bond’s spread (the difference between the option-adjusted yield of the bond and the yield of a U.S. treasury security with a similar maturity) and a weighted average spread of the bonds in the index universe. In general, a bond with a higher MCR will add more credit risk to the overall portfolio than a bond with a lower MCR.
After ranking all eligible bonds based upon their MCR, the Underlying Index selects for inclusion the 50 percent of bonds measured to have the least credit risk based on their MCR. A bond included in the Underlying Index must remain in the 60 percent of bonds measured to have the least credit risk based on its MCR to remain in the Underlying Index. The Underlying Index seeks to construct a portfolio of securities that has lower volatility than the U.S. dollar-denominated high yield bond universe through the selection of lower-risk bonds based on MCR. Once the bonds are selected for inclusion in the Underlying Index, they are weighted by market value.
The Underlying Index is rebalanced monthly and typically consists of 400 to 500 securities.
The Fund uses a “Representative Sampling” strategy in seeking to track the performance of the Underlying Index. A fund using a Representative Sampling strategy generally will invest in a sample of securities that collectively has an investment profile similar to that of the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability, duration, maturity, credit ratings and yield) and liquidity measures similar to those of the Underlying Index. The Fund may also invest in credit default swaps and futures contracts to seek to track the Underlying Index.
To the extent the Underlying Index concentrates (i.e., holds 25% or more of its total assets) in the securities of a particular industry or group of industries, the Fund will concentrate its investments to approximately the same extent as the Underlying Index. As of June 30, 2021, a significant portion of the Underlying Index is represented by securities of companies in the communication services sector and financials sector.
The Fund may invest in one or more ETFs advised by the Advisor (“Affiliated ETFs”) that are not components of the index if such an investment will help the Fund track the Underlying Index.
Principal Risks
As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program. An investment in the Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, the Advisor or any of its affiliates. You should consider carefully the following risks before investing in the Fund.
Authorized Participant Concentration Risk
Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation and redemption transactions with the Fund, may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Credit Risk
Credit risk is the risk that the issuer or guarantor of a debt instrument or the counterparty to a derivatives contract, repurchase agreement or loan of portfolio securities will be unable or unwilling to make its timely interest and/or principal payments when due or otherwise honor its obligations. Changes in an issuer’s or
counterparty’s credit rating or the market’s perception of an issuer’s or counterparty’s creditworthiness may also adversely affect the value of the Fund’s investment in that issuer. The degree of credit risk depends on an issuer’s or counterparty’s financial condition and on the terms of an obligation.
Cyber Security Risk
The Fund is susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed.
Derivatives Risk
Derivatives are investments whose value depends on (or is derived from) the value of an underlying instrument, such as a security, asset, reference rate or index and involve risks different from, and possibly greater than, the risks associated with other investments. These risks include: (i) the risk that the counterparty to a derivatives transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. Such prices are influenced by numerous factors that affect the markets, including, but not limited to, changing supply and demand relationships, government programs and policies, national and international political and economic events, changes in interest rates, inflation and deflation, and changes in supply and demand relationships. Unlike other investments, derivative contracts often have leverage inherent in their terms. The use of leveraged derivatives can magnify potential for gain or loss and, therefore, amplify the effects of market volatility on the Fund’s Share price. The effects of leverage may also cause the Fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations or to meet collateral segregation requirements.
Foreign Securities Risk
Investments in the securities of non-U.S. issuers involve risks beyond those associated with investments in U.S. securities. These additional risks include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Some countries and regions have experienced security concerns, war or threats of war and aggression, terrorism, economic uncertainty, natural and environmental disasters and/or systemic market dislocations that have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on the U.S. and world economies and markets generally. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing, financial reporting and record keeping than are U.S. issuers, and therefore not all material information will be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact the Fund’s ability to invest in foreign securities or may prevent the Fund from repatriating its investments. Less developed securities markets are more likely to experience problems with the clearing and settling of trades, as well as the holding of securities by local banks, agents and depositories. The less developed a country’s securities market is, the greater the likelihood of custody problems.
High Yield Securities Risk
High yield securities, or “junk” bonds, generally offer a higher current yield than the yield available from higher grade issues, but are subject to greater market fluctuations, are less liquid and provide a greater risk of loss than investment grade securities, and therefore are considered to be highly speculative. In general, high yield securities may have a greater risk of default than other types of securities and could cause income and principal losses for the Fund.
Income Risk
The Fund’s income may decline when interest rates fall or if there are defaults in its portfolio. This decline can occur because the Fund may subsequently invest in lower-yielding securities when securities in its portfolio mature or the Fund otherwise needs to purchase additional securities.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory
restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders.
Industry/Sector Concentration Risk
The Fund’s investment of a large percentage of its assets in the securities of issuers within the same industry or sector means that an adverse economic, business or political development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. A concentration makes the Fund more susceptible to any single occurrence and may subject the Fund to greater market risk than a fund that is not so concentrated. To the extent that the Underlying Index is concentrated in a particular industry, the Fund also will be concentrated in that industry.
Communication Services Sector Risk
Companies in the communication services sector may be adversely affected by, among other things, industry competition, substantial capital requirements, changes in government regulation and obsolescence of communication services products due to technological advancement. Communication services companies may also be subject to risks associated with intellectual property use, fluctuating domestic and international demand, shifting demographics and changes in consumer tastes. While network security breaches can happen to all companies, certain communication services companies are more susceptible to hacking, theft of proprietary or consumer information and disruptions in service.
Financials Sector Risk
Companies in the financials sector may be adversely affected by, among other things, government regulations, economic conditions, credit rating downgrades, changes in currency exchange rates, volatile interest rates, decreased liquidity in credit markets and competition from new entrants. Profitability of these companies is largely dependent on the availability and cost of capital and can fluctuate significantly when interest rates change. Credit losses resulting from financial difficulties of borrowers also can negatively impact the sector. These companies are often subject to substantial government regulation and intervention, which may adversely impact the scope of their activities, the prices they can charge, the amount of capital they must maintain and, potentially, their size. The impact of more stringent capital requirements, or recent or future regulation in various countries on any individual financial company or on the financials sector as a whole cannot be predicted. The financials sector is also a target for cyber attacks and may experience technology malfunctions and disruptions.
Interest Rate Risk
An increase in interest rates may cause the value of securities held by the Fund to decline. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, making them more volatile than securities with shorter durations or floating or adjustable interest rates. The negative impact on the Fund from potential interest rate increases could be swift and significant, including falling market values, increased redemptions and reduced liquidity. The Fund may be subject to a greater risk of rising interest rates than would normally be the case due to the current period of historically low rates and the effect of potential government fiscal policy initiatives and resulting market reaction to those initiatives.
When interest rates rise, certain obligations will be paid off by the issuer (or other obligated party) more slowly than anticipated, causing the value of these securities to fall. As a result, in a period of rising interest rates, securities may exhibit additional volatility and may lose value. The value of securities with longer maturities generally changes more in response to changes in interest rates than does the value of securities with shorter maturities.
During periods of falling interest rates, an issuer of a callable security held by the Fund may “call” or repay the security before its stated maturity, which may result in the Fund having to reinvest the proceeds in securities with lower yields, resulting in a decline in the Fund’s income, or in securities with greater risks or with other less favorable features.
The terms of floating rate notes and other instruments may be tied to the London Interbank Offered Rate (“LIBOR”), which functions as a reference rate or benchmark. It is anticipated that LIBOR will be discontinued at the end of 2021, which may cause increased volatility and illiquidity in the markets for instruments with terms tied to LIBOR or other adverse consequences, such as decreased yields and reduction in value, for these instruments. These events may adversely affect the Fund and its investments in such instruments.
Investment Style Risk
The Underlying Index seeks to allocate investment exposure based upon a particular style of investing. Different investment styles tend to shift in and out of favor depending upon market and economic conditions and investor sentiment. As a consequence, the Fund may underperform as compared to the market generally or to other funds that invest in similar asset classes but employ different investment styles. Further, there is no guarantee that the Underlying Index will accurately or optimally utilize the investment style or that it will successfully provide the desired investment exposure.
Liquidity Risk
Liquidity risk exists when particular investments are difficult to purchase or sell. Certain investments may be subject to restrictions on resale, trade over-the-counter or in limited volume, or lack an active trading market. Accordingly, the Fund may not be able to sell or close out of such investments at favorable times or prices (or at all), or at the prices approximating those at which the Fund currently values them. Illiquid securities may trade at a discount from comparable, more liquid investments and may be subject to wide fluctuations in market value.
Market Risk
Market risks include political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on a Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and Advisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks.
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The Index Provider or the index calculation agent may make errors. The Index Provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund
incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions. Funds that track indices with significant weight in high yield securities may experience higher tracking error than other index ETFs that do not track such indices.
The Fund generally will not attempt to take defensive positions in declining markets and generally will not sell a security because its issuer is in financial trouble, unless that security is removed from (or was no longer useful in tracking a component of) the Underlying Index.
Portfolio Turnover Risk
The Fund’s strategy may frequently involve buying and selling portfolio securities to rebalance the Fund’s investment exposures. High portfolio turnover may result in the Fund paying higher levels of transaction costs and generating greater tax liabilities for shareholders. Portfolio turnover risk may cause the Fund’s performance to be less than expected.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask” spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her shares at a market price that is more than their value, and selling those shares at a market price that is less than their value.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Valuation Risk
Independent market quotations for certain investments held by the Fund may not be readily available, and such investments may be fair valued or valued by a pricing service at an evaluated price. These valuations involve subjectivity and different market participants may assign different prices to the same investment. As a result, there is a risk that the Fund may not be able to sell an investment at the price assigned to the investment by the Fund. In addition, the value of the securities or other assets in the Fund’s portfolio may change on days or during time periods when shareholders will not be able to purchase or sell the Fund’s Shares.
Performance Information
The bar chart that follows shows the annual total returns of the Fund for a full calendar year. The table that follows the bar chart shows the Fund’s average annual total return, both before and after taxes. The bar chart and table provide an indication of the risks of investing in the Fund by comparing the Fund’s performance from year to year and by showing how the Fund’s average annual returns for one calendar year compared with its underlying index and additional broad measures of market performance. The S&P U.S. High Yield Low Volatility Corporate Bond Index is designed to measure the performance of U.S. high yield corporate bonds with potentially low volatility. The ICE BofAML U.S. High Yield Index tracks the performance of U.S. dollar-denominated below investment grade corporate debt publicly issued in the U.S. domestic market.
All returns assume reinvestment of dividends and distributions. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Performance reflects fee
waivers and/or expense reimbursement in effect, if such waivers or reimbursements were not in place, the Fund’s performance would be reduced. Fund performance current to the most recent month-end is available by calling 1-888-474-7725 or by visiting newyorklifeinvestments.com.
The Fund’s year-to-date total returns as of June 30, 2021 was 1.14%.
Best and Worst Quarter Returns (for the period reflected in the bar chart above)
| | | Return | | | Quarter/Year | |
Highest Return | | | | | 6.63% | | | | | | 1Q/2019 | | |
Lowest Return | | | | | -7.37% | | | | | | 1Q/2020 | | |
Average Annual Total Returns as of December 31, 2020
| | | 1 Year | | | Since Inception(1) | |
Returns before taxes | | | | | 4.00% | | | | | | 4.60% | | |
Returns after taxes on distributions(2) | | | | | 2.27% | | | | | | 2.83% | | |
Returns after taxes on distributions and sales of Fund shares(2) | | | | | 2.32% | | | | | | 2.73% | | |
S&P U.S. High Yield Low Volatility Corporate Bond Index (reflects no deduction for fees, expenses or taxes) | | | | | 4.91% | | | | | | 5.04% | | |
ICE BofAML U.S. High Yield Index (reflects no deduction for fees, expenses or taxes) | | | | | 6.17% | | | | | | 5.92% | | |
(1)
(2)
Investment Advisor and Subadvisor
IndexIQ Advisors LLC (the “Advisor”) is the investment advisor to the Fund.
MacKay Shields LLC (the “Subadvisor”) is the investment subadvisor to the Fund.
Portfolio Managers
Alexandra Wilson-Elizondo and Eric Gold of the Subadvisor are primarily responsible for the day-to-day management of the Fund. Ms. Wilson-Elizondo has been a portfolio manager of the Fund since its inception. Mr. Gold has been a portfolio manager of the Fund since August 2021.
Purchase and Sale of Fund Shares
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in large blocks of Shares called “Creation Units.” Individual Shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since Shares of the Fund trade on securities exchanges in the secondary market at their market price rather than their NAV, the Fund’s Shares may trade at a price greater than (premium) or less than (discount) the Fund’s NAV. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares of the Fund (bid) and the lowest price a seller is willing to accept for Shares of the Fund (ask) when buying or selling Shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s NAV, market price, premiums and discounts, and bid-ask spreads, is available online at newyorklifeinvestments.com.
Tax Information
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
Financial Intermediary Compensation
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
Overview
The Trust is an investment company consisting of a number of separate investment portfolios (each, a “Fund” and together, the “Funds”) that are structured as exchange-traded funds (“ETFs”). Each share of a Fund represents an ownership interest in the securities and other instruments comprising a Fund’s portfolio. Unlike shares of a mutual fund, which can be bought and redeemed from the issuing fund by all shareholders at a price based on net asset value (“NAV”), shares of an ETF (such as the Fund) are listed on a national securities exchange and trade in the secondary market at market prices that change throughout the day, and may differ from a Fund’s NAV. IndexIQ Advisors LLC (the “Advisor”) is the investment advisor to the Fund and MacKay Shields LLC (the “Subadvisor”) is the investment subadvisor to the Fund.
The Fund has a distinct investment objective and policies. Each of the policies described herein, including the investment objective of the Fund, constitutes a non-fundamental policy that may be changed by the Board of Trustees of the Trust (the “Board”) without shareholder approval. Certain fundamental policies of the Fund are set forth in the Fund’s Statement of Additional Information (the “SAI”) under “Investment Restrictions.” There can be no assurance that the Fund’s objective will be achieved.
Description of the Principal Investment Strategies of the Fund
The Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index (each, an “Underlying Index”). The Underlying Index consists of a number of components (“Underlying Index Components”) selected in accordance with the Underlying Index’s rules-based methodology. The Fund employs a “passive management” — or indexing — investment approach designed to track the performance of its Underlying Index. Under normal circumstances, the Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the components that make up its Underlying Index or in depositary receipts based on the securities in the Underlying Index. In determining the Fund’s net assets for the purposes of this 80% threshold, accounting practices do not include collateral held under the Fund’s securities lending program, as such collateral does not represent a true asset of the Fund.
The Fund uses a “representative sampling” strategy in seeking to track the performance of the Underlying Index. A fund using a representative sampling strategy generally will invest in a sample of securities that collectively has an investment profile similar to that of the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (including, but not limited to return variability, duration, maturity, credit ratings and yield) and liquidity measures similar to those of the Underlying Index. The Fund may also invest in credit default swaps and futures contracts to seek to track the Underlying Index.
There also may be instances in which the Subadvisor may choose to (i) overweight a security in the Underlying Index, (ii) purchase securities not contained in the Underlying Index that the Subadvisor believes are appropriate to substitute for certain securities in the Underlying Index, or (iii) utilize various combinations of other available investment techniques in seeking to track the Underlying Index. The Fund may sell securities that are represented in the applicable Underlying Index in anticipation of their removal from the Underlying Index or purchase securities not represented in the Underlying Index in anticipation of their addition to the Underlying Index.
The Fund may invest up to 20% of its net assets in investments not included in its Underlying Index, but which the Subadvisor believes will help the Fund track its Underlying Index. Such investments may include the use of one or more financial instruments, including but not limited to futures contracts and swap agreements (collectively, “Financial Instruments”). The Fund will not directly employ leverage in its investment strategies; nevertheless, the Fund may indirectly be leveraged if and to the extent the Fund invests in Financial Instruments to replicate an exposure to an inverse ETF that is leveraged.
In accordance with Rule 35d-1 under the Investment Company Act of 1940 (the “1940 Act”), the Fund has adopted a policy that it will, under normal circumstances, invest at least 80% of the value of its assets (net assets plus the amount of any borrowings for investment purposes) in investments of the type suggested by the Fund’s name. Such policy is “non-fundamental,” which means that it may be changed without the vote of a majority
of the Fund’s outstanding shares as defined in the 1940 Act. Such policies generally provide a fund’s shareholders with at least 60 days’ prior notice of any changes in a fund’s non-fundamental investment policy with respect to investments of the type suggested by its name. The Fund may count investments in underlying funds toward various guideline tests (such as the 80% test required under Rule 35d-1 under the 1940 Act).
The Fund has adopted a policy that it will, under normal circumstances, invest at least 80% of the value of its assets (net assets plus the amount of any borrowings for investment purposes) in high yield bonds.
The Fund’s investments are subject to certain requirements imposed by law and regulation, as well as the Fund’s investment strategy. These requirements are generally applied at the time the Fund invests its assets. If, subsequent to an investment by the Fund, this requirement is no longer met, the Fund’s future investments will be made in a manner that will bring the Fund into compliance with this requirement.
Additional Investment Strategies
In addition to its principal investment strategies, the Fund may also invest in money market instruments, including short-term debt instruments and repurchase agreements or other funds that invest exclusively in money market instruments (subject to applicable limitations under the 1940 Act, or exemptions therefrom), rather than Underlying Index Components, when it would be more efficient or less expensive for a Fund to do so, or as cover for Financial Instruments, for liquidity purposes, or to earn interest. Swaps and other Financial Instruments may be used by a Funds to seek performance that corresponds to its Underlying Index and to manage cash flows.
Borrowing Money
The Fund may borrow money from a bank as permitted by the 1940 Act or the rules thereunder, or by the U.S. Securities and Exchange Commission (“SEC”) or other regulatory agency with authority over the Fund, but only for temporary or emergency purposes. The 1940 Act presently allows a fund to borrow from any bank (including pledging, mortgaging or hypothecating assets) in an amount up to 33 1/3% of its total assets (not including temporary borrowings not in excess of 5% of its total assets).
Securities Lending
The Fund may lend its portfolio securities. A securities lending program allows the Fund to receive a portion of the income generated by lending its securities and investing the respective collateral. In connection with such loans, the Fund receives liquid collateral equal to at least 102% (105% for foreign securities) of the value of the portfolio securities being lent. This collateral is marked to market on each trading day.
Description of the Principal Risks of the Fund
Investors in the Fund should carefully consider the risks of investing in the Fund as set forth in the Fund’s Summary Information section under “Principal Risks.”
Authorized Participant Concentration Risk
Only an Authorized Participant may engage in creation or redemption transactions directly with the Fund. Each Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the extent that Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to create or redeem Creation Units, Shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting. This risk may be heightened for ETFs that invest in non-U.S. securities because such securities often involve greater settlement and operational issues for Authorized Participants that may further limit the availability of Authorized Participants.
Credit Risk
Credit risk is the risk that the issuer or guarantor of a debt instrument or the counterparty to a derivatives contract, repurchase agreement or loan of portfolio securities will be unable or unwilling to make its timely interest and/or principal payments or to otherwise honor its obligations. There are varying degrees of credit risk, depending on an issuer’s or counterparty’s financial condition and on the terms of an obligation, which may be reflected in the issuer’s or counterparty’s credit rating. There is the chance that the Fund’s portfolio holdings will have their credit ratings downgraded or will default (i.e., fail to make scheduled interest or principal payments), or that the market’s perception of an issuer’s or counterparty’s creditworthiness may worsen, potentially reducing the Fund’s income level or Share price. The value of an investment in the Fund may change quickly and without warning in response to issuer defaults, changes in the credit ratings of the Fund’s portfolio securities and/or perceptions related thereto.
Cyber Security Risk
The Funds are susceptible to operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a Fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. These risks typically are not covered by insurance. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber incidents include, but are not limited to, gaining unauthorized access to digital systems (e.g., through “hacking” or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data or causing operational disruption. Cyber attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make network services unavailable to intended users). Cyber security failures by or breaches of the systems of security issuers, the Advisor, distributor and other service providers (including, but not limited to, sub-advisors, index providers, fund accountants, custodians, transfer agents and administrators), market makers, Authorized Participants or the issuers of securities in which a Fund invests, have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with a Fund’s ability to calculate its NAV, disclosure of confidential trading information, impediments to trading, submission of erroneous trades or erroneous creation or redemption orders, the inability of a Fund or its service providers to transact business, violations of applicable privacy and other laws, regulatory fines and other penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs. Substantial costs may be incurred by a Fund in order to resolve or prevent cyber incidents in the future. While the Funds have established business continuity plans in the event of, and risk management systems to prevent, such cyber attacks, there are inherent limitations in such plans and systems, including the possibility that certain risks have not been identified and that prevention and remediation efforts will not be successful. Furthermore, the Funds cannot control the cyber security plans and systems put in place by service providers to the Funds, issuers in which the Funds invest, Authorized Participants or market makers. There is no guarantee that such preventative efforts will succeed, and the Funds and their shareholders could be negatively impacted as a result.
Debt Securities Risk
The risks of investing in debt securities include (without limitation): (i) credit risk, e.g., the issuer or guarantor of a debt security may be unable or unwilling (or be perceived as unable or unwilling) to make timely principal and/or interest payments or otherwise honor its obligations; (ii) interest rate risk, e.g., when interest rates go up, the value of a debt security generally goes down, and when interest rates go down, the value of a debt security generally goes up; (iii) liquidity risk and valuation risk, e.g., debt securities generally do not trade on a securities exchange, making them generally less liquid and more difficult to value than common stock; (iv) call risk and income risk, e.g., during a period of falling interest rates, the issuer may redeem a security by repaying it early, which may reduce a Fund’s income if the proceeds are reinvested at lower interest rates; and (v) extension risk, e.g., if interest rates rise, repayments of debt securities may occur more slowly than anticipated by the market, which may drive the prices of these securities down because their interest rates are lower than the current interest rate and the securities remain outstanding longer. Debt securities most frequently trade in institutional round lot size transactions. If the Fund purchases bonds in amounts less than the institutional round lot size, which are frequently referred to as “odd” lots, the odd lot size positions may have more price volatility than institutional round lot size positions. The Fund uses a third-party pricing service to value bond holdings and the pricing service values bonds assuming orderly transactions of an institutional round lot size.
Derivatives Risk
Derivatives are investments whose value depends on (or is derived from) the value of an underlying instrument, such as a security, asset, reference rate or index and involve risks different from, and possibly greater than, the risks associated with other investments. These risks include: (i) the risk that the counterparty to a derivatives transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. Such prices are influenced by numerous factors that affect the markets, including, but not limited to, changing supply and demand relationships, government programs and policies, national and international political and economic events, changes in interest rates, inflation and deflation, and changes in supply and demand relationships. Unlike other investments, derivative contracts often have leverage inherent in their terms. This leverage creates a disconnect between the initial amount of an investment relative to the risk assumed and introduces the
possibility that a relatively small movement in the value of an underlying reference asset can result in an immediate and substantial loss to a party to a derivative contract. In general, the use of leveraged derivatives can magnify potential for gain or loss and, therefore, amplify the effects of market volatility on the Share price. The effects of leverage may also cause the Fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations or to meet collateral segregation requirements. In the event of the bankruptcy or insolvency of a counterparty, the Fund could experience the loss of some or all of its investment in a derivative or experience delays in liquidating its positions, including declines in the value of its investment during the period in which the Fund seeks to enforce its rights, and an inability to realize any gains on its investment during such period. The Fund may also incur fees and expenses in enforcing its rights. Certain derivatives are subject to mandatory clearing. Central clearing is intended to reduce counterparty credit risk and increase liquidity, but central clearing does not make derivatives transactions risk-free.
Foreign Securities Risk
These additional risks include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Some countries and regions have experienced security concerns, war or threats of war and aggression, terrorism, economic uncertainty, natural and environmental disasters and/or systemic market dislocations that have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on the U.S. and world economies and markets generally. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing, custody, financial reporting and record keeping than are U.S. issuers, and therefore not all material information will be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact the Fund’s ability to invest in foreign securities or may prevent the Fund from repatriating its investments. Non-U.S. transaction costs, such as brokerage commissions and custody costs, may be higher than in the United States. In some non-U.S. markets, custody arrangements for securities provide significantly less protection than custody arrangements in U.S. markets. Prevailing custody and trade settlement practices (e.g., the requirement to pay for securities prior to receipt) could similarly expose the Fund to credit and other risks it does not have in the United States with respect to participating brokers, custodians, clearing banks or other clearing agents, escrow agents and issuers. In addition, the Fund may not receive shareholder communications or be permitted to vote the securities it holds, as the issuers may be under no legal obligation to distribute them.
Less developed securities markets are more likely to experience problems with the clearing and settling of trades, as well as the holding of securities by local banks, agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle, and governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. Local agents are held only to the standards of care of their local markets. The less developed a country’s securities market is, the greater the likelihood of custody problems.
High Yield Securities Risk
The Fund’s investment in high yield securities, or “junk” bonds, may entail increased credit risks and the risk that the value of the Fund’s assets will decline, and may decline precipitously, with increases in interest rates. High yield securities are, under most circumstances, subject to greater market fluctuations and risk of loss of income and principal than are investments in lower-yielding, higher-rated debt securities. As interest rates rise, the value of high yield securities may decline precipitously. Increased rates may also indicate a slowdown in the economy, which may adversely affect the credit of issuers of high yield securities and result in a higher incidence of defaults among such issuers. A slowdown in the economy, or a development adversely affecting an issuer’s creditworthiness, may result in the issuer being unable to maintain earnings or sell assets at the rate and at the prices, respectively, that are required to produce sufficient cash flow to meet its interest and principal requirements. The Fund’s portfolio managers cannot predict future economic policies or their consequences or, therefore, the course or extent of any similar market fluctuations in the future. In addition, high yield securities are generally less liquid than investment grade securities.
Income Risk
The Fund’s income may decline when interest rates fall or if there are defaults in its portfolio. This decline can occur because the Fund may subsequently invest in lower-yielding securities when securities in its portfolio mature or the Fund otherwise needs to purchase additional securities.
Index Risk
There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of its Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in
order to track its Underlying Index. Errors in index data, index computations or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected for a period of time or at all, which may have an adverse impact on the Fund and its shareholders. Apart from scheduled rebalances, the Underlying Index may undergo additional ad hoc rebalances in order, for example, to correct an error in the selection of index constituents. When the Fund’s Underlying Index is rebalanced and the Fund in turn rebalances its portfolio to attempt to increase the correlation between the Fund’s portfolio and the Underlying Index, any transaction costs and market exposure arising from such portfolio rebalancing will be borne directly by the Fund and its shareholders. Unscheduled rebalances to the Underlying Index may expose the Fund to additional tracking error risk, which is the risk that the Fund’s returns may not track those of the Underlying Index. Therefore, index errors and additional ad hoc rebalances may increase the costs to and the tracking error risk of the Fund.
In constructing an Underlying Index, the Index Provider may utilize quantitative models or methodologies that may be proprietary or developed by third-parties. These models and methodologies are used to determine the composition of the Underlying Index and may not adequately take into account certain factors, resulting in a decline in the value of the Underlying Index and, therefore, the Fund. Models rely on accurate financial and market data inputs. If inaccurate data is entered into a model, the resulting information will be incorrect. In addition, the models used by be predictive and nature and such models may result in an incorrect assessment of future events. The models evaluate securities or securities markets based on certain assumptions concerning the interplay of market factors. The markets or prices of individual securities may be affected by factors not foreseen in developing the models. The historical correlations and relationships between individual securities or asset classes, upon which a model may be based, may not continue in the future.
Industry/Sector Concentration Risk
The Fund’s investment of a large percentage of its assets in the securities of issuers within the same industry or sector means that an adverse economic, business or political development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. A concentration makes the Fund more susceptible to any single occurrence and may subject the Fund to greater market risk than a fund that is not so concentrated.
Communication Services Sector Risk. Communication services companies may be affected by legislative or regulatory changes, adverse market conditions, and/or increased competition. Rapid advancements in technology, innovation of competitors, product obsolescence and government regulation make communication services companies particularly vulnerable. Communication services companies also rely on the use of intellectual property such as patents, copyrights and trademarks owned internationally or licensed through third-parties. Infringement of intellectual property claims could have an adverse effect on the company. Changes in domestic and international demand, shifting demographics and unpredictable changes in consumer tastes can drastically affect a communication services company’s profitability. While all companies may be susceptible to network security breaches, certain communication services companies may be particular targets of hacking and potential theft of proprietary or consumer information or disruptions in service, which could have a material adverse effect on their businesses.
Financials Sector Risk. Companies in the financials sector, including retail and commercial banks, insurance companies and financial services companies, may be adversely impacted by many factors, including, among others, government regulations, economic conditions, credit rating downgrades, changes in currency exchange rates, volatile interest rates, decreased liquidity in credit markets and competition from new entrants. Profitability of these companies is largely dependent on the availability and cost of capital and can fluctuate significantly when interest rates change. Credit losses resulting from financial difficulties of borrowers also can negatively impact the sector. Companies in the financials sector 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 financials 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 financials 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 financials sector may also be adversely affected by increases in interest rates and loan losses, decreases in the availability of money or asset valuations 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. The financials sector has been subject to increased scrutiny by international regulators and future regulations could be imposed that would have an adverse economic impact on financial companies. Recently, the financials sector has been prone to cyber attacks and technology malfunctions and failures, which have caused losses to financial companies.
Interest Rate Risk
An increase in interest rates may cause the value of certain fixed income securities held by the Fund to decline. Many factors can cause interest rates to rise, such as central bank monetary policies, inflation rates, general economic conditions and expectations about the foregoing. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, making them more volatile than securities with shorter durations or floating or adjustable interest rates. Duration is a measure used to determine the sensitivity of a fixed income security’s price to changes in interest rates. For example, the value of a fixed income security with a duration of three years would be expected to decrease by 3% for every 1% increase in interest rates. The negative impact on the Fund from potential interest rate increases could be swift and significant, including falling market values, increased redemptions and reduced liquidity. Substantial shareholder redemptions may worsen this impact. An increase in interest rates could also cause principal payments on a fixed income security to be repaid at a slower rate than expected. This risk is particularly prevalent for a callable debt security where an increase in interest rates could cause the issuer of that security to not redeem the security as anticipated on the call date, effectively lengthening the security’s expected maturity, in turn making that security more vulnerable to interest rate risk and reducing its market value. The Fund may be subject to a greater risk of rising interest rates than would normally be the case due to the current period of historically low rates and the effect of potential government fiscal policy initiatives and resulting market reaction to those initiatives.
When interest rates rise, certain obligations will be paid off by the issuer (or other obligated party) more slowly than anticipated, causing the value of these securities to fall. Rising interest rates tend to extend the duration of fixed income securities, making their market value more sensitive to changes in interest rates. As a result, in a period of rising interest rates, securities may exhibit additional volatility and may lose value. The value of securities with longer maturities generally changes more in response to changes in interest rates than does the value of securities with shorter maturities. Extension risk is particularly prevalent for a callable fixed income security where an increase in interest rates could result in the issuer of that security choosing not to redeem the security as anticipated on the security’s call date. Such a decision by the issuer could have the effect of lengthening the security’s expected maturity, making it more vulnerable to interest rate risk and reducing its market value.
Some securities may be redeemed at the option of the issuer, or “called,” before their stated maturity date. In general, an issuer will call its debt securities if they can be refinanced by issuing new debt securities which bear a lower interest rate. The Fund is subject to the possibility that during periods of falling interest rates an issuer will call its high-yielding debt securities. The Fund may then be forced to invest the unanticipated proceeds in securities with lower yields, resulting in a decline in the Fund’s income, or in securities with greater risks or with other less favorable features. Such redemptions and subsequent reinvestments would also increase the Fund’s portfolio turnover. If a called debt security was purchased by the Fund at a premium, the value of the premium may be lost in the event of a redemption.
The terms of floating rate notes and other instruments may be tied to the London Interbank Offered Rate (“LIBOR”), which functions as a reference rate or benchmark. It is anticipated that LIBOR will be discontinued at the end of 2021, which may cause increased volatility and illiquidity in the markets for instruments with terms tied to LIBOR or other adverse consequences, such as decreased yields and reduction in value, for these instruments. These events may adversely affect the Fund and its investments in such instruments. For more information on the risks associated with the discontinuation and transition of LIBOR, please see “LIBOR Replacement Risk.”
Investment Style Risk
The Underlying Index seeks to allocate investment exposure based upon a particular style of investing. Different investment styles tend to shift in and out of favor depending upon market and economic conditions and investor sentiment. As a consequence, the Fund may underperform as compared to the market generally or to other funds that invest in similar asset classes but employ different investment styles. Further, there is no guarantee that the Underlying Index will accurately or optimally utilize the investment style or that it will successfully provide the desired investment exposure.
Low Volatility Investing Style Risk. While the Fund seeks to invest in securities exhibiting lower levels of volatility, there is no guarantee it will successfully do so. The value of the securities in the Fund’s portfolio may fluctuate, sometimes rapidly and unpredictably. The prices may not be any less volatile than the market as a whole, and could be more volatile. During periods of market expansion, an investment portfolio comprised of low volatility securities may underperform. Low volatility securities may go in and out of favor over time.
Liquidity Risk
Liquidity risk exists when particular investments are difficult to purchase or sell. To the extent the Fund invests in illiquid securities or securities that become less liquid, such investments may have a negative effect on the returns of the Fund because the Fund may be unable to sell the illiquid securities at an advantageous time or price. Securities with substantial market and/or credit risk may be especially susceptible to liquidity risk. Liquidity risk may be the result of, among other things, an investment being subject to restrictions on resale, trading over-the-counter or in limited volume, or lacking an active trading market. Liquid investments may become illiquid or less liquid after purchase by the Fund, particularly during periods of market turmoil or economic uncertainty. Illiquid and relatively less liquid investments may be harder to value, especially in changing markets. If the Fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or for other cash needs, the Fund may suffer a loss. This may be magnified in a rising interest rate environment or under other circumstances where redemptions from the Fund may be higher than normal. It may also be the case that other market participants may be attempting to liquidate similar holdings at the same time as the Fund, causing increased supply in the market and contributing to liquidity risk and downward pricing pressure. There can be no assurance that a security that is deemed to be liquid when purchased will continue to be liquid or as long as it is held by the Fund.
Market Risk
The value of the Fund’s investments may fluctuate and/or decline because of changes in the markets in which the Fund invests, which could cause the Fund to underperform other funds with similar investment objectives and strategies. Security markets are volatile and may decline significantly in response to adverse issuer, regulatory, political, or economic developments. Different sectors of the market and different security types may react differently to such developments. Changes in these markets may be rapid and unpredictable. Fluctuations in the markets generally or in a specific industry or sector may impact the securities in which the Fund invests. From time to time, markets may experience periods of stress for potentially prolonged periods that may result in: (i) increased market volatility; (ii) reduced market liquidity; and (iii) increased redemptions of Fund Shares. Such conditions may add significantly to the risk of volatility in the NAV of the Fund’s Shares and the market prices at which Shares of the Fund trade on a securities exchange. During periods of market stress Shares of the Fund may also experience significantly wider “bid/ask” spreads and premiums and discounts between the Fund’s NAV and market price.
Market changes may impact equity and fixed income securities in different and, at times, conflicting manners. The Fund potentially will be prevented from executing investment decisions at an advantageous time or price as a result of any domestic or global market disruptions, particularly disruptions causing heightened market volatility and reduced market liquidity, as well as increased or changing regulations or market closures. Thus, investments that the Advisor or Subadvisor believes best enable the Fund to track the performance of its Underlying Index may be unavailable entirely or in the specific quantities sought by the Advisor or Subadvisor and the Fund may need to obtain the exposure through less advantageous or indirect investments or forgo the investment at the time. Securities and investments included as components of the Underlying Index may be susceptible to declines in value, including declines in value that are not believed to be representative of the issuer’s value or fundamentals, due to investor reactions to such events. In response to market volatility and disruption, the Underlying Index may delay rebalancing, implement temporary or permanent modifications to its methodology or take other actions.
Political and diplomatic events within the United States and abroad, such as the U.S. budget and deficit reduction plans, protectionist measures, trade tensions central bank policy and government intervention in the economy, has in the past resulted, and may in the future result, in developments that present additional risks to the Fund’s investments and operations. Geopolitical and other events, such as war, acts of terrorism, natural disasters, the spread of infectious illnesses, epidemics and pandemics, environmental and other public health issues, recessions or other events, and governments’ reactions to such events, may lead to increased market volatility and instability in world economies and markets generally and may have adverse effects on the
performance of the Fund and its investments. Additional and/or prolonged geopolitical or other events may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. Any such market, economic and other disruptions could also prevent the Fund from executing its investment strategies and processes in a timely manner.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. When you sell your Shares, they could be worth less than what you paid for them.
Market Disruption Risk and Recent Market Events
Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the Fund and its investments. Market disruptions could cause the Fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets. Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant restrictions, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The Fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the Fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.
Operational Risk
The Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund, Advisor and Subadvisor seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant operational risks
Passive Management Risk
The Fund is not actively managed and instead seeks to track the performance of an index. Passive management has the following risks associated with it:
•
The Fund invests in the securities included in, or representative of, the Underlying Index. The Index Provider or the index calculation agent may make errors. The Index Provider may include index constituents that should have been excluded, or it may exclude index constituents that should have been included. It also may include or exclude constituents at incorrect levels. This may result in the Fund, in turn, being correctly positioned to an index that has been incorrectly calculated. This could lead to losses to the Fund.
•
In seeking to track the Underlying Index’s performance, the Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Underlying Index, pricing differences (including, as applicable, differences between a security’s price at the local market close and the Fund’s valuation of a security at the time of calculation of the Fund’s NAV), differences in transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of or the valuation of dividends or interest, the requirements to maintain pass-through tax treatment, portfolio transactions carried out to minimize the distribution of capital gains to shareholders, changes to the Underlying Index or the costs to the Fund of complying with various new or existing regulatory requirements. Tracking error also may result because the Fund
incurs fees and expenses, while the Underlying Index does not. This risk may be heightened during times of increased market volatility or other unusual market conditions. Funds that track indices with significant weight in high yield securities may experience higher tracking error than other index ETFs that do not track such indices.
Portfolio Turnover Risk
The Fund’s strategy may frequently involve buying and selling portfolio securities to rebalance the Fund’s investment exposures. High portfolio turnover may result in the Fund paying higher levels of transaction costs and generating greater tax liabilities for shareholders. Portfolio turnover risk may cause the Fund’s performance to be less than expected.
Secondary Market Trading Risk
Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants. The trading of Shares on securities exchanges is subject to the risk of irregular trading activity. Additionally, market makers are under no obligation to make a market in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV. Wide bid-ask spreads and large premiums or discounts to NAV are likely to lead to an investor buying his or her Shares at a market price that is more than their value, and selling those Shares at a market price that is less than their value.
Buying or selling Shares on an exchange involves two types of costs that apply to all securities transactions. When buying or selling Shares through a broker, you will likely incur a brokerage commission and other charges. In addition, you may incur the cost of the “spread” — the difference between what investors are willing to pay for Shares (the “bid” price) and the price at which they are willing to sell Fund shares (the “ask” price). The spread, which varies over time for Shares based on trading volume and market liquidity, is generally narrower if the Fund has more trading volume and market liquidity and wider if the Fund has less trading volume and market liquidity. The risk of wide bid and ask spreads may be especially pronounced for smaller funds. In addition, increased market volatility may cause wider spreads. There may also be regulatory and other charges that are incurred as a result of trading activity. Because of the costs inherent in buying or selling Shares, frequent trading may detract significantly from investment results and an investment in Shares may not be advisable for investors who anticipate regularly making small investments through a brokerage account.
Securities exchanges have requirements that must be met in order for Shares to be listed. There can be no assurance that the requirements of an exchange necessary to maintain the listing of Shares will continue to be met. This risk is particularly acute for funds that fail to attract a large number of shareholders. Pursuant to an exchange’s “circuit breaker” rules, trading in a Fund’s Shares may be halted due to extraordinary market volatility.
Trading Price Risk
Shares of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares and the Fund’s NAV. As a result, the trading prices of the Shares may deviate significantly from NAV during periods of market volatility. The market price of the 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 Shares. In times of severe market disruption, the bid/ask spread can increase significantly. At those times, Shares are most likely to be traded at a discount to NAV, and the discount is likely to be greatest when the price of Shares is falling fastest, which may be the time that an investor most wants to sell their Shares. Although it is generally expected that the market price of the Shares will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares. While the creation/redemption feature is designed to make it more likely that the Shares normally will trade on securities exchanges at prices close to the Fund’s next calculated NAV, exchange prices are not expected to correlate exactly with the Fund’s NAV due to timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions at market makers, Authorized Participants, or other market participants, and during periods of significant market
volatility, may result in trading prices for Shares that differ significantly from its NAV. Authorized Participants may be less willing to create or redeem Shares if there is a lack of an active market for such Shares or its underlying investments, which may contribute to the Fund’s Shares trading at a premium or discount to NAV. Additionally, similar to shares of other issuers listed on a securities exchange, the Shares may be sold short and are therefore subject to the risk of increased volatility and price decreases associated with being sold short. Any of these factors, among others, may lead to the Shares trading at a premium or discount to NAV.
Valuation Risk
Independent market quotations for certain investments held by a Fund may not be readily available, and such investments may be fair valued or valued by a pricing service at an evaluated price. These valuations involve subjectivity and different market participants may assign different prices to the same investment. As a result, there is a risk that a Fund may not be able to sell an investment at the price assigned to the investment by the Fund. In addition, the value of the securities or other assets in a Fund’s portfolio may change on days or during time periods when shareholders will not be able to purchase or sell the Fund’s Shares. Authorized Participants who purchase or redeem Shares on days when a Fund is holding fair-valued securities may receive fewer or more shares, or lower or higher redemption proceeds, than they would have received had the Fund not fair-valued securities or used a different valuation methodology. A Fund’s ability to value investments may be impacted by technological issues or errors by pricing services or other third-party service providers.
Additional Risks
Large Investments Risk
From time to time, the Fund may receive large purchase or redemption orders from affiliated or unaffiliated funds or other investors. In addition, any third-party investor, investment advisor affiliate, authorized participant, lead market maker or other entity may make a large investment in the Fund and hold its investment for any number of reasons, including to facilitate such Fund’s commencement of operations or to facilitate the Fund’s achieving a specified size or scale. There can be no assurance that any large shareholder would not sell or redeem its investment at any given time, either in a single transaction or over time.
These large transactions, and particularly redemptions, could have adverse effects on the Fund, including: (i) negative impacts to performance if the Fund were required to sell securities, invest cash or hold significant cash at times when it otherwise would not do so; (ii) wider price spreads or greater premiums/discounts that could materialize as a result of lower secondary market volume of shares; and (iii) negative federal income tax consequences if this activity accelerated the realization of capital gains.
LIBOR Replacement Risk
The terms of floating rate loans, financings or other transactions in the U.S. and globally have been historically tied to LIBOR, which functions as a reference rate or benchmark for various commercial and financial contracts. LIBOR may be a significant factor in determining payment obligations under derivatives transactions, the cost of financing of a Fund’s investments or the value or return on certain other Fund investments. As a result, LIBOR may be relevant to, and directly affect, a Fund’s performance. The Financial Conduct Authority, the United Kingdom’s financial regulatory body and regulator of LIBOR, has announced that after 2021 it will cease its active encouragement of banks to provide the quotations needed to sustain LIBOR due to the absence of an active market for interbank unsecured lending and other reasons. However, it is possible that certain LIBOR tenors may continue beyond 2021 and the most widely used LIBOR tenors may continue until mid-2023. As a result, it is anticipated that LIBOR will be discontinued or will no longer be sufficiently robust to be representative of its underlying market around that time. Various financial industry groups have begun planning for that transition and certain regulators and industry groups have taken actions to establish alternative reference rates (e.g., the Secured Overnight Financing Rate, which measures the cost of overnight borrowings through repurchase agreement transactions collateralized with U.S. Treasury securities and is intended to replace U.S. dollar LIBOR with certain adjustments). However, there are challenges to converting certain contracts and transactions to a new benchmark and neither the full effects of the transition process nor its ultimate outcome is known.
The transition process might lead to increased volatility and illiquidity in markets for instruments with terms tied to LIBOR. It could also lead to a reduction in the interest rates on, and the value of, some LIBOR-based investments and reduce the effectiveness of hedges mitigating risk in connection with LIBOR-based investments. Although some LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available by providing for an alternative rate-setting methodology and/or increased costs for certain LIBOR-related instruments or
financing transactions, others may not have such provisions and there may be significant uncertainty regarding the effectiveness of any such alternative methodologies. Instruments that include robust fallback provisions to facilitate the transition from LIBOR to an alternative reference rate may also include adjustments that do not adequately compensate the holder for the different characteristics of the alternative reference rate. The result may be that the fallback provision results in a value transfer from one party to the instrument to the counterparty. Additionally, because such provisions may differ across instruments (e.g., hedges versus cash positions hedged), LIBOR’s cessation may give rise to basis risk and render hedges less effective. As the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects and related adverse conditions could occur prior to the end of 2021 with respect to certain LIBOR tenors or mid-2023 for the remaining LIBOR tenors. There also remains uncertainty and risk regarding the willingness and ability of issuers to include enhanced provisions in new and existing contracts or instruments, notwithstanding significant efforts by the industry to develop robust LIBOR replacement clauses. The effect of any changes to, or discontinuation of, LIBOR on a Fund will vary depending, among other things, on (1) existing fallback or termination provisions in individual contracts and the possible renegotiation of existing contracts and (2) whether, how, and when industry participants develop and adopt new reference rates and fallbacks for both legacy and new products and instruments. A Fund’s investments may also be tied to other interbank offered rates and currencies, which also will likely face similar issues. In many cases, in the event that an instrument falls back to an alternative reference rate, including the Secured Overnight Financing Rate, the alternative reference rate will not perform the same as LIBOR because the alternative reference rate does not include a credit sensitive component in the calculation of the rate. Alternative reference rates generally reflect the performance of the market for U.S. treasury securities, which are secured by the U.S. treasury, and not the inter-bank lending markets. In the event of a credit crisis, floating rate instruments using certain alternative reference rates could therefore perform differently than those instruments using a rate indexed to the inter-bank lending market.
Various pending legislation, including in the U.S. Congress and the New York state legislature, may affect the transition of LIBOR-based instruments as well by permitting trustees and calculation agents to transition instruments with no LIBOR transition language to an alternative reference rate selected by such agents. Those legislative proposals include safe harbors from liability, which may limit the recourse a Fund may have if the alternative reference rate does not fully compensate the Fund for the transition of an instrument from LIBOR. It is uncertain whether such legislative proposals will be signed into law.
These developments could negatively impact financial markets in general and present heightened risks, including with respect to a Fund’s investments. As a result of this uncertainty and developments relating to the transition process, a Fund and its investments may be adversely affected.
Securities Lending Risk
Securities lending involves the risk that the borrower of the loaned securities fails to return the securities in a timely manner or at all. The Fund could also lose money due to a decline in the value of collateral provided for loaned securities or any investments made with cash collateral. These events could also trigger adverse tax consequences for the Fund. To the extent the collateral provided or investments made with cash collateral differ from securities included in the Fund’s Underlying Index, such collateral or investments may have a greater risk of loss than the securities included in the Underlying Index.
Underinvestment Risk
If certain aggregate ownership thresholds are reached either through the actions of the Advisor and its affiliates or the Fund, or as a result of third-party transactions, the ability of the Advisor on behalf of clients (including the Fund) to purchase or dispose of investments, or exercise rights or undertake business transactions, may be restricted by regulation or otherwise impaired. The capacity of the Fund to make investments in certain securities may be affected by the relevant limits, and such limitations may have adverse effects on the liquidity and performance of the Fund’s portfolio holdings compared to the performance of the Underlying Index. This may increase the risk of the Fund being underinvested to the Underlying Index and increase the risk of tracking error.
U.S. Tax Risk
To qualify for the favorable U.S. federal income tax treatment accorded to regulated investment companies, the Fund must satisfy certain income, asset diversification and distribution requirements. If for any taxable year, the Fund does not qualify as a regulated investment company, all of its taxable income (including its net
capital gain) for that year would be subject to tax at regular corporate rates without any deduction for distributions to its shareholders, and such distributions would be taxable to its shareholders as dividend income to the extent of the Fund’s current and accumulated earnings and profits.
The tax treatment of certain derivatives is unclear for purposes of determining the Fund’s tax status. In addition, the Fund’s transactions in financial instruments, including, but not limited to, options, futures contracts, hedging transactions, forward contracts and swap contracts, will be subject to special tax rules (which may include mark-to-market, constructive sale, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund’s securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could, therefore, affect the amount, timing and character of distributions to the Fund’s shareholders. The Fund’s use of such transactions may result in the Fund realizing more short-term capital gains and ordinary income, in each case subject to U.S. federal income tax at higher ordinary income tax rates, than it would if it did not engage in such transactions.
Buying and Selling Shares in the Secondary Market
Most investors will buy and sell Shares of the Fund in Secondary Market transactions through brokers. Shares of the Fund will be listed for trading on the Secondary Market on the NYSE Arca. Shares can be bought and sold throughout the trading day like other publicly-traded shares. Unless imposed by your broker or dealer, there is no minimum dollar amount you must invest and no minimum number of Shares you must buy in the Secondary Market. 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 spread between the bid and the offered price in the Secondary Market on each leg of a round trip (purchase and sale) transaction. In addition, because transactions in the Secondary Market occur at market prices, you may pay more than NAV when you buy Shares and receive less than NAV when you sell those Shares.
Share prices are reported in dollars and cents per Share. For information about buying and selling Shares in the Secondary Market, please contact your broker or dealer.
Book Entry
Shares of the Fund are held in book-entry form and no stock certificates are issued. DTC, through its nominee Cede & Co., 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. Participants in DTC 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 securities that you hold in book-entry or “street name” form for any publicly-traded company. Specifically, in the case of a shareholder meeting of the Fund, DTC assigns applicable Cede & Co. voting rights to its participants that have Shares credited to their accounts on the record date, issues an omnibus proxy and forwards the omnibus proxy to the Fund. The omnibus proxy transfers the voting authority from Cede & Co. to the DTC participant. This gives the DTC participant through whom you own Shares (namely, your broker, dealer, bank, trust company or other nominee) authority to vote the shares, and, in turn, the DTC participant is obligated to follow the voting instructions you provide.
Management
The Board is responsible for the general supervision of the Fund. The Board appoints officers who are responsible for the day-to-day operations of the Fund.
Investment Advisor
The Advisor has been registered as an investment advisor with the SEC since August 2007, has provided investment advisory services to registered investment companies since June 2008, and is a wholly-owned indirect subsidiary of New York Life Investment Management Holdings LLC. The Advisor’s principal office is located at 51 Madison Avenue, New York, New York 10010. As of June 30, 2021, the Advisor had approximately $4.7 billion in assets under management.
The Advisor has overall responsibility for the general management and administration of the Trust. The Advisor provides an investment program for the Fund and supervises the Subadvisor in managing the investment portfolio of the Fund. The Advisor has arranged for custody, fund administration, transfer agency and all other non-distribution related services necessary for the Fund to operate.
As compensation for its services and its assumption of certain expenses, the Fund pays the Advisor a management fee equal to 0.40% of the Fund’s average daily net assets that is calculated daily and paid monthly. The Advisor may voluntarily waive any portion of its advisory fee from time to time, and may discontinue or modify any such voluntary limitations in the future at its discretion.
The Advisor serves as investment advisor to the Fund pursuant to an Investment Advisory Agreement (the “Advisory Agreement”) and the Subadvisor serves as investment subadvisor to the Fund pursuant to an Investment Subadvisory Agreement (the “Subadvisory Agreement”). The Advisory Agreement and Subadvisory Agreement were approved by the Independent Trustees of the Trust. The basis for the Trustees’ approval of the Advisory Agreement and Subadvisory Agreement are available in the Trust’s Annual or Semiannual Report to shareholders.
Under the Advisory Agreement, the Advisor agrees to pay all expenses of the Trust, except brokerage and other transaction expenses including taxes; extraordinary legal fees or expenses, such as those for litigation or arbitration; compensation and expenses of the Independent Trustees, counsel to the Independent Trustees, and the Trust’s chief compliance officer; extraordinary expenses; distribution fees and expenses paid by the Trust under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act; and the advisory fee payable to the Advisor hereunder.
The Advisor and its affiliates deal, trade and invest for their own accounts in the types of securities in which the Fund also may invest. The Advisor does not use inside information in making investment decisions on behalf of the Fund.
Section 15(a) of the 1940 Act requires that all contracts pursuant to which persons serve as investment advisors to investment companies be approved by shareholders. As interpreted, this requirement also applies to the appointment of subadvisors to the Fund. The Advisor and the Trust have obtained an exemptive order (the “Order”) from the SEC permitting the Advisor, on behalf of the Fund and subject to the approval of the Board, including a majority of the Independent Trustees, to hire or terminate unaffiliated subadvisors and to modify any existing or future subadvisory agreement with unaffiliated subadvisors without shareholder approval. This authority is subject to certain conditions. The Fund will notify shareholders and provide them with certain information required by the Order within 90 days of hiring a new subadvisor. The Fund’s sole shareholder has approved the use of the Order. Please see the SAI for more information on the Order.
Expense Limitation Agreement
The Advisor has entered into an Expense Limitation Agreement with the Fund under which it has agreed to waive or reduce its fees and to assume other expenses of the Fund in an amount that limits “Total Annual Fund Operating Expenses” (exclusive of interest, taxes, brokerage fees and commissions, dividends paid on short sales, acquired fund fees and expenses, and extraordinary expenses) to not more than 0.40% of the average daily net assets of the Fund for the twelve months ending August 31, 2022.
Subadvisor
Pursuant to an investment subadvisory agreement with the Advisor, MacKay Shields LLC serves as the subadvisor to the Fund and makes investment decisions, and buys and sells securities for the Fund. Under the supervision of the Advisor, the Subadvisor is responsible for making the specific decisions about the following: (i) buying, selling and holding securities; (ii) selecting brokers and brokerage firms to trade for them; (iii) maintaining accurate records; and, if possible, (iv) negotiating favorable commissions and fees with the brokers and brokerage firms. For these services, the Subadvisor is paid a monthly fee by the Advisor out of the Advisor’s management fee, not the Fund. See the SAI for a breakdown of fees. To the extent that the Advisor has agreed to waive its management fee or reimburse expenses, the Subadvisor has agreed to waive or reimburse its fee proportionately. The basis for the Board’s approval of the Subadvisory Agreement is available in the Trust’s Annual report to shareholders.
The Subadvisor was incorporated in 1969 as an independent investment advisory firm and has been registered as an investment advisor with the SEC since 1969. The Subadvisor was privately held until 1984 when it became a wholly-owned subsidiary of New York Life. The Subadvisor’s principal office is located at 1345 Avenue of the Americas, New York, New York 10105. As of June 30, 2021, the Subadvisor had approximately $161.85 billion in assets under management.
Portfolio Management
The portfolio managers primarily responsible for the day-to-day management of the Fund are Alexandra Wilson-Elizondo and Eric Gold.
Ms. Wilson-Elizondo has served as a portfolio manager for the Fund since its inception. Ms. Wilson-Elizondo is the Deputy Head of Global Credit and a senior portfolio manager. She is a member of the Investment Policy Committee and of the firm’s Responsible Investment Committee. Ms. Wilson-Elizondo serves as a portfolio manager for the Investment Grade Credit, High Yield and ESG strategies, as well as Index and ETF products. She joined the firm’s Global Fixed Income team in June 2015. Prior to joining MacKay Shields, she spent seven years at Vanguard as a Manager on the Taxable Money Market Desk and as Head of Corporate Credit Risk for Vanguard’s fixed income index funds. Alexandra received a BA from Haverford College and an MBA from NYU’s Stern School of Business. She has been in the investment industry since 2008.
Mr. Gold is the Head of the Global Credit team, Co-Head of the Credit Committee and a member of the Investment Policy Committee. Mr. Gold is responsible for leadership and oversight of the team’s strategies, spanning high yield, loans and investment grade credit. Before joining the Global Credit team, Mr. Gold served as a Managing Director on the MacKay High Yield team. Over his tenure at MacKay Shields, Mr. Gold has been active in credit analysis and portfolio construction, covering a wide array of industry sectors across the credit universe. Prior to joining MacKay Shields in 2010, he was a sell-side Analyst covering the telecommunications, cable and media sectors at Sterne Agee & Leach, Inc. Previously, he was an Analyst at BlackRock and a sell-side Analyst at Grantchester Securities where he was ranked by Institutional Investor as the #1 analyst in the wireless telecommunications sector for 1999, 2000, 2001 and 2002. Mr. Gold received a BA from Vassar College and an MBA from New York University. He has been working in the investment industry since 1987.
For more information about the portfolio managers’ compensation, other accounts managed by the portfolio managers and the portfolio managers’ ownership of securities in the Fund, see the SAI.
Other Service Providers
Index Provider
S&P Opco LLC, located at 55 Water Street, New York, New York 10041, developed and sponsors the Underlying Index.
The “S&P U.S. High Yield Low Volatility Corporate Bond Index” is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and has been licensed for use by IndexIQ Advisors LLC. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). The trademarks have been licensed to SPDJI and have been sublicensed for use for certain purposes by IndexIQ Advisors LLC. IQ S&P High Yield Low Volatility Bond ETF is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices makes no representation or warranty, express or implied, to the owners of the IQ S&P High Yield Low Volatility Bond ETF or any member of the public regarding the advisability of investing in securities generally or in IQ S&P High Yield Low Volatility Bond ETF particularly or the ability of the S&P U.S. High Yield Low Volatility Corporate Bond Index to track general market performance. S&P Dow Jones Indices’ only relationship to IndexIQ Advisors LLC with respect to the S&P U.S. High Yield Low Volatility Corporate Bond Index is the licensing of the Index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its licensors. The S&P U.S. High Yield Low Volatility Corporate Bond Index is determined, composed and calculated by S&P Dow Jones Indices without regard to IndexIQ Advisors LLC or the IQ S&P High Yield Low Volatility Bond ETF. S&P Dow Jones Indices has no obligation to take the needs of IndexIQ Advisors LLC or the owners of IQ S&P High Yield Low Volatility Bond ETF into consideration in determining, composing or calculating the S&P U.S. High Yield Low Volatility Corporate Bond Index. S&P Dow Jones Indices is responsible for and have not participated in the determination of the prices, and amount of IQ S&P High Yield Low Volatility Bond ETF or the timing of the issuance or sale of IQ S&P High Yield Low Volatility Bond ETF or in the determination or calculation of the equation by which IQ S&P High Yield Low Volatility Bond ETF is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices has no obligation or liability in connection with the administration, marketing or trading of IQ S&P High Yield Low Volatility Bond ETF. There is no assurance that investment products based on the S&P U.S. High Yield Low Volatility Corporate Bond Index will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.
S&P DOW JONES INDICES DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P U.S. HIGH YIELD LOW VOLATILITY CORPORATE BOND INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY INDEXIQ ADVISORS LLC, OWNERS OF THE IQ S&P HIGH YIELD LOW VOLATILITY BOND ETF, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P U.S. HIGH YIELD LOW VOLATILITY CORPORATE BOND INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND INDEXIQ ADVISORS LLC, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
Fund Administrator, Custodian, Transfer Agent and Securities Lending Agent
The Bank of New York Mellon (“BNY Mellon”), located at 240 Greenwich Street, New York, New York 10286, serves as the Fund’s Administrator, Custodian, Transfer Agent and Securities Lending Agent. BNY Mellon is the principal operating subsidiary of The Bank of New York Mellon Corporation.
Under the Fund Administration and Accounting Agreement (the “Administration Agreement”), BNY Mellon serves as Administrator for the Fund. Under the Administration Agreement, BNY Mellon provides necessary administrative, legal, tax, accounting services, and financial reporting for the maintenance and operations of the Trust. In addition, BNY Mellon makes available the office space, equipment, personnel and facilities required to provide such services.
BNY Mellon supervises the overall administration of the Trust, including, among other responsibilities, assisting in the preparation and filing of documents required for compliance by the Fund with applicable laws and regulations and arranging for the maintenance of books and records of the Fund. BNY Mellon provides persons satisfactory to the Board to serve as officers of the Trust.
Distributor
ALPS Distributors, Inc. (“ALPS” or the “Distributor”), located at 1290 Broadway, Suite 1100, Denver, Colorado 80203 serves as the Distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a Secondary Market in the Fund’s Shares. NYLIFE Distributors LLC has entered into a Services Agreement with ALPS to market the Fund.
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP, located at 300 Madison Avenue, New York, NY 10017, serves as the independent registered public accounting firm for the Trust.
Legal Counsel
Chapman and Cutler LLP, located at 1717 Rhode Island Avenue, Washington, D.C. 20036, serves as counsel to the Trust and the Fund.
Frequent Trading
The Board has not adopted policies and procedures with respect to frequent purchases and redemptions of Shares by Fund shareholders (“market timing”). In determining not to adopt market timing policies and procedures, the Board noted that the Fund is expected to be attractive to active institutional and retail investors interested in buying and selling Shares on a short-term basis. In addition, the Board considered that, unlike traditional mutual funds, the Shares can only be purchased and redeemed directly from the Fund in Creation Units by Authorized Participants, and that the vast majority of trading in the Shares occurs on the Secondary Market. Because Secondary Market trades do not involve the Fund directly, it is unlikely those trades would cause many of the harmful effects of market timing, including dilution, disruption of portfolio management, increases in the Fund’s trading costs and the realization of capital gains. With respect to trades directly with the Fund, to the extent effected in-kind (namely, for securities), those trades do not cause any of the harmful effects that may result from frequent cash trades. To the extent trades are effected in whole or in
part in cash, the Board noted that those trades could result in dilution to the Fund and increased transaction cost (the Fund may impose higher transaction fees to offset these increased costs), which could negatively impact the Fund’s ability to achieve its investment objective. However, the Board also noted that direct trading on a short-term basis by Authorized Participants is critical to ensuring that the Shares trade at or close to NAV.
Given this structure, the Board determined that it is not necessary to adopt market timing policies and procedures. The Fund reserves the right to reject any purchase order at any time and reserves the right to impose restrictions on disruptive or excessive trading in Creation Units.
The Board has instructed the officers of the Trust to review reports of purchases and redemptions of Creation Units on a regular basis to determine if there is any unusual trading in the Fund. The officers of the Trust will report to the Board any such unusual trading in Creation Units that is disruptive to the Fund. In such event, the Board may reconsider its decision not to adopt market timing policies and procedures.
Distribution and Service Plan
The Board has adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with its Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.10% of its average daily net assets each year to finance activities primarily intended to result in the sale of Creation Units of the Fund or the provision of investor 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, they will be paid out of the Fund’s assets, and over time these fees will increase the cost of your investment and they may cost you more than certain other types of sales charges.
The Advisor and its affiliates may, out of their own resources, pay amounts (“Payments”) to third-parties for distribution or marketing services on behalf of the Funds. The making of these payments could create a conflict of interest for a financial intermediary receiving such payments. The Advisor may make Payments for such third-parties to organize or participate in activities that are designed to make registered representatives, other professionals and individual investors more knowledgeable about ETFs, including ETFs advised by the Advisor, or for other activities, such as participation in marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems. The Advisor also may make Payments to third-parties to help defray costs typically covered by a trading commission, such as certain printing, publishing and mailing costs or materials relating to the marketing of services related to exchange-traded products (such as commission-free trading platforms) or exchange-traded products in general.
Determination of Net Asset Value (NAV)
The NAV of the Shares for the Fund is equal to the Fund’s total assets minus its total liabilities divided by the total number of Shares outstanding. Interest and investment income on the Fund’s assets accrue daily and are included in the Fund’s total assets. Expenses and fees (including investment advisory, management, administration and distribution fees, if any) accrue daily and are included in the Fund’s total liabilities. The NAV that is published is rounded to the nearest cent; however, for purposes of determining the price of Creation Units, the NAV is calculated to eight decimal places. The NAV is calculated by the Administrator and Custodian and determined each day the NYSE Arca is open for trading as of the close of regular trading on the NYSE Arca (ordinarily 4:00 p.m. Eastern time).
The Fund typically values fixed-income portfolio securities using last available bid prices or current market quotations provided by dealers or prices (including evaluated prices) supplied by the Fund’s approved independent third-party pricing services. Pricing services may use matrix pricing or valuation models that utilize certain inputs and assumptions to derive values. Pricing services generally value fixed-income securities assuming orderly transactions of an institutional round lot size, but the Fund may hold or transact in such securities in smaller odd lot sizes. Odd lots often trade at different prices that may be above or below the price at which the pricing service has valued the security. An amortized cost method of valuation may be used with respect to debt obligations with sixty days or less remaining to maturity unless the Advisor determines in good faith that such method does not represent fair value.
The Fund invests in non-U.S. securities. Non-U.S. securities held by the Fund may trade on weekends or other days when the Fund does not price its shares. As a result, the Fund’s NAV may change on days when Authorized Participants will not be able to purchase or redeem Shares.
Generally, trading in non-U.S. securities, U.S. government securities, money market instruments and certain fixed-income securities is substantially completed each day at various times prior to the close of business on the NYSE. The values of such securities used in computing the NAV of the Fund are determined as of such times.
When market quotations or prices are not readily available or are deemed unreliable or not representative of an investment’s fair value, investments are valued using fair value pricing as determined in good faith by the Advisor under procedures established by and under the general supervision and responsibility of the Trust’s Board. The Advisor may conclude that a market quotation is not readily available or is unreliable if a security or other asset or liability does not have a price source due to its lack of liquidity or other reason, if a market quotation differs significantly from recent price quotations or otherwise no longer appears to reflect fair value, where the security or other asset or liability is thinly traded, or if the trading market on which a security is listed is suspended or closed and no appropriate alternative trading market is available.
The frequency with which the Fund’s investments are valued using fair value pricing is primarily a function of the types of securities and other assets in which the Fund invests pursuant to its investment objective, strategies and limitations. If the Fund invests in other open-end management investment companies registered under the 1940 Act, they may rely on the NAVs of those companies to value the shares they hold of them. Those companies may also use fair value pricing under some circumstances.
Valuing the Fund’s investments using fair value pricing results in using prices for those investments that may differ from current market valuations. Accordingly, fair value pricing could result in a difference between the prices used to calculate NAV and the prices used to determine the Fund’s Indicative Intra-Day Value (“IIV”), which could result in the market prices for Shares deviating from NAV.
Indicative Intra-Day Value
The approximate value of the Fund’s investments on a per-Share basis, the Indicative Intra-Day Value, or IIV, is disseminated by the NYSE Arca every 15 seconds during hours of trading on the NYSE Arca. The IIV should not be viewed as a “real-time” update of NAV because the IIV may not be calculated in the same manner as NAV, which is computed once per day.
Solactive AG, an independent third party calculator calculates the IIV for the Fund during hours of trading on the NYSE Arca by dividing the “Estimated Fund Value” as of the time of the calculation by the total number of outstanding Shares of that Fund. “Estimated Fund Value” is the sum of the estimated amount of cash held in the Fund’s portfolio, the estimated amount of accrued interest owed to the Fund and the estimated value of the securities held in the Fund’s portfolio, minus the estimated amount of the Fund’s liabilities. The IIV will be calculated based on the same portfolio holdings disclosed on the Trust’s website.
The Fund provides the independent third party calculator with information to calculate the IIV, but the Fund is not involved in the actual calculation of the IIV and is not responsible for the calculation or dissemination of the IIV. The Fund makes no warranty as to the accuracy of the IIV.
Premium/Discount Information
Information regarding the extent and frequency with which market prices of Shares has tracked the Fund’s NAV for the most recently completed calendar year and the quarters since that year will be available without charge on the Fund’s website at newyorklifeinvestments.com.
Dividends, Distributions and Taxes
Net Investment Income and Capital Gains
As a Fund shareholder, you are entitled to your share of the Fund’s distributions of net investment income and net realized capital gains on its investments. The Fund pays out substantially all of its net earnings to their shareholders as “distributions.”
The Fund typically earns interest from debt securities. These amounts, net of expenses, typically are passed along to Fund shareholders as dividends from net investment income. The Fund realizes capital gains or losses whenever they sell securities. Net capital gains typically are passed along to shareholders as “capital gain distributions.” Net investment income and net capital gains typically are distributed to shareholders at least annually. Dividends may be declared and paid more frequently to improve index tracking or to comply with the distribution requirements of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). In addition,
the Fund may decide to distribute at least annually amounts representing the full dividend yield net of expenses on the underlying investment securities, as if the Fund owned the underlying investment securities for the entire dividend period, in which case some portion of each distribution may result in a return of capital. You will be notified regarding the portion of a distribution that represents a return of capital.
Distributions in cash may be reinvested automatically in additional Shares of the Fund only if the broker through which you purchased Shares makes such option available. Distributions which are reinvested nevertheless will be subject to U.S. federal income tax to the same extent as if such distributions had not been reinvested.
U.S. Federal Income Taxation
The following is a summary of certain U.S. federal income tax considerations applicable to an investment in Shares of the Fund. The summary is based on the Code, U.S. Treasury Department regulations promulgated thereunder, and judicial and administrative interpretations thereof, all as in effect on the date of this Prospectus and all of which are subject to change, possibly with retroactive effect. In addition, this summary assumes that a Fund shareholder holds Shares as capital assets within the meaning of the Code and does not hold Shares in connection with a trade or business. This summary does not address all potential U.S. federal income tax considerations possibly applicable to an investment in Shares of the Fund, and does not address the consequences to Fund shareholders subject to special tax rules, including, but not limited to, partnerships and the partners therein, tax-exempt shareholders, regulated investment companies (“RICs”), real estate trusts (“REITs”, real estate mortgage investment conduits (“REMICs”), those who hold Shares through an IRA, 401(k) plan or other tax-advantaged account, and, except to the extent discussed below, “non-U.S. shareholders” (as defined below). This discussion does not discuss any aspect of U.S. state, local, estate, and gift, or non-U.S. tax law. Furthermore, this discussion is not intended or written to be legal or tax advice to any shareholder in the Fund or other person and is not intended or written to be used or relied on, and cannot be used or relied on, by any such person for the purpose of avoiding any U.S. federal tax penalties that may be imposed on such person.
Prospective Fund shareholders are urged to consult their own tax advisors with respect to the specific U.S. federal, state and local, and non-U.S., tax consequences of investing in Shares, based on their particular circumstances.
The Fund has not requested and will not request an advance ruling from the U.S. Internal Revenue Service (the “IRS”) as to the U.S. federal income tax matters described below. The IRS could adopt positions contrary to those discussed below and such positions could be sustained. Prospective investors should consult their own tax advisors with regard to the U.S. federal tax consequences of the purchase, ownership and disposition of Shares, as well as the tax consequences arising under the laws of any state, locality, non-U.S. country or other taxing jurisdiction. The following information supplements, and should be read in conjunction with, the section in the SAI entitled “U.S. Federal Income Taxation.”
Tax Treatment of the Fund
The Fund intends to continue to qualify and elect to be treated as a RIC under the Code. To qualify and remain eligible for the special tax treatment accorded to RICs, the Fund must meet certain annual income and quarterly asset diversification requirements and must distribute annually at least 90% of the sum of (i) its “investment company taxable income” (which includes dividends, interest and net short-term capital gains) and (ii) certain net tax-exempt income, if any.
As a RIC, the Fund generally will not be required to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes to its shareholders. If the Fund fails to qualify as a RIC for any year (subject to certain curative measures allowed by the Code), the Fund will be subject to regular corporate-level U.S. federal income tax in that year on all of its taxable income, regardless of whether the Fund makes any distributions to its shareholders. In addition, in such case, distributions will be taxable to the Fund’s shareholders generally as ordinary dividends to the extent of the Fund’s current and accumulated earnings and profits. The remainder of this discussion assumes that the Fund will qualify for the special tax treatment accorded to RICs.
The Fund generally will be subject to a 4% excise tax on certain undistributed income if the Fund does not distribute to its shareholders in each calendar year an amount at least equal to the sum of 98% of its ordinary income for the calendar year (taking into account certain deferrals and elections), 98.2% of its capital gain net income (adjusted for certain ordinary losses) for the twelve months ended October 31 of such year (or later if the Fund is permitted to elect and so elects), plus 100% of any undistributed amounts from prior years. For these
purposes, the Fund will be treated as having distributed any amount on which it has been subject to U.S. corporate income tax for the taxable year ending within the calendar year. The Fund intends to make distributions necessary to avoid this 4% excise tax, although there can be no assurance that it will be able to do so.
The Fund may be required to recognize taxable income in advance of receiving the related cash payment. For example, if the Fund invests in original issue discount obligations (such as zero coupon debt instruments or debt instruments with payment-in-kind interest), the Fund will be required to include in income each year a portion of the original issue discount that accrues over the term of the obligation, even if the related cash payment is not received by the Fund until a later year. Under the “wash sale” rules, the Fund may not be able to deduct currently a loss on a disposition of a portfolio security. As a result, the Fund may be required to make an annual income distribution greater than the total cash actually received during the year. Such distribution may be made from the existing cash assets of the Fund or cash generated from selling portfolio securities. The Fund may realize gains or losses from such sales, in which event its shareholders may receive a larger capital gain distribution than they would in the absence of such transactions.
Tax Treatment of Fund Shareholders
Taxation of U.S. Shareholders
The following is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Shares applicable to “U.S. shareholders.” For purposes of this discussion, a “U.S. shareholder” is a beneficial owner of Shares who, for U.S. federal income tax purposes, is (i) an individual who is a citizen or resident of the United States; (ii) a corporation (or an entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, or of any state thereof, or the District of Columbia; (iii) an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or (iv) a trust, if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (2) the trust has a valid election in place to be treated as a U.S. person.
Fund Distributions. In general, Fund distributions are subject to U.S. federal income tax when paid, regardless of whether they consist of cash or property, and regardless of whether they are re-invested in Shares. However, any Fund distribution declared in October, November or December of any calendar year and payable to shareholders of record on a specified date during such month will be deemed to have been received by each Fund shareholder on December 31 of such calendar year, provided such dividend is actually paid during January of the following calendar year.
Distributions of the Fund’s net investment income and net short-term capital gains in excess of net long-term capital losses (collectively referred to as “ordinary income dividends”) are taxable as ordinary income to the extent of the Fund’s current and accumulated earnings and profits (subject to an exception for distributions of “qualified dividend income,” as discussed below). To the extent designated as capital gain dividends by the Fund, distributions of the Fund’s net long-term capital gains in excess of net short-term capital losses (“net capital gain”) are taxable at long-term capital gain tax rates to the extent of the Fund’s current and accumulated earnings and profits, regardless of a Fund shareholder’s holding period in the Shares. Distributions of “qualified dividend income” (defined below) are, to the extent of the Fund’s current and accumulated earnings and profits, taxed to certain non-corporate Fund shareholders at the rates generally applicable to long-term capital gain, provided that the Fund shareholder meets certain holding period and other requirements with respect to the Shares and the Fund meets certain holding period and other requirements with respect to its dividend-paying stocks. For this purpose, “qualified dividend income” generally means income from dividends received by the Fund from U.S. corporations and qualified non-U.S. corporations. Substitute payments received on Shares that are lent out will be ineligible for being reported as qualified dividend income. Given its investment strategy, the Fund does not anticipate that a significant portion of its distributions will be eligible for qualifying dividend treatment. If the Fund pays a dividend that would be “qualified” dividend income for individuals, corporate shareholder may be entitled to a dividend received deduction.
The Fund intends to distribute its net capital gain at least annually. However, by providing written notice to its shareholders no later than 60 days after its year-end, the Fund may elect to retain some or all of its net capital gain and designate the retained amount as a “deemed distribution.” In that event, the Fund pays U.S. federal income tax on the retained net capital gain, and each Fund shareholder recognizes a proportionate share of the Fund’s undistributed net capital gain. In addition, each Fund shareholder can claim a tax credit or refund
for the shareholder’s proportionate share of the Fund’s U.S. federal income taxes paid on the undistributed net capital gain and increase the shareholder’s tax basis in the Shares by an amount equal to the shareholder’s proportionate share of the Fund’s undistributed net capital gain, reduced by the amount of the shareholder’s tax credit or refund.
Distributions in excess of the Fund’s current and accumulated earnings and profits will, as to each shareholder, be treated as a tax-free return of capital to the extent of the shareholder’s tax basis in its Shares of the Fund, and generally as capital gain thereafter. Any such distribution will reduce the shareholder’s tax basis in the Shares, and thus will increase the shareholder’s capital gain, or decrease the capital loss, recognized upon a sale or exchange of Shares.
In addition, individuals with adjusted gross incomes above certain threshold amounts (and certain trusts and estates) generally are subject to a 3.8% Medicare tax on “net investment income” in addition to otherwise applicable U.S. federal income tax. “Net investment income” generally will include dividends (including capital gain dividends) received from the Fund and net gains from the redemption or other disposition of Shares. Please consult your tax advisor regarding this tax.
Investors considering buying Shares just prior to a distribution should be aware that, although the price of the Shares purchased at such time may reflect the forthcoming distribution, such distribution nevertheless may be taxable (as opposed to a non-taxable return of capital).
Sales or Exchanges of Shares. Any capital gain or loss realized upon a sale or exchange of Shares generally is treated as a long-term gain or loss if the Shares have been held for more than one year. Any capital gain or loss realized upon a sale or exchange of Shares held for one year or less generally is treated as a short-term gain or loss, except that any capital loss on the sale or exchange of Shares held for six months or less is treated as long-term capital loss to the extent that capital gain dividends were paid (or deemed to be paid) with respect to the Shares.
Creation Unit Issues and Redemptions. On an issue of Shares of the Fund as part of a Creation Unit where the creation is conducted in-kind, an Authorized Participant generally recognizes capital gain or loss equal to the difference between (i) the fair market value (at issue) of the issued Shares (plus any cash received by the Authorized Participant as part of the issue) and (ii) the Authorized Participant’s aggregate basis in the exchanged securities (plus any cash paid by the Authorized Participant as part of the issue). On a redemption of Shares as part of a Creation Unit where the redemption is conducted in-kind, an Authorized Participant generally recognizes capital gain or loss equal to the difference between (i) the fair market value (at redemption) of the securities received (plus any cash received by the Authorized Participant as part of the redemption) and (ii) the Authorized Participant’s basis in the redeemed Shares (plus any cash paid by the Authorized Participant as part of the redemption). However, the IRS may assert, under the “wash sale” rules or on the basis that there has been no significant change in the Authorized Participant’s economic position, that any loss on creation or redemption of Creation Units cannot be deducted currently.
In general, any capital gain or loss recognized upon the issue or redemption of Shares (as components of a Creation Unit) is treated either as long-term capital gain or loss, if the deposited securities (in the case of an issue) or the Shares (in the case of a redemption) have been held for more than one year, or otherwise as short-term capital gain or loss. However, any capital loss on a redemption of Shares held for six months or less is treated as long-term capital loss to the extent that capital gain dividends were paid (or deemed to be paid) with respect to such Shares.
Back-Up Withholding
The Fund (or a financial intermediary such as a broker through which a shareholder holds Shares in the Fund) may be required to report certain information on a Fund shareholder to the IRS and withhold U.S. federal income tax (“backup withholding”) at a current rate of 24% from taxable distributions and redemption or sale proceeds payable to the Fund shareholder if (i) the Fund shareholder fails to provide the Fund with a correct taxpayer identification number or make required certifications, or if the IRS notifies the Fund that the Fund shareholder is otherwise subject to backup withholding, and (ii) the Fund shareholder is not otherwise exempt from backup withholding. Non-U.S. shareholders can qualify for exemption from backup withholding by submitting a properly completed IRS Form W-8BEN or W-8BEN-E. Backup withholding is not an additional tax and any amount withheld may be credited against a Fund shareholder’s U.S. federal income tax liability.
Taxation of Non-U.S. Shareholders
The following is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Shares applicable to “non-U.S. shareholders.” For purposes of this discussion, a “non-U.S. shareholder” is a beneficial owner of Shares that is not a U.S. shareholder (as defined above) and is not an
entity or arrangement treated as a partnership for U.S. federal income tax purposes. The following discussion is based on current law and is for general information only. It addresses only selected, and not all, aspects of U.S. federal income taxation applicable to non-U.S. shareholders.
With respect to non-U.S. shareholders of the Fund, the Fund’s ordinary income dividends generally will be subject to U.S. federal withholding tax at a rate of 30% (or at a lower rate established under an applicable tax treaty), subject to certain exceptions for “interest-related dividends” and “short-term capital gain dividends” discussed below. The Fund will not pay any additional amounts to shareholders in respect of any amounts withheld. U.S. federal withholding tax generally will not apply to any gain realized by a non-U.S. shareholder in respect of the Fund’s net capital gain. Special rules (not discussed herein) apply with respect to dividends of the Fund that are attributable to gain from the sale or exchange of “U.S. real property interests.”
In general, all “interest-related dividends” and “short-term capital gain dividends” (each defined below) will not be subject to U.S. federal withholding tax, provided that, among other requirements, the non-U.S. shareholder furnished the Fund with a completed IRS Form W-8BEN or W-8BEN-E, as applicable, (or acceptable substitute documentation) establishing the non-U.S. shareholder’s non-U.S. status and the Fund does not have actual knowledge or reason to know that the non-U.S. shareholder would be subject to such withholding tax if the non-U.S. shareholder were to receive the related amounts directly rather than as dividends from the Fund. “Interest-related dividends” generally means dividends designated by the Fund as attributable to the Fund’s U.S.-source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which such Fund is at least a 10% shareholder, reduced by expenses that are allocable to such income. “Short-term capital gain dividends” generally means dividends designated by the Fund as attributable to the excess of the Fund’s net short-term capital gain over its net long-term capital loss. Depending on its circumstances, the Fund may treat such dividends, in whole or in part, as ineligible for these exemptions from withholding.
In general, subject to certain exceptions, non-U.S. shareholders will not be subject to U.S. federal income or withholding tax in respect of a sale or other disposition of Shares of the Fund.
To claim a credit or refund for any Fund-level taxes on any undistributed net capital gain (as discussed above) or any taxes collected through back-up withholding (discussed below), a non-U.S. shareholder must obtain a U.S. taxpayer identification number and file a U.S. federal income tax return even if the non-U.S. shareholder would not otherwise be required to do so.
Foreign Account Tax Compliance Act
The U.S. Foreign Account Tax Compliance Act (“FATCA”) generally imposes a 30% withholding tax on “withholdable payments” (defined below) made to (i) a “foreign financial institution” (“FFI”), unless the FFI enters into an agreement with the IRS to provide information regarding certain of its direct and indirect U.S. account holders and satisfy certain due diligence and other specified requirements, and (ii) a “non-financial foreign entity” (“NFFE”) unless such NFFE provides certain information about its direct and indirect “substantial U.S. owners” to the withholding agent or certifies that it has no such U.S. owners. The beneficial owner of a “withholdable payment” may be eligible for a refund or credit of the withheld tax. The U.S. government also has entered into intergovernmental agreements with other jurisdictions to provide an alternative, and generally easier, approach for FFIs to comply with FATCA. If the shareholder is a tax resident in a jurisdiction that has entered into an intergovernmental agreement with the U.S. government, the shareholder will be required to provide information about the shareholder’s classification and compliance with the intergovernmental agreement.
“Withholdable payments” generally include, among other items, U.S.-source interest and dividends, and gross proceeds from the sale or disposition of property of a type that can produce U.S.-source interest or dividends. However, proposed regulations may eliminate the requirement to withhold on payments of gross proceeds from dispositions.
The Fund or a shareholder’s broker may be required to impose a 30% withholding tax on withholdable payments to a shareholder if the shareholder fails to provide the Fund with the information, certifications or documentation required under FATCA, including information, certification or documentation necessary for the Fund to determine if the shareholder is a non-U.S. shareholder or a U.S. shareholder and, if it is a non-U.S. shareholder, if the non-U.S. shareholder has “substantial U.S. owners” and/or is in compliance with (or meets an exception from) FATCA requirements. The Fund will not pay any additional amounts to shareholders in respect of any amounts withheld. The Fund may disclose any shareholder information, certifications or documentation to the IRS or other parties as necessary to comply with FATCA.
The requirements of, and exceptions from, FATCA are complex. All prospective shareholders are urged to consult their own tax advisors regarding the potential application of FATCA with respect to their own situation.
For a more detailed tax discussion regarding an investment in the Fund, please see the section of the SAI entitled “U.S. Federal Income Taxation.”
Code of Ethics
The Trust, Advisor, Subadvisor and Distributor each have adopted a code of ethics under Rule 17j-1 of the 1940 Act that is designed to prevent affiliated persons of the Trust, the Advisor, the Subadvisor, and the Distributor from engaging in deceptive, manipulative or fraudulent activities in connection with securities held or to be acquired by the Fund (which may also be held by persons subject to a code). There can be no assurance that the codes will be effective in preventing such activities. The codes permit personnel subject to them to invest in securities, including securities that may be held or purchased by the Fund. The codes are on file with the SEC and are available to the public.
Fund Website and Disclosure of Portfolio Holdings
The Advisor maintains a website for the Fund at newyorklifeinvestments.com. The website for the Fund contains the following information, on a per-Share basis, for the Fund: (1) the prior Business Day’s NAV; (2) the reported mid-point of the bid-ask spread at the time of NAV calculation (the “Bid-Ask Price”); (3) a calculation of the premium or discount of the Bid-Ask Price against such NAV; and (4) data in chart format displaying the frequency distribution of discounts and premiums of the Bid-Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters (or for the life of the Fund, if shorter). In addition, on each Business Day, before the commencement of trading in Shares on the NYSE Arca, the Fund will disclose on its website (newyorklifeinvestments.com) the identities and quantities of the portfolio securities and other assets held by the Fund that will form the basis for the calculation of NAV at the end of the Business Day.
A description of the Fund’s policies and procedures with respect to the disclosure of the Fund’s portfolio securities is available in the SAI.
Other Information
The Fund is not sponsored, endorsed, sold or promoted by the NYSE Arca. The NYSE Arca makes 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 or the ability of the Fund to achieve its objectives. The NYSE Arca has no obligation or liability in connection with the administration, marketing or trading of the Fund.
For purposes of the 1940 Act, the Fund is a registered investment company, and the acquisition of Shares by other registered investment companies and companies relying on exemption from registration as investment companies under Section 3(c)(1) or 3(c)(7) of the 1940 Act is subject to the restrictions of Section 12(d)(1) of the 1940 Act, except as permitted by an exemptive order that permits registered investment companies to invest in the Fund beyond those limitations.
Financial Highlights
Selected Data for a Share of Capital Stock Outstanding
The financial highlights table is intended to help you understand the Fund’s financial performance for the period of the Fund’s operations. Certain information reflects financial results for a single Fund Share. The total returns in the table represents 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 PricewaterhouseCoopers LLP, whose report, along with the Fund’s financial statements, is included in the Fund’s Annual Report, which is available upon request.
|
|
|
IQ S&P High Yield Low Volatility Bond ETF
|
|
|
|
|
For the Year Ended April 30,
|
|
|
For the Period February 15, 2017(a) to April 30, 2017
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Net asset value, beginning of period
|
|
|
|
$ |
23.86 |
|
|
|
|
$ |
24.76 |
|
|
|
|
$ |
24.36 |
|
|
|
|
$ |
25.20 |
|
|
|
|
$ |
25.00 |
|
|
Income from Investment Operations |
|
|
|
|
|
|
Net investment income(b)(c)
|
|
|
|
|
0.93 |
|
|
|
|
|
1.01 |
|
|
|
|
|
1.07 |
|
|
|
|
|
0.99 |
|
|
|
|
|
0.20 |
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
1.16 |
|
|
|
|
|
(0.81) |
|
|
|
|
|
0.41 |
|
|
|
|
|
(0.88) |
|
|
|
|
|
0.10 |
|
|
Net increase (decrease) in net assets resulting from investment operations
|
|
|
|
|
2.09 |
|
|
|
|
|
0.20 |
|
|
|
|
|
1.48 |
|
|
|
|
|
0.11 |
|
|
|
|
|
0.30 |
|
|
Distributions from: |
|
|
|
|
|
|
Net investment income
|
|
|
|
|
(0.96) |
|
|
|
|
|
(1.10) |
|
|
|
|
|
(1.08) |
|
|
|
|
|
(0.95) |
|
|
|
|
|
(0.10) |
|
|
Net asset value, end of period
|
|
|
|
$ |
24.99 |
|
|
|
|
$ |
23.86 |
|
|
|
|
$ |
24.76 |
|
|
|
|
$ |
24.36 |
|
|
|
|
$ |
25.20 |
|
|
Market price, end of period
|
|
|
|
$ |
25.02 |
|
|
|
|
$ |
24.03 |
|
|
|
|
$ |
24.78 |
|
|
|
|
$ |
24.32 |
|
|
|
|
$ |
25.34 |
|
|
Total Return |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment return based on net asset value(d)
|
|
|
|
|
8.89% |
|
|
|
|
|
0.71% |
|
|
|
|
|
6.31% |
|
|
|
|
|
0.39% |
|
|
|
|
|
1.40% |
|
|
Total investment return based on market price(e)
|
|
|
|
|
8.23% |
|
|
|
|
|
1.34% |
|
|
|
|
|
6.56% |
|
|
|
|
|
(0.36)% |
|
|
|
|
|
1.93%(f) |
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000’s omitted)
|
|
|
|
$ |
106,222 |
|
|
|
|
$ |
51,295 |
|
|
|
|
$ |
65,626 |
|
|
|
|
$ |
107,192 |
|
|
|
|
$ |
49,145 |
|
|
Ratio to average net assets of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses net of waivers/reimbursements(g)
|
|
|
|
|
0.40% |
|
|
|
|
|
0.40% |
|
|
|
|
|
0.40% |
|
|
|
|
|
0.40% |
|
|
|
|
|
0.40%(h) |
|
|
Expenses excluding waivers/reimbursements(g)
|
|
|
|
|
0.41% |
|
|
|
|
|
0.41% |
|
|
|
|
|
0.41% |
|
|
|
|
|
0.41% |
|
|
|
|
|
0.41%(h) |
|
|
Net investment income (loss)(c)
|
|
|
|
|
3.72% |
|
|
|
|
|
4.04% |
|
|
|
|
|
4.42% |
|
|
|
|
|
3.97% |
|
|
|
|
|
4.05%(h) |
|
|
Portfolio turnover rate(i)
|
|
|
|
|
105% |
|
|
|
|
|
105% |
|
|
|
|
|
83% |
|
|
|
|
|
75% |
|
|
|
|
|
15% |
|
|
(a)
Commencement of operations.
(b)
Based on average shares outstanding.
(c)
Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the investment companies in which the Fund invests.
(d)
Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, if any, at net asset value during the period, and redemption on the last day of the period. Total return calculated for a period less than one year is not annualized.
(e)
The market price returns are calculated using the mean between the last bid and ask prices.
(f)
Since the Shares of the Fund did not trade in the secondary market until the day after the Fund’s inception, for the period from the inception to the first day of the secondary market trading, the NAV is used as a proxy for the secondary market trading price to calculate the market returns.
(g)
In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a prorated share of the fees and expenses of the underlying funds in which it invests. Such indirect expenses are not included in the above expense ratios.
(h)
Annualized.
(i)
Portfolio turnover rate is not annualized and excludes the value of portfolio securities received or delivered as in-kind creations or redemptions in connection with the Fund’s capital share transactions.
Privacy Policy
The following notice does not constitute part of the Prospectus, nor is it incorporated into the Prospectus.
The Trust is committed to respecting the privacy of personal information you entrust to us in the course of doing business with us.
The Trust may collect non-public personal information from various sources. The Trust uses such information provided by you or your representative to process transactions, to respond to inquiries from you, to deliver reports, products, and services, and to fulfill legal and regulatory requirements.
We do not disclose any non-public personal information about our customers to anyone unless permitted by law or approved by the customer. We may share this information within the Trust’s family of companies in the course of providing services and products to best meet your investing needs. We may share information with certain third-parties who are not affiliated with the Trust to perform marketing services, to process or service a transaction at your request or as permitted by law. For example, sharing information with companies that maintain or service customer accounts for the Trust is essential. We may also share information with companies that perform administrative or marketing services for the Trust, including research firms. When we enter into such a relationship, we restrict the companies’ use of our customers’ information and prohibit them from sharing it or using it for any purposes other than those for which they were hired.
We maintain physical, electronic, and procedural safeguards to protect your personal information. Within the Trust, we restrict access to personal information to those employees who require access to that information in order to provide products or services to our customers, such as handling inquiries. Our employment policies restrict the use of customer information and require that it be held in strict confidence.
We will adhere to the policies and practices described in this notice for both current and former customers of the Trust.
Frequently Used Terms
|
Trust |
|
|
IndexIQ ETF Trust, a registered open-end investment company |
|
|
Fund |
|
|
The investment portfolios of the Trust |
|
|
Shares |
|
|
Shares of the Fund offered to investors |
|
|
Advisor |
|
|
IndexIQ Advisors LLC |
|
|
Subadvisor |
|
|
MacKay Shields LLC |
|
|
Custodian |
|
|
The Bank of New York Mellon, the custodian of the Fund’s assets |
|
|
Distributor |
|
|
ALPS Distributors, Inc., the distributor of the Fund |
|
|
AP or Authorized Participant |
|
|
Certain large institutional investors such as brokers, dealers, banks or other entities that have entered into authorized participant agreements with the Distributor |
|
|
NYSE Arca |
|
|
NYSE Arca, Inc., the primary market on which Shares are listed for trading
|
|
|
IIV |
|
|
The Indicative Intra-Day Value, an appropriate per-Share value based on the Fund’s portfolio |
|
|
1940 Act |
|
|
Investment Company Act of 1940 |
|
|
NAV |
|
|
Net asset value |
|
|
SAI |
|
|
Statement of Additional Information |
|
|
SEC |
|
|
Securities and Exchange Commission |
|
|
Secondary Market |
|
|
A national securities exchange, national securities association or over-the counter trading system where Shares may trade from time to time |
|
|
Securities Act |
|
|
Securities Act of 1933 |
|
IndexIQ ETF Trust
Mailing Address
51 Madison Avenue
New York, New York 10010
1-888-474-7725
newyorklifeinvestments.com
IndexIQ ETF Trust
PROSPECTUS | August 31, 2021
FOR MORE INFORMATION
If you would like more information about the Trust, the Fund and the Shares, the following documents are available free upon request:
Annual/Semi-annual Report
Additional information about the Fund’s investments is available in the Fund’s annual and semi-annual reports to shareholders (once available). In the Fund’s annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund’s performance during the last fiscal year.
Statement of Additional Information
Additional information about the Fund and its policies is also available in the Fund’s SAI. The SAI is incorporated by reference into this Prospectus (and is legally considered part of this Prospectus). The Fund’s annual and semi-annual reports (once available) and the SAI are available free upon request by calling IndexIQ at 1-888-474-7725. You can also access and download the annual and semi-annual reports (once available) and the SAI at the Fund’s website: newyorklifeinvestments.com.
To obtain other information and for shareholder inquiries:
By telephone: 1-888-474-7725
By mail: IndexIQ ETF Trust
c/o IndexIQ
51 Madison Avenue
New York, NY 10010
On the Internet: SEC Edgar database: http://www.sec.gov; or newyorklifeinvestments.com
You may review and obtain copies of Fund documents (including the SAI) by visiting the SEC’s public reference room in Washington, D.C. You may also obtain copies of Fund documents, after paying a duplicating fee, by writing to the SEC’s Public Reference Section, Washington, D.C. 20549-0102 or by electronic request to: publicinfo@sec.gov. Information on the operation of the public reference room may be obtained by calling the SEC at (202) 551-8090.
No person is authorized to give any information or to make any representations about the Fund and its Shares not contained in this Prospectus and you should not rely on any other information. Read and keep the Prospectus for future reference.
Dealers effecting transactions in the Fund’s Shares, whether or not participating in this distribution, may be generally required to deliver a Prospectus. This is in addition to any obligation dealers have to deliver a Prospectus when acting as underwriters.
“New York Life Investments” is both a servicemark, and the common trade name, of certain investment advisors affiliated with New York Life Insurance Company.
IQ® and IndexIQ® are registered servicemarks of New York Life Insurance Company.
The Trust’s investment company registration number is 811-22227.
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20001 column dei_LegalEntityAxis compact ck0001415995_S000023661Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20002 column dei_LegalEntityAxis compact ck0001415995_S000023661Member row primary compact * ~
0.0026
0.0406
0.0516
0.0277
0.0251
0.0068
0.0625
0.0322
0.0859
0.0556
~ http://www.indexiq.com/20210830/role/ScheduleAnnualTotalReturnsBarChart20003 column dei_LegalEntityAxis compact ck0001415995_S000023661Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAverageAnnualReturnsTransposed20004 column dei_LegalEntityAxis compact ck0001415995_S000023661Member column rr_PerformanceMeasureAxis compact * row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20007 column dei_LegalEntityAxis compact ck0001415995_S000023662Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20008 column dei_LegalEntityAxis compact ck0001415995_S000023662Member row primary compact * ~
0.0342
0.0584
0.0327
0.0130
0.0411
0.0117
0.0832
0.0509
0.0822
0.0868
~ http://www.indexiq.com/20210830/role/ScheduleAnnualTotalReturnsBarChart20009 column dei_LegalEntityAxis compact ck0001415995_S000023662Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAverageAnnualReturnsTransposed20010 column dei_LegalEntityAxis compact ck0001415995_S000023662Member column rr_PerformanceMeasureAxis compact * row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20013 column dei_LegalEntityAxis compact ck0001415995_S000023665Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20014 column dei_LegalEntityAxis compact ck0001415995_S000023665Member row primary compact * ~
0.0184
0.0070
0.0138
0.0225
0.0242
0.0216
0.0775
0.0401
~ http://www.indexiq.com/20210830/role/ScheduleAnnualTotalReturnsBarChart20015 column dei_LegalEntityAxis compact ck0001415995_S000023665Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAverageAnnualReturnsTransposed20016 column dei_LegalEntityAxis compact ck0001415995_S000023665Member column rr_PerformanceMeasureAxis compact * row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20019 column dei_LegalEntityAxis compact ck0001415995_S000023663Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20020 column dei_LegalEntityAxis compact ck0001415995_S000023663Member row primary compact * ~
0.0444
0.1336
0.0621
0.1793
0.1516
~ http://www.indexiq.com/20210830/role/ScheduleAnnualTotalReturnsBarChart20021 column dei_LegalEntityAxis compact ck0001415995_S000023663Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAverageAnnualReturnsTransposed20022 column dei_LegalEntityAxis compact ck0001415995_S000023663Member column rr_PerformanceMeasureAxis compact * row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20025 column dei_LegalEntityAxis compact ck0001415995_S000023664Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20026 column dei_LegalEntityAxis compact ck0001415995_S000023664Member row primary compact * ~
0.0565
0.0812
0.0193
0.1302
0.1287
~ http://www.indexiq.com/20210830/role/ScheduleAnnualTotalReturnsBarChart20027 column dei_LegalEntityAxis compact ck0001415995_S000023664Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAverageAnnualReturnsTransposed20028 column dei_LegalEntityAxis compact ck0001415995_S000023664Member column rr_PerformanceMeasureAxis compact * row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20031 column dei_LegalEntityAxis compact ck0001415995_S000025928Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20032 column dei_LegalEntityAxis compact ck0001415995_S000025928Member row primary compact * ~
0.0210
0.0160
0.0138
0.0214
0.0002
0.0168
0.0307
0.0178
0.0730
0.0142
~ http://www.indexiq.com/20210830/role/ScheduleAnnualTotalReturnsBarChart20033 column dei_LegalEntityAxis compact ck0001415995_S000025928Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAverageAnnualReturnsTransposed20034 column dei_LegalEntityAxis compact ck0001415995_S000025928Member column rr_PerformanceMeasureAxis compact * row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20037 column dei_LegalEntityAxis compact ck0001415995_S000025931Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20038 column dei_LegalEntityAxis compact ck0001415995_S000025931Member row primary compact * ~
0.0052
0.0060
0.0766
0.0528
0.0126
0.0486
0.0586
0.0210
0.0462
0.0287
~ http://www.indexiq.com/20210830/role/ScheduleAnnualTotalReturnsBarChart20039 column dei_LegalEntityAxis compact ck0001415995_S000025931Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAverageAnnualReturnsTransposed20040 column dei_LegalEntityAxis compact ck0001415995_S000025931Member column rr_PerformanceMeasureAxis compact * row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20043 column dei_LegalEntityAxis compact ck0001415995_S000025932Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20044 column dei_LegalEntityAxis compact ck0001415995_S000025932Member row primary compact * ~
0.0914
0.0761
0.0328
0.0513
0.1937
0.2018
0.1337
0.1025
0.0929
0.0407
~ http://www.indexiq.com/20210830/role/ScheduleAnnualTotalReturnsBarChart20045 column dei_LegalEntityAxis compact ck0001415995_S000025932Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAverageAnnualReturnsTransposed20046 column dei_LegalEntityAxis compact ck0001415995_S000025932Member column rr_PerformanceMeasureAxis compact * row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20049 column dei_LegalEntityAxis compact ck0001415995_S000032652Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20050 column dei_LegalEntityAxis compact ck0001415995_S000032652Member row primary compact * ~
0.3409
0.1514
0.2068
0.0694
0.1921
0.0209
0.1121
0.2428
0.1254
~ http://www.indexiq.com/20210830/role/ScheduleAnnualTotalReturnsBarChart20051 column dei_LegalEntityAxis compact ck0001415995_S000032652Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAverageAnnualReturnsTransposed20052 column dei_LegalEntityAxis compact ck0001415995_S000032652Member column rr_PerformanceMeasureAxis compact * row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20055 column dei_LegalEntityAxis compact ck0001415995_S000057679Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20056 column dei_LegalEntityAxis compact ck0001415995_S000057679Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20059 column dei_LegalEntityAxis compact ck0001415995_S000057680Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20060 column dei_LegalEntityAxis compact ck0001415995_S000057680Member row primary compact * ~
0.1311
0.2873
0.1004
~ http://www.indexiq.com/20210830/role/ScheduleAnnualTotalReturnsBarChart20061 column dei_LegalEntityAxis compact ck0001415995_S000057680Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAverageAnnualReturnsTransposed20062 column dei_LegalEntityAxis compact ck0001415995_S000057680Member column rr_PerformanceMeasureAxis compact * row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20065 column dei_LegalEntityAxis compact ck0001415995_S000057681Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20066 column dei_LegalEntityAxis compact ck0001415995_S000057681Member row primary compact * ~
0.1952
0.2422
0.0780
~ http://www.indexiq.com/20210830/role/ScheduleAnnualTotalReturnsBarChart20067 column dei_LegalEntityAxis compact ck0001415995_S000057681Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAverageAnnualReturnsTransposed20068 column dei_LegalEntityAxis compact ck0001415995_S000057681Member column rr_PerformanceMeasureAxis compact * row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20071 column dei_LegalEntityAxis compact ck0001415995_S000050195Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20072 column dei_LegalEntityAxis compact ck0001415995_S000050195Member row primary compact * ~
0.0350
0.2173
0.1195
0.2293
0.0720
~ http://www.indexiq.com/20210830/role/ScheduleAnnualTotalReturnsBarChart20073 column dei_LegalEntityAxis compact ck0001415995_S000050195Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAverageAnnualReturnsTransposed20074 column dei_LegalEntityAxis compact ck0001415995_S000050195Member column rr_PerformanceMeasureAxis compact * row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20077 column dei_LegalEntityAxis compact ck0001415995_S000062471Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20078 column dei_LegalEntityAxis compact ck0001415995_S000062471Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20081 column dei_LegalEntityAxis compact ck0001415995_S000062011Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20082 column dei_LegalEntityAxis compact ck0001415995_S000062011Member row primary compact * ~
0.1844
0.0522
~ http://www.indexiq.com/20210830/role/ScheduleAnnualTotalReturnsBarChart20083 column dei_LegalEntityAxis compact ck0001415995_S000062011Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAverageAnnualReturnsTransposed20084 column dei_LegalEntityAxis compact ck0001415995_S000062011Member column rr_PerformanceMeasureAxis compact * row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20087 column dei_LegalEntityAxis compact ck0001415995_S000054232Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20088 column dei_LegalEntityAxis compact ck0001415995_S000054232Member row primary compact * ~
0.2818
~ http://www.indexiq.com/20210830/role/ScheduleAnnualTotalReturnsBarChart20089 column dei_LegalEntityAxis compact ck0001415995_S000054232Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAverageAnnualReturnsTransposed20090 column dei_LegalEntityAxis compact ck0001415995_S000054232Member column rr_PerformanceMeasureAxis compact * row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20093 column dei_LegalEntityAxis compact ck0001415995_S000054231Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20094 column dei_LegalEntityAxis compact ck0001415995_S000054231Member row primary compact * ~
0.1044
~ http://www.indexiq.com/20210830/role/ScheduleAnnualTotalReturnsBarChart20095 column dei_LegalEntityAxis compact ck0001415995_S000054231Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAverageAnnualReturnsTransposed20096 column dei_LegalEntityAxis compact ck0001415995_S000054231Member column rr_PerformanceMeasureAxis compact * row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20099 column dei_LegalEntityAxis compact ck0001415995_S000070449Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20100 column dei_LegalEntityAxis compact ck0001415995_S000070449Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAnnualFundOperatingExpenses20103 column dei_LegalEntityAxis compact ck0001415995_S000056030Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleExpenseExampleTransposed20104 column dei_LegalEntityAxis compact ck0001415995_S000056030Member row primary compact * ~
0.0309
0.1388
0.0400
~ http://www.indexiq.com/20210830/role/ScheduleAnnualTotalReturnsBarChart20105 column dei_LegalEntityAxis compact ck0001415995_S000056030Member row primary compact * ~
~ http://www.indexiq.com/20210830/role/ScheduleAverageAnnualReturnsTransposed20106 column dei_LegalEntityAxis compact ck0001415995_S000056030Member column rr_PerformanceMeasureAxis compact * row primary compact * ~
false
2021-04-30
485BPOS
0001415995
0001415995
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023661Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023661Member
ck0001415995:C000069675Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023661Member
rr:AfterTaxesOnDistributionsMember
ck0001415995:C000069675Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023661Member
rr:AfterTaxesOnDistributionsAndSalesMember
ck0001415995:C000069675Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023661Member
ck0001415995:index_IQ_Hedge_MultiStrategy_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023661Member
ck0001415995:index_HFRI_Fund_of_Funds_Composite_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023661Member
ck0001415995:index_SP_500_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023662Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023662Member
ck0001415995:C000069676Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023662Member
rr:AfterTaxesOnDistributionsMember
ck0001415995:C000069676Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023662Member
rr:AfterTaxesOnDistributionsAndSalesMember
ck0001415995:C000069676Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023662Member
ck0001415995:index_IQ_Hedge_Macro_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023662Member
ck0001415995:index_HFRI_Macro_Total_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023662Member
ck0001415995:index_MSCI_World_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023665Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023665Member
ck0001415995:C000069679Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023665Member
rr:AfterTaxesOnDistributionsMember
ck0001415995:C000069679Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023665Member
rr:AfterTaxesOnDistributionsAndSalesMember
ck0001415995:C000069679Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023665Member
ck0001415995:index_IQ_Hedge_Market_Neutral_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023665Member
ck0001415995:index_HFRI_Equity_Market_Neutral_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023665Member
ck0001415995:index_Bloomberg_Barclays_US_Short_Treasury_Bond_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023663Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023663Member
ck0001415995:C000069677Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023663Member
rr:AfterTaxesOnDistributionsMember
ck0001415995:C000069677Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023663Member
rr:AfterTaxesOnDistributionsAndSalesMember
ck0001415995:C000069677Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023663Member
ck0001415995:index_IQ_Hedge_LongShort_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023663Member
ck0001415995:index_HFRI_Equity_Hedge_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023663Member
ck0001415995:index_MSCI_World_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023664Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023664Member
ck0001415995:C000069678Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023664Member
rr:AfterTaxesOnDistributionsMember
ck0001415995:C000069678Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023664Member
rr:AfterTaxesOnDistributionsAndSalesMember
ck0001415995:C000069678Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023664Member
ck0001415995:index_IQ_Hedge_Event_Driven_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023664Member
ck0001415995:index_HFRI_Event_Driven_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000023664Member
ck0001415995:index_Bloomberg_Barclays_US_Aggregate_Bond_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025928Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025928Member
ck0001415995:C000077925Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025928Member
rr:AfterTaxesOnDistributionsMember
ck0001415995:C000077925Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025928Member
rr:AfterTaxesOnDistributionsAndSalesMember
ck0001415995:C000077925Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025928Member
ck0001415995:index_IQ_Real_Return_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025928Member
ck0001415995:index_Bloomberg_Barclays_US_Short_Treasury_Bond_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025931Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025931Member
ck0001415995:C000077928Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025931Member
rr:AfterTaxesOnDistributionsMember
ck0001415995:C000077928Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025931Member
rr:AfterTaxesOnDistributionsAndSalesMember
ck0001415995:C000077928Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025931Member
ck0001415995:index_IQ_Merger_Arbitrage_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025931Member
ck0001415995:index_HFRI_ED_Merger_Arbitrage_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025931Member
ck0001415995:index_MSCI_World_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025931Member
ck0001415995:index_SP_500_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025932Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025932Member
ck0001415995:C000077929Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025932Member
rr:AfterTaxesOnDistributionsMember
ck0001415995:C000077929Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025932Member
rr:AfterTaxesOnDistributionsAndSalesMember
ck0001415995:C000077929Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025932Member
ck0001415995:index_IQ_Global_Resources_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025932Member
ck0001415995:index_SP_Global_Natural_Resources_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025932Member
ck0001415995:index_Bloomberg_Commodity_Spot_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000025932Member
ck0001415995:index_MSCI_World_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000032652Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000032652Member
ck0001415995:C000100709Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000032652Member
rr:AfterTaxesOnDistributionsMember
ck0001415995:C000100709Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000032652Member
rr:AfterTaxesOnDistributionsAndSalesMember
ck0001415995:C000100709Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000032652Member
ck0001415995:index_IQ_US_Real_Estate_Small_Cap_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000032652Member
ck0001415995:index_Dow_Jones_US_Real_Estate_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000057679Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000057679Member
ck0001415995:C000184742Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000057680Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000057680Member
ck0001415995:C000184743Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000057680Member
rr:AfterTaxesOnDistributionsMember
ck0001415995:C000184743Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000057680Member
rr:AfterTaxesOnDistributionsAndSalesMember
ck0001415995:C000184743Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000057680Member
ck0001415995:index_NASDAQ_Chaikin_Power_US_Large_Cap_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000057680Member
ck0001415995:index_SP_500_Total_Return_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000057680Member
ck0001415995:index_NASDAQ_US_300_Total_Return_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000057681Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000057681Member
ck0001415995:C000184744Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000057681Member
rr:AfterTaxesOnDistributionsMember
ck0001415995:C000184744Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000057681Member
rr:AfterTaxesOnDistributionsAndSalesMember
ck0001415995:C000184744Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000057681Member
ck0001415995:index_NASDAQ_Chaikin_Power_US_Small_Cap_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000057681Member
ck0001415995:index_Russell_2000_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000057681Member
ck0001415995:index_NASDAQ_1500_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000050195Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000050195Member
ck0001415995:C000158453Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000050195Member
rr:AfterTaxesOnDistributionsMember
ck0001415995:C000158453Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000050195Member
rr:AfterTaxesOnDistributionsAndSalesMember
ck0001415995:C000158453Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000050195Member
ck0001415995:index_FTSE_Developed_ex_North_America_50_Hedged_to_USD_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000050195Member
ck0001415995:index_FTSE_Developed_ex_North_America_Index_Local_Currency_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000050195Member
ck0001415995:index_FTSE_Developed_ex_North_America_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000062471Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000062471Member
ck0001415995:C000202656Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000062011Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000062011Member
ck0001415995:C000200859Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000062011Member
rr:AfterTaxesOnDistributionsMember
ck0001415995:C000200859Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000062011Member
rr:AfterTaxesOnDistributionsAndSalesMember
ck0001415995:C000200859Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000062011Member
ck0001415995:index_IQ_500_International_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000062011Member
ck0001415995:index_MSCI_EAFE_Index_reflects_no_deduction_for_fees_expenses_or_taxes0Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000054232Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000054232Member
ck0001415995:C000170332Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000054232Member
rr:AfterTaxesOnDistributionsMember
ck0001415995:C000170332Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000054232Member
rr:AfterTaxesOnDistributionsAndSalesMember
ck0001415995:C000170332Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000054232Member
ck0001415995:index_IQ_Candriam_ESG_US_Equity_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000054232Member
ck0001415995:index_SP_500_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000054231Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000054231Member
ck0001415995:C000170331Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000054231Member
rr:AfterTaxesOnDistributionsMember
ck0001415995:C000170331Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000054231Member
rr:AfterTaxesOnDistributionsAndSalesMember
ck0001415995:C000170331Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000054231Member
ck0001415995:index_IQ_Candriam_ESG_International_Equity_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000054231Member
ck0001415995:index_MSCI_EAFE_Index_reflects_no_deduction_for_fees_expenses_or_taxes1Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000070449Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000070449Member
ck0001415995:C000223944Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000056030Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000056030Member
ck0001415995:C000176409Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000056030Member
rr:AfterTaxesOnDistributionsMember
ck0001415995:C000176409Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000056030Member
rr:AfterTaxesOnDistributionsAndSalesMember
ck0001415995:C000176409Member
2021-04-30
2021-04-30
0001415995
ck0001415995:S000056030Member
ck0001415995:index_SP_US_High_Yield_Low_Volatility_Corporate_Bond_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
0001415995
ck0001415995:S000056030Member
ck0001415995:index_ICE_BofAML_US_High_Yield_Index_reflects_no_deduction_for_fees_expenses_or_taxesMember
2021-04-30
2021-04-30
xbrli:pure
iso4217:USD
STATEMENT OF ADDITIONAL INFORMATION
INDEXIQ ETF TRUST
51 MADISON AVENUE
NEW YORK, NEW YORK 10010
PHONE: (888) 474-7725
AUGUST 31, 2021
This Statement of Additional Information (this
“SAI”) is not a prospectus. It should be read in conjunction with and is incorporated by reference into the prospectuses
dated August 31, 2021 (the “Prospectuses”) for the IndexIQ ETF Trust (the “Trust”) funds (each, a “Fund”
and, collectively, the “Funds”) listed below.
IQ Hedge
Multi-Strategy Tracker ETF (QAI) |
IQ
50 Percent Hedged FTSE International ETF (HFXI) |
IQ
Hedge Macro Tracker ETF (MCRO) |
IQ
Chaikin U.S. Dividend Achievers ETF (CDVA) |
IQ
Hedge Market Neutral Tracker ETF (QMN) |
IQ
Chaikin U.S. Large Cap ETF (CLRG) |
IQ
Hedge Long/Short Tracker ETF (QLS) |
IQ
Chaikin U.S. Small Cap ETF (CSML) |
IQ
Hedge Event-Driven Tracker ETF (QED) |
IQ
500 International ETF (IQIN) |
IQ
Real Return ETF (CPI) |
IQ
Candriam ESG US Equity ETF (IQSU) |
IQ
Merger Arbitrage ETF (MNA) |
IQ
Candriam ESG International Equity ETF (IQSI) |
IQ
Global Resources ETF (GRES) |
IQ
S&P U.S. Preferred Stock Low Volatility High Dividend ETF (PRHD) |
IQ
U.S. Real Estate Small Cap ETF (ROOF) |
IQ
Healthy Hearts ETF (HART) |
As of the date of this SAI, IQ Chaikin
U.S. Dividend Achievers ETF and IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF have not commenced operations.
The Prospectuses and the Funds’ Annual
Reports or Semi-Annual Reports may be obtained without charge by writing to the Trust, c/o ALPS Distributors, Inc., 1290 Broadway,
Suite 1100, Denver, Colorado 80203, by calling (888) 474-7725, or by visiting the Trust’s website at newyorklifeinvestments.com.
Capitalized terms used but not defined herein
have the same meaning as in the Prospectuses, unless otherwise noted.
TABLE OF CONTENTS
No person has been authorized to give any information
or to make any representations other than those contained in this SAI and the Prospectuses and, if given or made, such information or
representations may not be relied upon as having been authorized by the Trust. The SAI does not constitute an offer to sell securities.
The following applies to each Fund (except
for the IQ 50 Percent Hedged FTSE International ETF, IQ Chaikin Funds (as defined below) and the IQ S&P U.S. Preferred Stock
Low Volatility High Dividend ETF).
The information contained herein regarding the
indexes underlying the Funds (each, an “Underlying Index”, and, collectively, the “Underlying Indexes”) and IndexIQ
LLC (“IndexIQ”) was provided by IndexIQ, while the information contained herein regarding the securities markets and The Depository
Trust Company (“DTC”) was obtained from publicly available sources.
Fund Name |
Underlying
Index |
IQ
Hedge Multi-Strategy Tracker ETF (QAI) |
IQ Hedge
Multi-Strategy Index |
IQ
Hedge Macro Tracker ETF (MCRO) |
IQ Hedge
Macro Index |
IQ
Hedge Market Neutral Tracker ETF (QMN) |
IQ Hedge
Market Neutral Index |
IQ
Hedge Long/Short Tracker ETF (QLS) |
IQ Hedge
Long/Short Index |
IQ
Hedge Event-Driven Tracker ETF (QED) |
IQ Hedge
Event-Driven Index |
IQ
Real Return ETF (CPI) |
IQ Real
Return Index |
IQ
Merger Arbitrage ETF (MNA) |
IQ Merger
Arbitrage Index |
IQ
Global Resources ETF (GRES) |
IQ Global
Resources Index |
IQ
U.S. Real Estate Small Cap ETF (ROOF) |
IQ U.S.
Real Estate Small Cap Index |
IQ
500 International ETF (IQIN) |
IQ 500 International
Index |
IQ
Candriam ESG US Equity ETF (IQSU) |
IQ Candriam
ESG US Equity Index |
IQ
Candriam SRI International Equity ETF (IQSI) |
IQ Candriam
ESG International Equity Index |
IQ
Healthy Hearts ETF (HART) |
IQ Candriam
Healthy Hearts Index |
SHARES OF THE
TRUST ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY INDEXIQ. INDEXIQ MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE
OWNERS OF THE SHARES OF THE TRUST OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF TRADING IN THE PRODUCT(S). INDEXIQ HAS NO
OBLIGATION TO TAKE THE NEEDS OF INDEXIQ ADVISORS LLC (IN ITS CAPACITY AS LICENSEE OF THE UNDERLYING INDEXES, THE “LICENSEE”)
OR THE OWNERS OF THE SHARES OF THE TRUST INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE UNDERLYING INDEXES. INDEXIQ IS
NOT RESPONSIBLE FOR AND HAS NOT PARTICIPATED IN THE DETERMINATION OF THE TIMING OF, PRICES AT, OR QUANTITIES OF THE SHARES OF THE TRUST
TO BE LISTED OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH THE SHARES OF THE TRUST ARE TO BE CONVERTED INTO CASH. INDEXIQ
HAS NO OBLIGATION OR LIABILITY IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR TRADING OF THE SHARES OF THE TRUST.
INDEXIQ DOES NOT GUARANTEE THE ACCURACY AND/OR
THE COMPLETENESS OF THE UNDERLYING INDEXES OR ANY DATA INCLUDED THEREIN AND INDEXIQ SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS,
OR INTERRUPTIONS THEREIN.
INDEXIQ MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE SHARES OF THE TRUST, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE UNDERLYING
INDEXES OR ANY DATA INCLUDED THEREIN. INDEXIQ 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 INDEXES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF
THE FOREGOING, IN NO EVENT SHALL INDEXIQ HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL
DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS
OR ARRANGEMENTS BETWEEN INDEXIQ AND LICENSEE.
CANDRIAM DOES NOT GUARANTEE THE ACCURACY AND/OR
THE COMPLETENESS OF THE IQ CANDRIAM ESG US EQUITY INDEX, IQ CANDRIAM ESG INTERNATIONAL EQUITY INDEX AND IQ CANDRIAM HEALTHY HEARTS
INDEX OR ANY DATA INCLUDED THEREIN AND CANDRIAM SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. CANDRIAM
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE SHARES OF THE TRUST, OR ANY OTHER PERSON
OR ENTITY FROM THE USE OF THE UNDERLYING INDICES OR ANY DATA INCLUDED THEREIN. CANDRIAM 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 INDICES OR ANY
DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL CANDRIAM
HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED
OF THE POSSIBILITY OF SUCH DAMAGES.
The following applies to the IQ
50 Percent Hedged FTSE International ETF.
The information
contained herein regarding the Underlying Indexes and FTSE International Limited (“FTSE”) was provided by FTSE, while the
information contained herein regarding the securities markets and DTC was obtained from publicly available sources.
Fund Name |
Underlying Index |
IQ 50 Percent Hedged FTSE International ETF (HFXI) |
FTSE Developed ex North America 50% Hedged to USD Index |
THE IQ 50 PERCENT
HEDGED FTSE INTERNATIONAL ETF IS NOT IN ANY WAY SPONSORED, ENDORSED, SOLD, OR PROMOTED BY FTSE OR THE LONDON STOCK EXCHANGE GROUP COMPANIES
(“LSEG”) (TOGETHER THE “LICENSOR PARTIES”), AND NONE OF THE LICENSOR PARTIES MAKE ANY CLAIM, PREDICTION, WARRANTY,
OR REPRESENTATION WHATSOEVER, EXPRESSLY OR IMPLIEDLY, EITHER AS TO (I) THE RESULTS TO BE OBTAINED FROM THE USE OF THE FTSE DEVELOPED
EX NORTH AMERICA 50% HEDGED TO USD INDEX (THE “INDEX”), (II) THE FIGURE AT WHICH THE INDEX IS SAID TO STAND AT ANY PARTICULAR
TIME ON ANY PARTICULAR DAY OR OTHERWISE, OR (III) THE SUITABILITY OF THE INDEX FOR THE PURPOSE TO WHICH IT IS BEING PUT IN CONNECTION
WITH THE FUND. NONE OF THE LICENSOR PARTIES HAVE PROVIDED OR WILL PROVIDE ANY FINANCIAL OR INVESTMENT ADVICE OR RECOMMENDATION IN RELATION
TO THE INDEX TO THE ADVISOR OR TO ITS CLIENTS. THE INDEX IS CALCULATED BY FTSE OR ITS AGENT. NONE OF THE LICENSOR PARTIES SHALL BE (A) LIABLE
(WHETHER IN NEGLIGENCE OR OTHERWISE) TO ANY PERSON FOR ANY ERROR IN THE INDEX OR (B) UNDER ANY OBLIGATION TO ADVISE ANY PERSON OF
ANY ERROR THEREIN. ALL RIGHTS IN THE INDEX VEST IN FTSE. “FTSE®” IS A TRADEMARK OF LSEG AND IS USED BY FTSE
UNDER LICENSE.
The following applies to the IQ
Chaikin U.S. Dividend Achievers ETF, IQ Chaikin U.S. Large Cap ETF and IQ Chaikin U.S. Small Cap ETF (each, an “IQ Chaikin
Fund” and, collectively, the “IQ Chaikin Funds”).
The information
contained herein regarding the Underlying Index and Nasdaq, Inc. (“Nasdaq”) was provided by the Nasdaq, while the information
contained herein regarding the securities markets and DTC was obtained from publicly available sources.
Fund Name |
Underlying Index |
IQ Chaikin U.S. Dividend Achievers ETF (CDVA) |
Nasdaq Chaikin Power US Dividend Achievers Index |
IQ Chaikin U.S. Large Cap ETF (CLRG) |
Nasdaq Chaikin Power US Large Cap Index |
IQ Chaikin U.S. Small Cap ETF (CSML) |
Nasdaq Chaikin Power US Small Cap Index |
The Product(s) is
not sponsored, endorsed, sold or promoted by Nasdaq, Inc. or its affiliates (Nasdaq, with its affiliates, are referred to as the
“Corporations”). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions
and disclosures relating to, the Product(s). The Corporations make no representation or warranty, express or implied to the owners of
the Product(s) or any member of the public regarding the advisability of investing in securities generally or in the Product(s) particularly,
or the ability of the Nasdaq Chaikin Power US Dividend Achievers Index, Nasdaq Chaikin Power US Small Cap Index and Nasdaq Chaikin Power
US Large Cap Index to track general stock market performance. The Corporations' only relationship to IndexIQ Advisors LLC (“Licensee”)
is in the licensing of the Nasdaq® and certain trade names of the Corporations and the use of the Nasdaq Chaikin Power US Dividend
Achievers Index, Nasdaq Chaikin Power US Small Cap Index and Nasdaq Chaikin Power US Large Cap Index which are determined, composed and
calculated by Nasdaq without regard to Licensee or the Product(s). Nasdaq has no obligation to take the needs of the Licensee or the owners
of the Product(s) into consideration in determining, composing or calculating the Nasdaq Chaikin Power US Dividend Achievers Index,
Nasdaq Chaikin Power US Small Cap Index and Nasdaq Chaikin Power US Large Cap Index. The Corporations are not responsible for and have
not participated in the determination of the timing of, prices at, or quantities of the Product(s) to be issued or in the determination
or calculation of the equation by which the Product(s) is to be converted into cash. The Corporations have no liability in connection
with the administration, marketing or trading of the Product(s).
The Corporations
do not guarantee the accuracy and/or uninterrupted calculation of Nasdaq Chaikin Power US Dividend Achievers Index, Nasdaq Chaikin Power
US Small Cap Index and Nasdaq Chaikin Power US Large Cap Index or any data included therein. The Corporations make no warranty, express
or implied, as to results to be obtained by Licensee, owners of the product(s), or any other person or entity from the use of the Nasdaq
Chaikin Power US Dividend Achievers Index, Nasdaq Chaikin Power US Small Cap Index and Nasdaq Chaikin Power US Large Cap Index or any
data included therein. The
Corporations make no express or implied warranties, and expressly disclaim all warranties of merchantability
or fitness for a particular purpose or use with respect to the Indexes or any data included therein.
Without limiting
any of the foregoing, in no event shall the Corporations have any liability for any lost profits or special, incidental, punitive, indirect,
or consequential damages, even if notified of the possibility of such damages.
Chaikin, Chaikin
Analytics and Chaikin Power Gauge are registered trademarks or service marks of Chaikin Analytics LLC and Chaikin Investments LLC and
used under license.
The following applies to the IQ
S&P U.S. Preferred Stock Low Volatility High Dividend ETF.
The information
contained herein regarding the Underlying Index and S&P Opco, LLC (“S&P”) was provided by S&P, while the information
contained herein regarding the securities markets and DTC was obtained from publicly available sources.
The “S&P
U.S. Preferred Stock Low Volatility High Dividend Index” is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”)
and IndexIQ ETF Trust LLC, and has been licensed for use by IndexIQ Advisors LLC. Standard & Poor’s® and S&P®
are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones®
is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). IndexIQ ETF Trust’s Trademark is a trademark
of IndexIQ ETF Trust. The trademarks have been licensed to SPDJI and have been sublicensed for use for certain purposes by IndexIQ Advisors
LLC. IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones,
S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”) or IndexIQ ETF Trust. Neither S&P
Dow Jones Indices nor IndexIQ ETF Trust make any representation or warranty, express or implied, to the owners of the IQ S&P U.S.
Preferred Stock Low Volatility High Dividend ETF or any member of the public regarding the advisability of investing in securities generally
or in IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF particularly or the ability of the S&P U.S. Preferred Stock
Low Volatility High Dividend Index to track general market performance. S&P Dow Jones Indices and IndexIQ ETF Trust only relationship
to IndexIQ Advisors LLC with respect to the S&P U.S. Preferred Stock Low Volatility High Dividend Index is the licensing of the Index
and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its licensors. The S&P U.S. Preferred
Stock Low Volatility High Dividend Index is determined, composed and calculated by S&P Dow Jones Indices or IndexIQ ETF Trust without
regard to IndexIQ Advisors LLC or the IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF. S&P Dow Jones Indices and
IndexIQ ETF Trust have no obligation to take the needs of IndexIQ Advisors LLC or the owners of IQ S&P U.S. Preferred Stock Low Volatility
High Dividend ETF into consideration in determining, composing or calculating the S&P U.S. Preferred Stock Low Volatility High Dividend
Index. Neither S&P Dow Jones Indices nor IndexIQ ETF Trust are responsible for and have not participated in the determination of the
prices, and amount of IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF or the timing of the issuance or sale of IQ S&P
U.S. Preferred Stock Low Volatility High Dividend ETF or in the determination or calculation of the equation by which IQ S&P U.S.
Preferred Stock Low Volatility High Dividend ETF is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow
Jones Indices and IndexIQ ETF Trust have no obligation or liability in connection with the administration, marketing or trading of IQ
S&P U.S. Preferred Stock Low Volatility High Dividend ETF. There is no assurance that investment products based on the S&P U.S.
Preferred Stock Low Volatility High Dividend Index will accurately track index performance or provide positive investment returns. S&P
Dow Jones Indices LLC is not an investment advisor. Inclusion of a security within an index is not a recommendation by S&P Dow Jones
Indices to buy, sell, or hold such security, nor is it considered to be investment advice.
NEITHER S&P
DOW JONES INDICES NOR INDEXIQ ETF TRUST GUARANTEES THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P U.S. PREFERRED
STOCK LOW VOLATILITY HIGH DIVIDEND INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR
WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES AND INDEXIQ ETF TRUST SHALL
NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES AND INDEXIQ ETF TRUST
MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE OR AS TO RESULTS TO BE OBTAINED BY INDEXIQ ADVISORS LLC, OWNERS OF THE IQ S&P PREFERRED STOCK LOW VOLATILITY HIGH DIVIDEND
ETF, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P U.S. PREFERRED STOCK LOW VOLATILITY HIGH DIVIDEND INDEX OR WITH RESPECT
TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES OR INDEXIQ
ETF TRUST BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS
OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT,
TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES
INDICES AND INDEXIQ ADVISORS LLC, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
This following
applies to the IQ Healthy Hearts ETF only.
ABOUT THE AMERICAN HEART ASSOCIATION®:
The American Heart Association® (“AHA”) is the nation’s oldest and largest voluntary organization dedicated to
fighting heart disease and stroke. Founded by six cardiologists in 1924, the organization now includes more than 40 million volunteers
and supporters. Its mission is “To be a relentless force for a world of longer, healthier lives.” AHA is a tax-exempt under
Section 501(c)(3) of the Code. AHA will enter into a support agreement (the “Agreement”) with the Advisor and New
York Life Investment Management LLC (“NYLIM”). Pursuant to the Agreement, AHA will grant the Advisor and NYLIM a license
permitting the Fund to use AHA’s name and logo in connection with its donation payments to American Heart Association and support
of its mission. AHA will identify and compile certain social criteria to be incorporated into the Fund’s “social screen”
– criteria that seek to measure corporate performance against a range of social impact benchmarks relevant to the Fund. AHA will
not: (i) select any individual companies for inclusion or exclusion from the Underlying Index or (ii) have any right to approve
or modify the Index, once constructed. AHA will not have any influence on the day-to-day operations of the Fund or the Advisor’s
management of the Fund. AHA will not provide any investment advisory services to the Advisor, the Fund or any potential or current investors
in the Fund. AHA will have no equity ownership or other financial interest in the Advisor.
Shares of the Fund are not sponsored, endorsed
or promoted by American Heart Association, Inc. (“AHA”). The Fund’s sponsor, IndexIQ, and its affiliates
are donors to and supporters of AHA’s Social Impact Fund and are making a substantial contribution to the Social Impact Fund. AHA
makes no representation or warranty, express or implied, to prospective or actual investors in the Fund or to any member of the public
regarding the advisability of investing in any financial product, including one seeking to track the Underlying Index, the ability of
the Fund to track the performance of the Underlying Index, the ability of the Underlying Index to meet or exceed stock market performance,
the suitability of the Fund or the ability of the Underlying Index or Fund to achieve its investment goals. AHA has no obligation or
liability in connection with the administration, marketing or trading of shares of the Fund. AHA is not an investment adviser or a fund
distributor or service provider. Inclusion of a security within the Underlying Index is not a recommendation by AHA to buy, sell or hold
such security, nor is it considered to be investment advice or a guarantee that the investment goals of the Underlying Index will be
achieved. AHA does not guarantee the accuracy and/or the completeness of the Underlying Index or any data included therein.
GENERAL DESCRIPTION OF THE TRUST AND THE
FUNDS
The Trust was organized
as a Delaware statutory trust on July 1, 2008 and is authorized to have multiple segregated series or portfolios. The Trust is an
open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Trust currently consists of a number of separate investment portfolios, of which 17 are in operation. Each of the IQ Hedge Multi-Strategy
Tracker ETF, IQ Hedge Macro Tracker ETF, IQ Hedge Market Neutral Tracker ETF, IQ Hedge Long/Short Tracker ETF, IQ
Hedge Event-Driven Tracker ETF, IQ Chaikin U.S. Dividend Achievers ETF, IQ Chaikin U.S. Large Cap ETF, IQ Chaikin U.S.
Small Cap ETF, IQ Candriam ESG US Equity ETF, IQ Candriam ESG International Equity ETF, IQ 500 International ETF, IQ
Real Return ETF and IQ 50 Percent Hedged FTSE International ETF are deemed to be diversified for the purposes of the 1940 Act. Each other
Fund is deemed to be non-diversified for the purposes of the 1940 Act. Other portfolios may be added to the Trust in the future. The
shares of the Funds are referred to herein as “Shares.” The offering of Shares is registered under the Securities Act of
1933, as amended (the “Securities Act”).
The Funds are
managed by IndexIQ Advisors LLC (the “Advisor”). The Advisor has been registered as an investment adviser with the Securities
and Exchange Commission (the “SEC”) since August 2007 and is a wholly-owned indirect subsidiary of New York Life Investment
Management Holdings LLC.
The Funds offer
and issue Shares at net asset value (the “NAV”) only in aggregations of a specified number of Shares (each, a “Creation
Unit” or a “Creation Unit Aggregation”), generally in exchange for a basket of equity securities included in the relevant
Underlying Indexes (the “Deposit Securities”), together with the deposit of a specified cash payment (the “Cash Component”).
Shares are redeemable only in Creation Unit Aggregations and, generally, in exchange for Deposit Securities and a Cash Component. Creation
Units are aggregations of 50,000 Shares of a Fund. In the event of the liquidation of a Fund, the Trust may lower the number of Shares
in a Creation Unit.
If a Fund presently
creates and redeems Shares in-kind, the Trust reserves the right to offer a “cash” option for creations and redemptions of
Shares.
Shares may be
issued in advance of receipt of Deposit Securities subject to various conditions, including a requirement to maintain on deposit with
the Trust cash at least equal to 115% of the market value of the missing Deposit Securities. See the “Purchase and Redemption of
Creation Units” section. In each instance of such cash creations or redemptions, such fees will
be limited in accordance with the
requirements of the SEC applicable to management investment companies offering redeemable securities.
EXCHANGE LISTING AND TRADING
There can be
no assurance that a Fund will be able to maintain the listing of its Shares on an Exchange. Each Exchange will consider the suspension
of trading and delisting of the Shares of a Fund from listing if (i) a Fund or an Underlying Index does not comply with the Exchange’s
continuous listing requirements; or (ii) such other event shall occur or condition exist that, in the opinion of the applicable Exchange,
makes further trading on the applicable Exchange inadvisable. Each Exchange will remove the Shares of a Fund from listing and trading
upon termination of such Fund.
As in the case
of other stocks traded on an Exchange, brokers’ commissions on transactions will be based on commission rates negotiated by an investor
or his or her broker.
The Trust reserves
the right to adjust the price levels of the Shares in the future to maintain convenient trading ranges for investors. Any adjustments
would be accomplished through stock splits or reverse stock splits, which would have no effect on the net assets of each Fund.
INVESTMENT OBJECTIVES AND POLICIES
Investment
Objectives
Each Fund has
a distinct investment objective and policies. There can be no assurance that a Fund’s objective will be achieved. The investment
objective of each Fund is to provide investment results that correspond generally to the price and yield (before the Fund’s fees
and expenses) of a particular Underlying Index.
All investment
objectives and investment policies not specifically designated as fundamental may be changed without shareholder approval. Additional
information about each Fund, its policies, and the investment instruments it may hold, is provided below.
The Funds’
share prices will fluctuate with market and economic conditions. The Funds should not be relied upon as a complete investment program.
IndexIQ serves as
the index provider to each Fund (except the IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF, the IQ 50 Percent Hedged
FTSE International ETF and the IQ Chaikin Funds) and uses a proprietary rules-based methodology (the “Index Methodology”)
to construct and maintain the Underlying Index of each such Fund. The Underlying Index to each Fund and the Index Methodology for each
Underlying Index, including a list of the component securities of such Underlying Index, can be found on the Trust’s website at
newyorklifeinvestments.com.
Investment
Restrictions
The investment
restrictions set forth below have been adopted by the Board of Trustees of the Trust (the “Board”) as fundamental policies
that cannot be changed with respect to a Fund without the affirmative vote of the holders of a majority (as defined in the 1940 Act) of
the outstanding voting securities of the Fund. The investment objective of each Fund and all other investment policies or practices of
the Fund are considered by the Trust not to be fundamental and accordingly may be changed without shareholder approval. For purposes of
the 1940 Act, a “majority of the outstanding voting securities” means the lesser of the vote of (i) 67% or more of the
Shares of the Fund present at a meeting, if the holders of more than 50% of the outstanding Shares of the Fund are present or represented
by proxy, or (ii) more than 50% of the Shares of a Fund.
For purposes
of the following limitations, any limitation which involves a maximum percentage shall not be considered violated unless an excess over
the percentage occurs immediately after, and is caused by, an acquisition or encumbrance of securities or assets of, or borrowings by,
a Fund.
As a matter of
fundamental policy, each Fund other than the IQ Global Resources ETF and IQ U.S. Real Estate Small Cap ETF may not invest 25% or more
of its total assets in the securities of one or more issuers conducting their principal business activities in the same industry or group
of industries (excluding the U.S. government or any of its agencies or instrumentalities). Nonetheless, to the extent the Fund’s
Underlying Index is concentrated in a particular industry or group of industries, the Fund’s investments will exceed this 25% limitation
to the extent that it is necessary to gain exposure to Underlying Index Components (as defined below) to track its Underlying Index.
For certain Funds
in which the Underlying Index is expected to exceed this 25% limitation, the particular industry or group of industries may be identified
in its Prospectus description contained under the caption “Index Description.”
The IQ Global
Resources ETF will concentrate in the securities of issuers in the resources-related industries or sectors so identified.
The IQ U.S. Real
Estate Small Cap ETF will concentrate in the securities of issuers in the real estate sector and may, to the extent its Underlying Index
is so concentrated, be concentrated in the securities of issuers in one or more industries related to the real estate sector.
A Fund may, notwithstanding
any other fundamental investment restriction or policy, invest some or all of its assets in a single ETF, open-end investment company
or series thereof with substantially the same fundamental investment objective, restrictions and policies as the Fund.
As a matter of fundamental
policy, each Fund other than the IQ Chaikin U.S. Dividend Achievers ETF, IQ Chaikin U.S. Large Cap ETF, IQ Chaikin U.S. Small
Cap ETF, IQ Candriam ESG US Equity ETF, IQ Candriam ESG International Equity ETF, and IQ S&P U.S. Preferred Stock Low Volatility
High Dividend ETF:
| A. | May not borrow money, except
(a) the Fund may borrow from banks (as defined in the 1940 Act) or through reverse repurchase
agreements in amounts up to 331/3% of its total assets (including the amount borrowed),
(b) the Fund may, to the extent permitted by applicable law, borrow up to an additional
5% of its total assets for temporary purposes, (c) the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of portfolio securities,
(d) the Fund may purchase securities on margin to the extent permitted by applicable
law, and (e) the Fund may engage in portfolio transactions, such as mortgage dollar
rolls which are accounted for as financings. Asset coverage of at least 300% (as defined
in the 1940 Act), inclusive of any amounts borrowed, must be maintained at all times. |
| B. | May not make loans, except through
(a) the purchase of debt obligations in accordance with the Fund’s investment
objective and policies, (b) repurchase agreements with banks, brokers, dealers and other
financial institutions, and (c) loans of securities as permitted by applicable law. |
| C. | May not underwrite securities
issued by others, except to the extent that the sale of portfolio securities by the Fund
may be deemed to be an underwriting. |
| D. | May not purchase, hold or deal
in real estate, although the Fund may purchase and sell securities or other investments that
are secured by real estate or interests therein or that reflect the return of an index of
real estate values, securities of real estate investment trusts and other companies that
are engaged primarily in real estate-related businesses and mortgage-related securities and
may hold and sell real estate acquired by the Fund as a result of the ownership of securities. |
| E. | May not invest in commodities
or currencies, except that the Fund may invest in (a) publicly traded commodity pools
or (b) financial instruments (such as structured notes, swaps, futures contracts, forward
contracts, and options on such contracts) (i) on commodities or currencies, (ii) that
represent indices of commodity or currency prices, or (iii) that reflect the return
of such indices. |
| F. | May not issue senior securities
to the extent such issuance would violate applicable law. |
As a matter of fundamental
policy, each of the IQ Chaikin U.S. Dividend Achievers ETF, IQ Chaikin U.S. Large Cap ETF, IQ Chaikin U.S. Small Cap ETF, IQ
Candriam ESG US Equity ETF, IQ Candriam ESG International Equity ETF, IQ S&P U.S. Preferred Stock Low Volatility High Dividend
ETF, IQ 500 International ETF and IQ Healthy Hearts ETF (except as to any specific Fund otherwise noted below:
| A. | May borrow money, to the extent permitted under the 1940 Act, as such may be interpreted or modified
by regulatory authorities having jurisdiction, from time to time. |
| B. | May make loans to the extent permitted under the 1940 Act, as such may be interpreted or modified
by regulatory authorities having jurisdiction, from time to time. |
| C. | May act as an underwriter of securities within the meaning of the Securities Act, to the extent permitted
under the Securities Act, as such may be interpreted or modified by regulatory authorities having jurisdiction, from time to time. |
| D. | May purchase or sell real estate or any interest therein to the extent permitted under the 1940 Act,
as such may be interpreted or modified by regulatory authorities having jurisdiction, from time to time. |
| E. | May not purchase physical commodities or contracts relating to physical commodities, except as permitted
under the 1940 Act and other applicable laws, rules and regulations, as such may be interpreted or modified by regulatory authorities
having jurisdiction, from time to time. |
| F. | May issue senior securities, to the extent permitted under the 1940 Act, as such may be interpreted
or modified by regulatory authorities having jurisdiction, from time to time. |
With respect
to each Fund’s fundamental investment restriction A, asset coverage of at least 300% (as defined in the 1940 Act), inclusive of
any amounts borrowed, must be maintained at all times.
A Fund may, notwithstanding
any other fundamental investment restriction or policy, invest some or all of its assets in a single ETF, open-end investment company
or series thereof with substantially the same fundamental investment objective, restrictions and policies as the Fund.
Unless otherwise
indicated, all of the percentage limitations above and in the investment restrictions recited in the Prospectus apply only at the time
of an acquisition or encumbrance of securities or assets of a Fund, except that any borrowing by a Fund that exceeds applicable limitations
must be reduced to meet such limitations within the period required by the 1940 Act. Therefore, a change in the percentage that results
from a relative change in values or from a change in a Fund’s assets will not be considered a violation of the Fund’s policies
or restrictions. “Value” for the purposes of all investment restrictions shall mean the value used in determining a Fund’s
NAV.
INVESTMENT STRATEGIES AND RISKS
A discussion
of the risks associated with an investment in each Fund is contained in each Fund’s Prospectus under the headings “Principal
Risks”, “Description of the Principal Risks of the Funds” and “Additional Risks”. The discussion below supplements
and should be read in conjunction with such sections of each Fund’s Prospectus.
General
Investment in
each Fund should be made with an understanding that the value of the portfolio of securities held by such Fund may fluctuate in accordance
with changes in the financial condition of the issuers of the portfolio securities, the value of common stocks generally and other factors.
None of the Funds
is actively managed by traditional methods and therefore the adverse financial condition of any one issuer will not result in the elimination
of its securities from the portfolio securities held by the Fund unless the securities of such issuer are removed from its respective
Underlying Index.
An investment
in each Fund should also be made with an understanding that a Fund will not be able to replicate exactly the performance of its Underlying
Index because the total return generated by its portfolio securities will be reduced by transaction costs incurred in adjusting the actual
balance of such securities and other Fund expenses, whereas such transaction costs and expenses are not included in the calculation of
its Underlying Index. It is also possible that for short periods of time, a Fund may not fully replicate the performance of its Underlying
Index due to the temporary unavailability of certain Underlying Index securities in the Secondary Market or due to other extraordinary
circumstances. Such events are unlikely to continue for an extended period of time because a Fund is required to correct such imbalances
by means of adjusting the composition of its portfolio securities. It is also possible that the composition of a Fund may not exactly
replicate the composition of its Underlying Index if the Fund has to adjust its portfolio securities in order to continue to qualify as
a “regulated investment company” under the U.S. Internal Revenue Code of 1986, as amended.
IQ Hedge Multi-Strategy Tracker ETF, IQ
Hedge Macro Tracker ETF, IQ Hedge Market Neutral Tracker ETF, IQ Hedge Long/Short Tracker ETF, and IQ Hedge Event-Driven Tracker
ETF
Each Fund is
a “fund of funds,” which means each invests, under certain circumstances, at least 80% of its net assets, plus the amount
of any borrowings for investment purposes, in the investments included in its Underlying Index, which includes underlying funds. Each
Underlying Index consists of a number of components (“Underlying Index Components”) selected in accordance with IndexIQ’s
rules-based methodology of such Underlying Index. Such Underlying Index Components will include primarily ETFs and/or other exchange-traded
vehicles issuing equity securities organized in the U.S. such as exchange-traded commodity pools (“ETVs”) and may include
exchange-traded notes (“ETNs”) (such ETFS, ETVs, and ETNs are referred to collectively as “exchange-traded products”
or “ETPs”). The Funds may also invest in futures contracts, swap agreements, forward contracts, reverse repurchase agreements,
options on securities, and indices, and other financial instruments (collectively, “Financial Instruments”). The ETPs that
constitute each Fund’s investments are collectively referred to as “Underlying ETPs.”
The Underlying
Index may include both long and short positions in ETFs and ETVs. As opposed to taking long positions in which an investor seeks to profit
from increases in the price of a security, short selling (or "selling short") is a technique used by the Fund to try and profit
from the falling price of a security. Short selling involves selling a security that has been borrowed from a third party with the intention
of buying the identical security back at a later date to return to that third party. The basic principle of short selling is that one
can profit by selling a security now at a high price and later buying it back at a lower price.
The short seller hopes to profit from
a decline in the price of the security between the sale and the repurchase, as the seller will pay less to buy the security than it received
on selling the security.
The Underlying
Indexes generally are based on the premise that hedge fund returns, when aggregated within similar hedge fund investment styles, display
over time significant exposures to a set of common investment strategies and asset classes. By creating indexes that have similar exposures
to the same investment strategies and asset classes, IndexIQ seeks to replicate the beta return characteristics of the collective
hedge funds within a given hedge fund investment style (a “Strategy”). By attempting to replicate beta return characteristics, IndexIQ
is trying to generate total return and volatility results of a broad-based hedge fund Strategy over a 12 to 36-month period of time, and
not on a daily basis, that are substantially similar to a given Strategy’s returns as publicly reported by third parties unaffiliated
with the Funds or the Advisor.
Under normal
circumstances, at least 80% of a Fund’s net assets, plus the amount of any borrowings for investment purposes will be invested in
its Underlying Index Components. In determining the Fund's net assets for the purposes of this 80% threshold, accounting practices do
not include collateral held under the Fund's securities lending program, as such collateral does not represent a true asset of the relevant
Fund. For the IQ Hedge Multi-Strategy Tracker ETF, the IQ Hedge Macro Tracker ETF and the IQ Hedge Market Neutral Tracker ETF, the Underlying
Index Components provide exposure to broad asset classes that include but are not limited to U.S. and international equities, U.S. and
international government fixed income securities, U.S. corporate credit and high yield bonds, currencies, real estate (as represented
by investment in the equity securities of real estate investment trusts (“REITs”)), commodities and the implied volatility
of the S&P 500® Index. For the IQ Hedge Long/Short Tracker ETF and the IQ Hedge Event-Driven Tracker ETF, the Underlying
Index Components provide exposure to broad asset classes that include but are not limited to: U.S. equities; international equities; emerging
market equities; U.S. government fixed-income securities; U.S. mortgage-backed debt; U.S. corporate credit bonds; U.S. convertible debt;
and U.S. floating rate bank loans.
In addition,
each Fund may invest up to 20% of its net assets in investments not included in its Underlying Index, but which the Advisor believes will
help the Fund track its Underlying Index. For example, a Fund may hold the underlying portfolio constituents of one or more Underlying
ETPs composing its Underlying Index, or a representative sample thereof. A Fund may also purchase ETPs that are not Underlying Index Components.
Furthermore, a Fund may invest in one or more Financial Instruments. As an example of the use of such Financial Instruments, a Fund may
use total return swaps on the indexes on which the Underlying ETPs are based, on the underlying securities or other constituents of such
Underlying ETPs, or on the Underlying ETPs themselves, in order to achieve exposures to investment strategies and/or asset class exposures
that are similar to those of the Underlying Index.
IQ Real Return ETF, IQ
Merger Arbitrage ETF and IQ Global Resources ETF
Each Underlying
Index consists of a number of components (the “Underlying Index Components”) selected in accordance with IndexIQ’s rules-based
methodology for such Underlying Index. The IQ Real Return ETF is a “fund of funds” as it invests its assets in the investments
included in the Underlying Index, which includes primarily underlying funds. Such Underlying Index Components may include ETFs and/or
other exchange-traded vehicles issuing equity securities organized in the U.S., such as exchange-traded commodity pools (“ETVs”),
and may include ETPs. The ETPs that constitute each Fund’s investments are collectively referred to as “Underlying ETPs.”
The IQ Real Return
ETF seeks to track an Underlying Index, which in turn seeks to provide investors with a hedge against the U.S. inflation rate by providing
a “real return” or a return above the rate of inflation, as represented by the Consumer Price Index (the “CPI”),
a leading government measure of inflation in the U.S. economy. The Underlying Index, through allocations to ETFs and ETVs, includes exposures
to asset classes whose returns incorporate inflation expectations in an attempt to achieve its investment objective. This is based on
the premise that capital market returns tend to be forward looking and anticipate economic developments, including inflation expectations.
The IQ Merger
Arbitrage ETF and IQ Global Resources ETF seek to track Underlying Indexes that include primarily non-ETF equities and therefore are not
“funds of funds.” Both of the Funds seek to track Underlying Indexes that include U.S. and non-U.S. equity securities. At
least 40% of the IQ Global Resources ETF’s assets will be comprised of securities in two or more non-U.S. countries. Under normal
circumstances, at least 80% of the Fund’s assets will be comprised of securities of issuers primarily engaged in the resource industry
segments.
Under normal
circumstances, at least 80% of a Fund’s net assets, plus the amount of any borrowings for investment purposes will be invested in
its Underlying Index Components. In determining the Fund’s net assets for the purpose of this 80% threshold, accounting practices
do not included collateral held under the Fund’s securities lending program, as such collateral does not represent a true asset
of the relevant Fund. In addition, each Fund may invest up to 20% of its net assets in investments not included in its Underlying Index,
but which the Advisor believes will help the Fund track its Underlying Index. For example, a Fund may hold the underlying portfolio constituents
of one or more Underlying ETPs composing its Underlying Index, or a representative sample thereof. A Fund may also purchase ETPs that
are not Underlying Index Components. Furthermore, a Fund may invest in one or more Financial Instruments. As an example of the use of
such Financial Instruments,
a Fund may use total return swaps on the indexes on which the Underlying ETPs are based, on the underlying
securities or other constituents of such Underlying ETPs, or on the Underlying ETPs themselves, in order to achieve exposures to investment
strategies and/or asset class exposures that are similar to those of the Underlying Index. Alternatively, a Fund may buy or sell futures
contracts to replicate exposures to the Underlying Index Components.
IQ U.S. Real Estate Small Cap
ETF
The Underlying
Index consists of a number of components (the “Underlying Index Components”) selected in accordance with IndexIQ’s rules-based
methodology for such Underlying Index. The IQ U.S. Real Estate Small Cap ETF seeks to track its Underlying Index, which in turn seeks
to track the overall performance of the small capitalization sector of publicly traded companies in the U.S. real estate investment industry.
Under normal
circumstances, at least 80% of a Fund’s net assets, plus the amount of any borrowings for investment purposes, will be invested
in its Underlying Index Components and in depositary receipts based on the securities in its Underlying Index; provided, however, that
the Advisor does not expect the IQ U.S. Real Estate Small Cap ETF to invest in depositary receipts. In determining the Fund’s net
assets for the purposes of this 80% threshold, accounting practices do not include collateral held under the Fund’s securities lending
program, as such collateral does not represent a true asset of the relevant Fund. In addition, each Fund may invest up to 20% of its net
assets in investments not included in its Underlying Index, but which the Advisor believes will help the Fund track its Underlying Index.
For example, there may be instances in which the Advisor may choose to purchase (or sell) securities not in the Underlying Index that
the Advisor believes are appropriate to substitute for one or more Underlying Index Components in seeking to replicate, before fees and
expenses, the performance of the Underlying Index.
Furthermore,
a Fund may invest in one or more Financial Instruments. As an example of the use of such Financial Instruments, the Fund may use total
return swaps on one or more Underlying Index Components in order to achieve exposures that are similar to those of the Underlying Index.
The Funds will
not directly employ leverage in their investment strategies.
Generally, the
Underlying Index methodologies may be summarized as noted below.
Liquidity Requirements
To be eligible
for inclusion in any of the Fund’s Underlying Indexes, a security must have a three-month average daily trading volume of at least
$1 million and minimum monthly volume of 250,000 shares each month over the last six months as of each rebalance date.
Additionally,
to be eligible for inclusion in the below listed indexes, a security must meet the indicated liquidity requirements based on minimum average
market capitalization for the prior 90 days and as of the rebalance date:
| ● | $150
million for the IQ U.S. Real Estate Small Cap Index. |
To be eligible
for inclusion in the below listed indexes, a security must meet the indicated maximum average market capitalization for the 90 days prior
to the rebalance date:
| ● | Equal
to the bottom 10% ranking of Real Estate Companies in the U.S. based on market capitalization
for the IQ U.S. Real Estate Small Cap Index. |
Reconstitution & Rebalance Frequency
Each Underlying
Index will be reconstituted and rebalanced on a quarterly basis.
IQ 500 International ETF
Under normal
circumstances, at least 80% of a Fund’s net assets, plus the amount of any borrowings for investment purposes, will be invested
in its Underlying Index Components. In determining the Fund’s net assets for the purposes of this 80% threshold, accounting practices
do not include collateral held under the Fund’s securities lending program, as such collateral does not represent a true asset of
the relevant Fund. In addition, each Fund may invest up to 20% of its net assets in investments not included in its Underlying Index,
but which the Advisor believes will help the Fund track its Underlying Index. For example, there may be instances in which the Advisor
may choose to purchase (or sell) securities not in the Underlying Index that the Advisor believes are appropriate to substitute for one
or more Underlying Index Components in seeking to replicate, before fees and expenses, the performance of the Underlying Index.
Furthermore,
a Fund may invest in one or more Financial Instruments. As an example of the use of such Financial Instruments, the Fund may use total
return swaps on one or more Underlying Index Components in order to achieve exposures that are similar to those of the Underlying Index.
IQ 500 International ETF
At least 40%
of the IQ 500 International ETF’s assets will be comprised of securities in two or more non-U.S. countries.
IQ 50 Percent Hedged FTSE International ETF
Under normal
circumstances, at least 80% of a Fund’s net assets, plus the amount of any borrowings for investment purposes, will be invested
in its Underlying Index Components and in depositary receipts based on the securities in its Underlying Index. In determining the Fund’s
net assets for the purposes of this 80% threshold, accounting practices do not include collateral held under the Fund’s securities
lending program, as such collateral does not represent a true asset of the relevant Fund. In addition, each Fund may invest up to 20%
of its net assets in investments not included in its Underlying Index, but which the Advisor believes will help the Fund track its Underlying
Index. For example, there may be instances in which the Advisor may choose to purchase (or sell) securities not in the Underlying Index
that the Advisor believes are appropriate to substitute for one or more Underlying Index Components in seeking to replicate, before fees
and expenses, the performance of the Underlying Index.
Furthermore,
a Fund may invest in one or more Financial Instruments. As an example of the use of such Financial Instruments, the Fund may use total
return swaps on one or more Underlying Index Components in order to achieve exposures that are similar to those of the Underlying Index.
IQ Candriam ESG US Equity ETF
and IQ Candriam ESG International Equity ETF (collectively, the “IQ Candriam Funds”)
Under normal
circumstances, at least 80% of a Fund's net assets, plus the amount of any borrowings for investment purposes will be invested in its
Underlying Index Components and in depositary receipts based on the securities in its Underlying Index. In determining the Fund's net
assets for the purpose of this 80% threshold, accounting practices do not include collateral held under the Fund's securities lending
program, as such collateral does not represent a true asset of the relevant Fund. In addition, each Fund may investment up to 20% of its
net assets in investments not included in its Underlying Index, but which the Advisor believes will help the Fund track its Underlying
Index. For example, there may be instances in which the Advisor may choose to purchase (or sell) securities not in the Underlying Index
that the Advisor believes are appropriate to substitute for one or more Underlying Index Components in seeking to replicate, before fees
and expenses, the performance of the Underlying Index.
The Underlying
Index is designed to deliver exposure to equity securities of companies meeting environmental, social and corporate governance (ESG) criteria
developed by Candriam and weighted using a market capitalization weighting methodology. The ESG security selection process seeks to maintain
exposure to all industry sectors of the economy (e.g., financials, industrials, consumer discretionary, consumer staples, materials, health
care, energy, utilities and information technology). The ESG selection process analyzes securities comprising approximately 85% of the
market capitalization of equity securities domiciled in the United States. The companies with an overall ranking in the top 70% of the
eligible universe within each industry sector based on this ESG selection process are included in the Underlying Index, unless a company
is excluded as a result of the second step in the ESG security selection process. The second step in the ESG security selection process
is an exclusionary screen based on any continued and significant non-compliance with the principals within the United Nation’s Global
Compact as well as the exclusion of companies engaged in certain businesses beyond minimum thresholds (e.g., companies that operate in
countries with oppressive regimes, that operate in adult content, alcohol, armament, gambling, nuclear, and tobacco sectors, or that utilize
animal testing or genetic modification in research and development). As a result of this second step, the companies selected for inclusion
in the Underlying Index represent less than 70% of the eligible universe.
IQ Chaikin U.S. Small Cap ETF, IQ
Chaikin U.S. Large Cap ETF and IQ Chaikin U.S. Dividend Achievers ETF
Under normal
circumstances, at least 80% of a fund’s assets, plus the amount of any borrowings for investment purposes will be invested in its
Underlying Index Components sand in depositary receipts based on the securities in its Underlying Index. In determining the Fund’s
net assets for the purposes of this 80% threshold, accounting practices do not include collateral held under the Fund’s securities
lending program, as such collateral does not represent a true asset of the relevant Fund. In addition, each Fund may invest up to 20%
of its net assets in investments not included in its Underlying Index, but which the Advisor believes will help the Fund track its Underlying
Index. For example, there may be instances in which the Advisor may choose to purchase (or sell) securities not in the Underlying Index
that the Advisor believes are appropriate to substitute for one or more Underlying Index Components in seeking to replicate, before fees
and expenses, the performance of the Underlying Index.
In addition,
a Fund may invest up to 20% of its net assets in investments not included in its respective Underlying Index, but which the Advisor believes
will help the Fund track its Underlying Index. For example, a Fund may hold the underlying portfolio constituents of one or more ETPs
composing its Underlying Index, or a representative sample thereof. A Fund may also purchase ETPs that are not Underlying Index Components.
Furthermore, a Fund may invest in one or more Financial Instruments. As an example of the use of such Financial Instruments, a Fund may
use total return swaps on the indices on which ETPs are based, on the underlying securities or other constituents of such ETPs, or on
ETPs themselves, in order to achieve exposures to investment strategies and/or asset class exposures that are similar to those of the
Underlying Indices.
Furthermore,
a Fund may invest in one or more Financial Instruments. As an example of the use of such Financial Instruments, the Fund may use total
return swaps on one or more Underlying Index Components in order to achieve exposures that are similar to those of the Underlying Index.
IQ S&P U.S. Preferred Stock
Low Volatility High Dividend ETF
Under normal
circumstances, at least 80% of the Fund’s net assets, plus the amount of any borrowings for investment purposes will be invested
in its Underlying Index Components. In determining the Fund's net assets for the purposes of this 80% threshold, accounting practices
do not include collateral held under the Fund's securities lending program. In addition, the Fund may invest up to 20% of its net assets
in investments not included in its Underlying Index, but which the Advisor believes will help the Fund track its Underlying Index. For
example, there may be instances in which the Advisor may choose to purchase (or sell) securities not in the Underlying Index that the
Advisor believes are appropriate to substitute for one or more Underlying Index Components in seeks to replicate, before fees and expenses,
the performance of the Underlying Index.
In addition,
a Fund may invest up to 20% of its net assets in investments not included in its respective Underlying Index, but which the Advisor believes
will help the Fund track its Underlying Index. For example, a Fund may hold the underlying portfolio constituents of one or more ETPs
composing its Underlying Index, or a representative sample thereof. A Fund may also purchase ETPs that are not Underlying Index Components.
Furthermore, a Fund may invest in one or more Financial Instruments. As an example of the use of such Financial Instruments, a Fund may
use total return swaps on the indices on which ETPs are based, on the underlying securities or other constituents of such ETPs, or on
ETPs themselves, in order to achieve exposures to investment strategies and/or asset class exposures that are similar to those of the
Underlying Indices.
Furthermore,
a Fund may invest in one or more Financial Instruments. As an example of the use of such Financial Instruments, the Fund may use total
return swaps on one or more Underlying Index Components in order to achieve exposures that are similar to those of the Underlying Index.
IQ
Healthy Hearts ETF
An investment in the Fund should also be made
with an understanding that the Fund will not be able to replicate exactly the performance of its Underlying Index because the total return
generated by its portfolio securities will be reduced by transaction costs incurred in adjusting the actual balance of such securities
and other Fund expenses, whereas such transaction costs and expenses are not included in the calculation of its Underlying Index. It
is also possible that for short periods of time, the Fund may not fully replicate the performance of its Underlying Index due to the
temporary unavailability of certain Underlying Index securities in the Secondary Market or due to other extraordinary circumstances.
Such events are unlikely to continue for an extended period of time because the Fund is required to correct such imbalances by means
of adjusting the composition of its portfolio securities. It is also possible that the composition of the Fund may not exactly replicate
the composition of its Underlying Index if the Fund has to adjust its portfolio securities in order to continue to qualify as a “regulated
investment company” under the U.S. Internal Revenue Code of 1986, as amended.
The Fund’s Underlying Index seeks to
provide exposure to the equity securities of companies that are making a positive contribution to addressing global health-related sustainability
goals by providing solutions for monitoring and curing heart diseases or helping people adopt a healthy lifestyle that limits cardiovascular
risks. The Fund’s Underlying Index excludes or limits exposures to securities of certain issuers for non-financial reasons, and
the Fund may forego some market opportunities available to funds that do not use these criteria. The screening criteria of the Underlying
Index may affect the Fund’s exposure to certain sectors or types of investments and may impact the Fund’s relative investment
performance depending on whether such sectors or investments are in or out of favor in the market. In addition, there is no guarantee
that the construction methodology of the Underlying Index will accurately provide exposure to companies that are making a positive contribution
to addressing global health-related sustainability goals by providing solutions for monitoring and curing heart diseases or helping people
adopt a healthy lifestyle that limits cardiovascular risks.
Under normal circumstances, at least 80% of
the Fund’s net assets, plus the amount of any borrowings for investment purposes will be invested in its Underlying Index Components
and in depositary receipts based on the securities in its Underlying Index. In determining the Fund’s net assets for the purpose
of this 80% threshold, accounting practices do not include collateral held
under the Fund’s securities lending
program, as such collateral does not represent a true asset of the relevant Fund. In addition, the Fund may investment up to 20% of its
net assets in investments not included in its Underlying Index, but which the Advisor believes will help the Fund track its Underlying
Index. For example, there may be instances in which the Advisor may choose to purchase (or sell) securities not in the Underlying Index
that the Advisor believes are appropriate to substitute for one or more Underlying Index Components in seeking to replicate, before fees
and expenses, the performance of the Underlying Index. In addition, the Fund may invest up to 20% of its net assets in investments not
included in its respective Underlying Index, but which the Advisor believes will help the Fund track its Underlying Index. For example,
the Fund may hold the underlying portfolio constituents of one or more ETPs composing its Underlying Index, or a representative sample
thereof. The Fund may also purchase ETPs that are not Underlying Index Components.
Collateralized Debt Obligations
Collateralized
bond obligations (“CBOs”), collateralized loan obligations (“CLOs”), other collateralized debt obligations (“CDOs”)
are types of asset-backed securities. A CBO is a trust which is often backed by a diversified pool of high risk, below investment grade
fixed-income securities. The collateral can be from many different types of fixed-income securities, such as high yield debt, residential
privately issued mortgage-related securities, commercial privately issued mortgage-related securities, trust preferred securities and
emerging market debt. A CLO is a trust typically collateralized by a pool of loans, which may include, among others, domestic and foreign
senior secured loans, senior unsecured loans and subordinate corporate loans, including loans that may be rated below investment grade
or equivalent unrated loans. Other CDOs are trusts backed by other types of assets representing obligations of various parties. CBOs,
CLOs and other CDOs may charge management fees and administrative expenses.
For CBOs, CLOs
and other CDOs, the cash flows from the trust are split into two or more portions, called tranches, varying in risk and yield. The riskiest
portion is the “equity” tranche, which bears the bulk of defaults from the bonds or loans in the trust and serves to protect
the other, more senior tranches from default in all but the most severe circumstances. Since they are partially protected from defaults,
senior tranches from a CBO trust, CLO trust or trust of another CDO typically have higher ratings and lower yields than their underlying
securities, and can be rated investment grade. Despite the protection from the equity tranche, CBO, CLO or other CDO tranches can experience
substantial losses due to actual defaults, increased sensitivity to defaults due to collateral default and disappearance of protecting
tranches, market anticipation of defaults, as well as aversion to CBO, CLO or other CDO securities as a class.
The risks of
an investment in a CBO, CLO or other CDO depend largely on the type of the collateral securities and the class of the instrument in which
a Fund invests. Normally, CBOs, CLOs and other CDOs are privately offered and sold, and thus, are not registered under the securities
laws, and therefore less information about them is available than might otherwise be the case if they were registered offerings. In addition
to the normal risks associated with debt or fixed-income securities discussed elsewhere in this SAI and the Funds’ Prospectus, CBOs,
CLOs and other CDOs carry additional risks including, but not limited to: (i) the possibility that distributions from collateral
securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or default;
(iii) the risk that Funds may invest in CBOs, CLOs or other CDOs that are subordinate to other classes; and (iv) the complex
structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected
investment results.
Common Stock
Common stock
is issued by companies principally to raise cash for business purposes and represents a residual interest in the issuing company. A Fund
participates in the success or failure of any company in which it holds stock. The prices of equity securities change in response to many
factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions and market liquidity.
Contingent Convertible Securities
Risk
Contingent convertible
securities (“CoCos”) have no stated maturity, have fully discretionary coupons and are typically issued in the form of subordinated
debt instruments. CoCos generally either convert into equity or have their principal written down upon the occurrence of certain triggering
events (“triggers”) linked to regulatory capital thresholds or regulatory actions relating to the issuer’s continued
viability. As a result, an investment by the Fund in CoCos is subject to the risk that coupon (i.e., interest) payments may be cancelled
by the issuer or a regulatory authority in order to help the issuer absorb losses. An investment by the Fund in CoCos is also subject
to the risk that, in the event of the liquidation, dissolution or winding-up of an issuer prior to a trigger event, the Fund’s rights
and claims will generally rank junior to the claims of holders of the issuer’s other debt obligations. In addition, if CoCos held
by the Fund are converted into the issuer’s underlying equity securities following a trigger event, the Fund’s holding may
be further subordinated due to the conversion from a debt to equity instrument. Further, the value of an investment in CoCos is unpredictable
and will be influenced by many factors and risks, including interest rate risk, credit risk, market risk and liquidity risk. An investment
by the Fund in CoCos may result in losses to the Fund.
Convertible Securities
A convertible
security is a bond, debenture, note, preferred stock, right, warrant or other security that may be converted into or exchanged for a prescribed
amount of common stock or other security of the same or a different issuer or into cash within a particular period of time at a specified
price or formula. A convertible security generally entitles the holder to receive interest paid or accrued on debt securities or the dividend
paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible
securities generally have characteristics similar to both debt and equity securities. As with other equity securities, the value of a
convertible security tends to increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock
goes down. Declining common stock values therefore also may cause the value of the Funds’ investments to decline. Like a debt security,
a convertible security provides a fixed income stream with generally higher yields than those of common stock of the same or similar issuers,
which tends to decrease in value when interest rates rise.
Convertible securities
generally rank senior to common stock in a corporation’s capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any dividend increases or decreases of the underlying securities
although the market prices of convertible securities may be affected by any dividend changes or other changes in the underlying securities.
Many convertible securities have credit ratings that are below investment grade and are subject to the same risks as lower-rated debt
securities.
Debt Securities
Debt securities
may have fixed, variable or floating (including inverse floating) rates of interest. The value of the debt securities generally will fluctuate
depending on a number of factors, including, among others, changes in the perceived creditworthiness of the issuers of those securities,
movements in interest rates, and the maturity of the debt security. Generally, a rise in interest rates will reduce the value of fixed-income
securities, and a decline in interest rates will increase the value of fixed-income securities. Longer term debt securities generally
pay higher interest rates than do shorter term debt securities but also may experience greater price volatility as interest rates change.
The rate of return
or return of principal on some debt obligations may be linked to indices or stock prices or indexed to the level of exchange rates between
the U.S. dollar and foreign currency or currencies. Differing yields on corporate fixed-income securities of the same maturity are a function
of several factors, including the relative financial strength of the issuers. Higher yields are generally available from securities in
the lower rating categories.
The value of
lower-rated debt securities may fluctuate more than the value of higher-rated debt securities. Lower-rated debt securities generally carry
greater risk that the issuer will default on the payment of interest and principal. Lower-rated fixed-income securities generally tend
to reflect short term corporate and market developments to a greater extent than higher-rated securities that react primarily to fluctuations
in the general level of interest rates.
Corporate debt
securities may bear fixed, contingent, or variable rates of interest and may involve equity features, such as conversion or exchange rights
or warrants for the acquisition of stock of the same or a different issuer, participations based on revenues, sales or profits, or the
purchase of common stock in a unit transaction (where corporate debt securities and common stock are offered as a unit).
Investment grade
securities are generally securities rated at the time of purchase Baa3 or better by Moody's or BBB- or better by S&P or comparable
non-rated securities. Corporate debt securities with a below investment grade rating have speculative characteristics, and changes in
economic conditions or individual corporate developments are more likely to lead to a weakened capacity to make principal and interest
payments than in the case of high grade bonds.
The ratings of
fixed-income securities by a nationally recognized statistical rating organization (“NRSRO”) are a generally accepted barometer
of credit risk. They are, however, subject to certain limitations from an investor's standpoint. The rating of an issuer is heavily weighted
by past developments and does not necessarily reflect future conditions. There is frequently a lag between the time a rating is assigned
and the time it is updated. In addition, there may be varying degrees of difference in credit risk of securities in each rating category.
Depositary Receipts
Each Fund will
normally invest at least 80% of its total assets in the securities of its Underlying Index and in depositary receipts based on the securities
in its Underlying Index. Types of depositary receipts in which a Fund may invest include ADRs, EDRs and GDRs. ADRs are receipts that are
traded in the U.S. evidencing ownership of the underlying foreign securities and are denominated in U.S. dollars. EDRs and GDRs are receipts
issued by a non-U.S. financial institution evidencing ownership of underlying foreign or U.S. securities and usually are denominated in
foreign currencies. EDRs and GDRs may not be denominated in the same currency as the securities they represent. Generally, EDRs and GDRs
are designed for use in the foreign securities markets.
To the extent
a Fund invests in ADRs, such ADRs will be listed on a national securities exchange. To the extent a Fund invests in GDRs or EDRs, such
GDRs and EDRs will be listed on a foreign exchange. A Fund will not invest in any unlisted depositary receipt or any depositary receipt
for which pricing information is not readily available. Generally, all depositary receipts must be sponsored. The Fund, however, may invest
in unsponsored depositary receipts under certain limited circumstances. A non- sponsored depository may not provide the same shareholder
information that a sponsored depository is required to provide under its contractual arrangement with the issuer. Therefore, there may
be less information available regarding such issuers and there may not be a correlation between such information and the market value
of the depositary receipts.
Emerging Market Countries
A Fund may invest
in securities of issuers located in emerging countries. The risks of foreign investment are heightened when the issuer is located in an
emerging country. Emerging countries are generally located in the Asia and Pacific regions, the Middle East, Eastern Europe, Central and
South America and Africa.
The securities
markets of emerging countries are less liquid, are especially subject to greater price volatility, have smaller market capitalizations,
have less government regulation and are not subject to as extensive and frequent accounting, financial and other reporting requirements
as the securities markets of more developed countries.
Further, investment
in certain emerging countries involves risk of loss resulting from problems in share registration and custody and substantial economic
and political disruptions. These risks are not normally associated with investment in more developed countries.
Foreign investment
in the securities markets of certain emerging countries is restricted or controlled to varying degrees which may limit investment in such
countries or increase the administrative costs of such investments.
Many emerging
countries have experienced currency devaluations and substantial (and, in some cases, extremely high) rates of inflation. Other emerging
countries have experienced economic recessions. These circumstances have had a negative effect on the economies and securities markets
of such emerging countries.
Many emerging
countries are subject to a substantial degree of economic, political and social instability. Investing in emerging countries involves
greater risk of loss due to expropriation, nationalization, confiscation of assets and property or the imposition of restrictions on foreign
investments and on repatriation of capital invested.
The Fund’s
investment in emerging countries may also be subject to withholding or other taxes, which may be significant and may reduce the return
from an investment in such countries to the Fund.
The small size
and inexperience of the securities markets in certain emerging countries and the limited volume of trading in securities in those countries
may make the Fund’s investments in such countries less liquid and more volatile than investments in countries with more developed
securities markets (such as the U.S., Japan and most Western European countries). Because of the lack of sufficient market liquidity,
the Fund may incur losses because it will be required to effect sales at a disadvantageous time and only then at a substantial drop in
price. Investments in emerging countries may be more difficult to price precisely because of the characteristics discussed above and lower
trading volumes.
The Fund’s
use of foreign currency management techniques in emerging countries may be limited. The Investment Advisor anticipates that a significant
portion of the Fund’s currency exposure in emerging countries may not be covered by these techniques.
The securities
markets of emerging countries are less liquid and subject to greater price volatility, and have a smaller market capitalization, than
the U.S. securities markets. In certain countries, there may be fewer publicly traded securities and the market may be dominated by a
few issues or sectors. Issuers and securities markets in such countries are not subject to as extensive and frequent accounting, financial
and other reporting requirements or as comprehensive government regulations as are issuers and securities markets in the U.S.
Substantially
less information may be publicly available about emerging country issuers than is available about issuers in the U.S. Emerging country
securities markets are typically marked by a high concentration of market capitalization and trading volume in a small number of issuers
representing a limited number of industries, as well as a high concentration of ownership of such securities by a limited number of investors.
The markets for securities in certain emerging countries are in the earliest stages of their development. Even the markets for relatively
widely traded securities in emerging countries may not be able to absorb, without price disruptions, a significant increase in trading
volume or trades of a size customarily undertaken by institutional investors in the securities markets of developed countries. The limited
size of many of these securities markets can cause prices to be erratic for reasons apart from factors that affect the soundness and competitiveness
of the securities issuers. For example, prices may be unduly influenced by traders who control large positions in these markets.
Additionally,
market making and arbitrage activities are generally less extensive in such markets, which may contribute to increased volatility and
reduced liquidity of such markets. The limited liquidity of emerging country securities may also affect the Fund’s ability to accurately
value its portfolio securities or to acquire or dispose of securities at the price and time it wishes to do so or in order to meet redemption
requests.
Transaction costs,
including brokerage commissions or dealer mark-ups, in emerging countries may be higher than in the U.S. and other developed securities
markets. In addition, existing laws and regulations are often inconsistently applied. As legal systems in emerging countries develop,
foreign investors may be adversely affected by new or amended laws and regulations. In circumstances where adequate laws exist, it may
not be possible to obtain swift and equitable enforcement of the law.
Foreign investment
in the securities markets of certain emerging countries is restricted or controlled to varying degrees. These restrictions may limit the
Fund’s investment in certain emerging countries and may increase the expenses of the Fund.
Emerging countries
may be subject to a substantially greater degree of economic, political and social instability and disruption than is the case in the
U.S., Japan and most Western European countries. This instability may result from, among other things, the following: (i) authoritarian
governments or military involvement in political and economic decision making, including changes or attempted changes in governments through
extraconstitutional means; (ii) popular unrest associated with demands for improved political, economic or social conditions; (iii) internal
insurgencies; (iv) hostile relations with neighboring countries; (v) ethnic, religious and racial disaffection or conflict;
and (vi) the absence of developed legal structures governing foreign private investments and private property. Such economic, political
and social instability could disrupt the principal financial markets in which the Fund may invest and adversely affect the value of the
Fund’s assets.
The Fund’s
investments can also be adversely affected by any increase in taxes or by political, economic or diplomatic developments. The economies
of emerging countries may differ unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments. Many emerging countries have experienced in the past, and continue
to experience, high rates of inflation. In certain countries inflation has at times accelerated rapidly to hyperinflationary levels, creating
a negative interest rate environment and sharply eroding the value of outstanding financial assets in those countries. Other emerging
countries, on the other hand, have recently experienced deflationary pressures and are in economic recessions. The economies of many emerging
countries are heavily dependent upon international trade and are accordingly affected by protective trade barriers and the economic conditions
of their trading partners. In addition, the economies of some emerging countries are vulnerable to weakness in world prices for their
commodity exports.
The Fund’s
income and, in some cases, capital gains from foreign stocks and securities will be subject to applicable taxation in certain of the countries
in which it invests, and treaties between the U.S. and such countries may not be available in some cases to reduce the otherwise applicable
tax rates. See “U.S. Federal Income Taxation.”
Floating and Variable Rate Securities
Floating and
variable rate securities provide for a periodic adjustment in the interest rate paid on the obligations. The terms of such obligations
must provide that interest rates are adjusted periodically based upon an interest rate adjustment index as provided in the respective
obligations. The adjustment intervals may be regular and range from daily up to annually, or may be based on an event, such as a change
in the prime rate.
Some variable
or floating rate securities are structured with liquidity features such as (1) put options or tender options that permit holders
(sometimes subject to conditions) to demand payment of the unpaid principal balance plus accrued interest from the issuers or certain
financial intermediaries or (2) auction rate features, remarketing provisions, or other maturity-shortening devices designed to enable
the issuer to refinance or redeem outstanding debt securities (market dependent liquidity features). Variable or floating rate securities
that include market-dependent liquidity features may have greater liquidity risk than other securities, due to (for example) the failure
of a market-dependent liquidity feature to operate as intended (as a result of the issuer's declining creditworthiness, adverse market
conditions, or other factors) or the inability or unwillingness of a participating broker/dealer to make a Secondary Market for such securities.
As a result, variable or floating rate securities that include market-dependent liquidity features may lose value and the holders of such
securities may be required to retain them until the later of the repurchase date, the resale date, or maturity.
The interest
rate on a floating rate debt instrument (“floater”) is a variable rate that is tied to another interest rate, such as a money-market
index or Treasury bill rate. The interest rate on a floater may reset periodically, typically every three to six months, or whenever a
specified interest rate changes. While, because of the interest rate reset feature, floaters provide a Fund with a certain degree of protection
against rises in interest rates; a Fund will participate in any declines in interest rates as well.
Floating Rate Loans
Floating rate
loans are provided by banks and other financial institutions to large corporate customers. Companies undertake these loans to finance
acquisitions, buyouts, recapitalizations or other leveraged transactions. Typically, these loans are the
most senior source of capital
in a borrower's capital structure and have certain of the borrower's assets pledged as collateral. The corporation pays interest and principal
to the lenders.
Floating rate
loans generally are subject to extended settlement periods and may require the consent of the borrower and/or agent prior to their sale
or assignment.
These factors
may impair a Fund’s ability to generate cash through the liquidation of floating rate loans to repay debts, fund redemptions, or
for any other purpose.
Typically, floating
rate loans are secured by collateral. However, the value of the collateral may not be sufficient to repay the loan. The collateral may
consist of various types of assets or interests including intangible assets. It may include working capital assets, such as accounts receivable
or inventory, or tangible fixed assets, such as real property, buildings and equipment. It may include intangible assets, such as trademarks,
copyrights and patent rights, or security interests in securities of subsidiaries or affiliates. The borrower's owners may provide additional
collateral, typically by pledging their ownership interest in the borrower as collateral for the loan. The borrower under a floating rate
loan must comply with various restrictive covenants contained in any floating rate loan agreement between the borrower and the syndicate
of lenders. A restrictive covenant is a promise by the borrower to not take certain action that may impair the rights of lenders. These
covenants, in addition to requiring the scheduled payment of interest and principal, may include restrictions on dividend payments and
other distributions to shareholders, provisions requiring the borrower to maintain specific financial ratios or relationships and limits
on total debt. In addition, a covenant may require the borrower to prepay the floating rate loan with any excess cash flow. Excess cash
flow generally includes net cash flow after scheduled debt service payments and permitted capital expenditures, among other things, as
well as the proceeds from asset dispositions or sales of securities. A breach of a covenant (after giving effect to any cure period) in
a floating rate loan agreement, which is not waived by the agent bank and the lending syndicate normally, is an event of acceleration.
This means that the agent bank has the right to demand immediate repayment in full of the outstanding floating rate loan.
Floating rate
loans feature rates that reset regularly, maintaining a fixed spread over the LIBOR or the prime rates of large money- center banks. The
interest rate on floating rate loans generally reset quarterly. During periods in which short-term rates rapidly increase, the value of
floating rate loans may be affected. Investment in floating rate loans with longer interest rate reset periods or loans with fixed interest
rates may also increase fluctuations in the value of such floating rate loans as a result of changes in interest rates.
Foreign Securities
Foreign investments
involve special risks that are not typically associated with U.S. dollar denominated or quoted securities of U.S. issuers. Foreign investments
may be affected by changes in currency rates, changes in foreign or U.S. laws or restrictions applicable to such investments and changes
in exchange control regulations (e.g., currency blockage). A decline in the exchange rate of the currency (i.e., weakening of the currency
against the U.S. dollar) in which a portfolio security is quoted or denominated relative to the U.S. dollar would reduce the value of
the portfolio security.
Brokerage commissions,
custodial services and other costs relating to investment in international securities markets generally are more expensive than in the
U.S. In addition, clearance and settlement procedures may be different in foreign countries and, in certain markets, such procedures have
been unable to keep pace with the volume of securities transactions, thus making it difficult to conduct such transactions.
Foreign issuers
are not generally subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to U.S. issuers.
There may be less publicly available information about a foreign issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers than in the U.S. and the legal remedies for investors may be
more limited than the remedies available in the U.S.
Foreign securities
markets may have substantially less volume than U.S. securities markets and securities of many foreign issuers are less liquid and more
volatile than securities of comparable domestic issuers. Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of withholding or other taxes on dividend or interest payments
(or, in some cases, capital gains distributions), limitations on the removal of funds or other assets from such countries, and risks of
political or social instability or diplomatic developments which could adversely affect investments in those countries.
Under normal
circumstances, the Fund will invest in foreign securities as may be necessary in order to achieve exposure to the Index Components. Investments
in foreign securities may offer potential benefits not available from investments solely in U.S. dollar-denominated or quoted securities
of domestic issuers. Such benefits may include the opportunity to invest in foreign issuers that appear to offer the opportunity for potential
long-term growth of capital and income, the opportunity to invest in foreign countries with economic policies or business cycles different
from those of the U.S. and the opportunity to take advantage of foreign stock markets that do not necessarily move in a manner parallel
to U.S. markets.
Investing in
foreign securities involves certain special risks, including those discussed in the Fund’s Prospectuses and those set forth below,
which are not typically associated with investing in U.S. dollar-denominated or quoted securities of U.S. issuers. Investments in foreign
securities usually involve currencies of foreign countries. Accordingly, the Fund may be affected favorably or unfavorably by changes
in currency rates and in exchange control regulations and may incur costs in connection with conversions between various currencies. The
Fund may be subject to currency exposure independent of their securities positions. To the extent that the Fund is fully invested in foreign
securities while also maintaining currency positions, it may be exposed to greater combined risk.
Currency exchange
rates may fluctuate significantly over short periods of time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different countries, actual or anticipated changes in interest rates
and other complex factors, as seen from an international perspective. Currency exchange rates also can be affected unpredictably by intervention
by U.S. or foreign governments or central banks or the failure to intervene or by currency controls or political developments in the U.S.
or abroad.
Since foreign
issuers generally are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable
to those applicable to U.S. companies, there may be less publicly available information about a foreign company than about a U.S. company.
Volume and liquidity in most foreign securities markets are less than in the U.S. and securities of many foreign companies are less liquid
and more volatile than securities of comparable U.S. companies. The securities of foreign issuers may be listed on foreign securities
exchanges or traded in foreign over-the-counter markets. Fixed commissions on foreign securities exchanges are generally higher than negotiated
commissions on U.S. exchanges, although the Fund endeavors to achieve the most favorable net results on its portfolio transactions. There
is generally less government supervision and regulation of foreign securities exchanges, brokers, dealers and listed and unlisted companies
than in the U.S., and the legal remedies for investors may be more limited than the remedies available in the U.S.
As described
more fully below, the Fund may invest in countries with emerging economies or securities markets. Political and economic structures in
many of such countries may be undergoing significant evolution and rapid development, and such countries may lack the social, political
and economic stability characteristic of more developed countries. Certain of such countries have in the past failed to recognize private
property rights and have at times nationalized or expropriated the assets of private companies. As a result, the risks described above,
including the risks of nationalization or expropriation of assets, may be heightened.
Forward Foreign Currency Exchange
Contracts.
The Fund may
enter into foreign currency transactions to seek a closer correlation between the Fund’s overall currency exposures and the currency
exposures of the Index as a part of its principal investment strategy. The Fund may, for example, enter into forward foreign currency
exchange contracts for hedging purposes, to seek to protect against anticipated changes in future foreign currency exchange rates. A forward
foreign currency exchange contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market between currency traders (usually large commercial banks) and their customers. A forward contract generally
has no deposit requirement, and no commissions are generally charged at any stage for trades.
At the maturity
of a forward contract the Fund may either accept or make delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward
contracts are often, but not always, effected with the currency trader who is a party to the original forward contract.
The Fund may
also enter into forward contracts to seek to increase total return. Unless otherwise covered in accordance with applicable regulations,
cash or liquid assets of the Fund will be segregated in an amount equal to the value of the Fund’s total assets committed to the
consummation of forward foreign currency exchange contracts. If the value of the segregated assets declines, additional cash or liquid
assets will be segregated so that the value of the assets will equal the amount of the Fund’s commitments with respect to such contracts.
While the Fund
may enter into forward contracts to reduce currency exchange rate risks, transactions in such contracts involve certain other risks.
Thus, while the
Fund may benefit from such transactions, unanticipated changes in currency prices may result in a poorer overall performance for the Fund
than if it had not engaged in any such transactions. Moreover, there may be imperfect correlation between the Fund’s portfolio holdings
of securities quoted or denominated in a particular currency and forward contracts entered into by the Fund. Such imperfect correlation
may cause the Fund to sustain losses which will prevent the Fund from achieving a complete hedge or expose the Fund to risk of foreign
exchange loss.
Markets for trading
foreign forward currency contracts offer less protection against defaults than is available when trading in currency instruments on an
exchange. Forward contracts are subject to the risk that the counterparty to such contract will
default on its obligations. Since a forward
foreign currency exchange contract is not guaranteed by an exchange or clearinghouse, a default on the contract would deprive the Fund
of unrealized profits, transaction costs or the benefits of a currency hedge or force the Fund to cover its purchase or sale commitments,
if any, at the current market price. In addition, the institutions that deal in forward currency contracts are not required to continue
to make markets in the currencies they trade and these markets can experience periods of illiquidity. The Fund will not enter into forward
foreign currency exchange contracts, currency swaps or other privately negotiated currency instruments unless the credit quality of the
unsecured senior debt or the claims-paying ability of the counterparty is considered to be investment grade by the Investment Advisor.
To the extent that a substantial portion of the Fund’s total assets, adjusted to reflect the Fund’s net position after giving
effect to currency transactions, is denominated or quoted in the currencies of foreign countries, the Fund will be more susceptible to
the risk of adverse economic and political developments within those countries.
Pursuant to regulations
and/or published positions of the SEC, a Fund may be required to segregate permissible liquid assets, or engage in other measures approved
by the SEC or its staff, to “cover” the Fund’s obligations relating to its transactions in derivatives. For example,
in the case of forward contracts that are not contractually required to cash settle, the Fund must set aside liquid assets to equal to
such contracts’ full notional value (generally the total numerical value of the asset underlying a future or forward contract at
the time of valuation) while the positions are open. With respect to forward contracts that are contractually required to cash settle,
however, the Fund is permitted to set aside liquid assets in an amount equal to the Fund’s daily marked-to-market net obligation
(i.e., the Fund’s daily net liability) under the contracts, if any, rather than such contracts’ full notional value.
By setting aside assets equal to only its net obligations under cash-settled futures and forward contracts, a Fund may employ leverage
to a greater extent than if the Fund were required to segregate assets equal to the full notional value of such contracts.
Fund of Funds Risk
Certain Funds
pursue their investment objective by investing primarily in securities of funds included in its Underlying Index. Each such Fund’s
investment performance, because it is a fund of funds, depends on the investment performance of the Underlying ETPs in which it invests.
An investment in a Fund is subject to the risks associated with the Underlying ETPs that comprise the Underlying Index in which the Fund
invests. Each Fund will indirectly pay a proportional share of the asset-based fees of the Underlying ETPs in which it invests. There
is a risk that IndexIQ’s evaluations and assumptions regarding the asset classes represented in each Underlying Index may be incorrect
based on actual market conditions. In addition, at times the segments of the market represented by the Underlying ETPs within the Underlying
Index may be out of favor and underperform other segments. The Funds have adopted a policy that prohibits a Fund from acquiring securities
of registered open-end investment companies in reliance on subparagraphs G or F of section 12 of the Investment Company Act of 1940.
Futures Contracts and Options on Futures Contracts
As a part of
its principal investment strategy, a Fund may purchase and sell futures contracts and may also purchase and write call and put options
on futures contracts. A Fund may purchase and sell futures contracts based on various securities, securities indices, foreign currencies
and other Financial Instruments and indices. The Fund may engage in futures and related option transactions in an attempt to match the
returns of the Index Components and the total return of the Index. The Fund may also enter into closing purchase and sale transactions
with respect to such contracts and options. The Trust, on behalf of the Fund, has claimed an exclusion from the definition of the term
“commodity pool operator” under the Commodity Exchange Act and, therefore, is not subject to registration or regulation as
a pool operator under that Act with respect to the Fund.
Futures contracts
entered into by the Fund have historically been traded on U.S. exchanges or boards of trade that are licensed and regulated by the Commodity
Futures Trading Commission (the “CFTC”) or with respect to certain funds, on foreign exchanges. More recently, certain futures
may also be traded either over-the-counter or on trading facilities such as degrees by the CFTC. Also, certain single stock futures and
narrow based security index futures may be traded either over-the-counter or on trading facilities such as contract markets, derivatives
transaction execution facilities and electronic trading facilities that are licensed and/or regulated to varying degrees by both the CFTC
and the SEC, or on foreign exchanges.
Neither the CFTC,
National Futures Association, SEC nor any domestic exchange regulates activities of any foreign exchange or boards of trade, including
the execution, delivery and clearing of transactions, or has the power to compel enforcement of the rules of a foreign exchange or
board of trade or any applicable foreign law. This is true even if the exchange is formally linked to a domestic market so that a position
taken on the market may be liquidated by a transaction on another market. Moreover, such laws or regulations will vary depending on the
foreign country in which the foreign futures or foreign options transaction occurs. For these reasons, the Fund’s investments in
foreign futures or foreign options transactions may not be provided the same protections in respect of transactions on U.S. exchanges.
In particular, persons who trade foreign futures or foreign options contracts may not be afforded certain of the protective measures provided
by the Commodity Exchange Act, the CFTC’s regulations and the rules of the National Futures Association and any domestic exchange,
including the right to use reparations proceedings before the CFTC and arbitration proceedings provided by the National Futures Association
or any domestic futures exchange. Similarly, those persons may not have the protection of the U.S. securities laws.
Futures
Contracts. A futures contract may generally be described as an agreement between two parties to buy and sell particular Financial
Instruments for an agreed price during a designated month (or to deliver the final cash settlement price, in the case of a contract relating
to an index or otherwise not calling for physical delivery at the end of trading in the contract).
Positions taken
in the futures market are not normally held to maturity, but are instead liquidated through offsetting transactions which may result in
a profit or a loss. While the Fund will usually liquidate futures contracts on securities or currency in this manner, the Fund may instead
make or take delivery of the underlying securities or currency whenever it appears economically advantageous for the Fund to do so. A
clearing corporation associated with the exchange on which futures are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.
Hedging
Strategies. Hedging, by use of futures contracts, seeks to establish with more certainty than would otherwise be possible the
effective price, rate of return or currency exchange rate on portfolio securities or securities that the Fund owns or proposes to acquire.
The Fund may, for example, take a “short” position in the futures market by selling futures contracts to seek to hedge against
an anticipated rise in interest rates or a decline in market prices or foreign currency rates that would adversely affect the dollar value
of the Fund’s portfolio securities. Similarly, the Fund may sell futures contracts on a currency in which its portfolio securities
are quoted or denominated, or sell futures contracts on one currency to seek to hedge against fluctuations in the value of securities
quoted or denominated in a different currency if there is an established historical pattern of correlation between the two currencies.
When hedging of this character is successful, any depreciation in the value of portfolio securities will be substantially offset by appreciation
in the value of the futures position. On the other hand, any unanticipated appreciation in the value of the Fund’s portfolio securities
would be substantially offset by a decline in the value of the futures position.
Options
on Futures Contracts. The acquisition of put and call options on futures contracts will give the Fund the right (but not
the obligation), for a specified price, to sell or to purchase, respectively, the underlying futures contract at any time during the option
period. As the purchaser of an option on a futures contract, the Fund obtains the benefit of the futures position if prices move in a
favorable direction but limits its risk of loss in the event of an unfavorable price movement to the loss of the premium and transaction
costs.
The writing of
a call option on a futures contract generates a premium which may partially offset a decline in the value of the Fund’s assets.
By writing a call option, the Fund becomes obligated, in exchange for the premium, to sell a futures contract if the option is exercised,
which may have a value higher than the exercise price. The writing of a put option on a futures contract generates a premium, which may
partially offset an increase in the price of securities that the Fund intends to purchase. However, the Fund becomes obligated (upon the
exercise of the option) to purchase a futures contract if the option is exercised, which may have a value lower than the exercise price.
Thus, the loss incurred by the Fund in writing options on futures is potentially unlimited and may exceed the amount of the premium received.
The Fund will incur transaction costs in connection with the writing of options on futures.
To the extent the
Advisor makes investments on behalf of a Fund that are regulated by the Commodities Futures Trading Commission, it intends to do so in
accordance with Rule 4.5 under the CEA. The Advisor has filed a notice of eligibility for exclusion from the definition of the term
“commodity pool operator” in accordance with Rule 4.5 and is therefore not subject to registration as a commodity pool
operator under the CEA.
High Yield Securities
Typically, high
yield debt securities (sometimes called "junk bonds") are rated below investment grade by one or more of the rating agencies
and are generally considered to be speculative. Investment in lower rated corporate debt securities provides greater income and increased
opportunity for capital appreciation than investments in higher quality securities, but they also typically entail greater price volatility
and principal and income risk. These high yield securities are regarded as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments.
Investors should
be willing to accept the risk associated with investment in high yield/high risk securities. Investment in high yield/high risk bonds
involves special risks in addition to the risks associated with investments in higher rated debt securities. High yield/high risk bonds
may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher grade bonds. The prices
of high yield/high risk bonds have been found to be less sensitive to interest-rate changes than more highly rated investments, but more
sensitive to adverse economic downturns or individual corporate developments.
The Secondary
Market on which high yield/high risk bonds are traded may be less liquid than the market for higher grade bonds. Less liquidity in the
secondary trading market could adversely affect the price at which a Fund could sell a high yield/high risk bond. A projection of an economic
downturn or of a period of rising interest rates, for example, could cause a decline in high yield/high risk bond prices because the advent
of a recession could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities.
If such securities are determined to be illiquid, then a Fund will limit its investment in these securities subject to its limitation
on investments in illiquid securities.
Adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of high yield/high risk
bonds, especially in a thinly traded market.
Some high yield
securities are issued by smaller, less-seasoned companies, while others are issued as part of a corporate restructuring, such as an acquisition,
merger, or leveraged buyout. Companies that issue high yield securities are often highly leveraged and may not have available to them
more traditional methods of financing. Therefore, the risk associated with acquiring the securities of such issuers generally is greater
than is the case with investment-grade securities. Some high yield securities were once rated as investment-grade but have been downgraded
to junk bond status because of financial difficulties experienced by their issuers.
If the issuer
of high yield/high risk bonds defaults, a Fund may incur additional expenses to seek recovery. In the case of high yield/high risk bonds
structured as zero coupon or payment-in-kind securities, the market prices of such securities are affected to a greater extent by interest
rate changes, and therefore tend to be more volatile than securities that pay interest periodically and in cash.
Analysis of the
creditworthiness of issuers of high yield/high risk bonds may be more complex than for issuers of higher quality debt securities. When
Secondary Markets for high yield securities are less liquid than the market for higher grade securities, it may be more difficult to value
the securities because such valuation may require more research, and elements of judgment may play a greater role in the valuation because
there is less reliable, objective data available. The use of credit ratings as the sole method for evaluating high yield/high risk bonds
also involves certain risks. For example, credit ratings evaluate the safety of principal and interest payments, not the market value
risk of high yield/high risk bonds. Also, credit rating agencies may fail to change credit ratings on a timely basis to reflect subsequent
events.
Illiquid Securities
Illiquid securities
may include securities subject to contractual or other restrictions on resale and other instruments that lack readily available markets,
as determined in accordance with SEC staff guidance. The liquidity of a security relates to the ability to readily dispose of the security
and the price to be obtained upon disposition of the security, which may be lower than the price that would be obtained for a comparable,
more liquid security. Illiquid securities may trade at a discount to comparable, more liquid securities and the Fund may not be able to
dispose of illiquid securities in a timely fashion or at their expected prices. A Fund may not invest more than 15% of its net assets
in illiquid securities (calculated at the time of investment).
Index Risk
An Underlying
Index may not be successful in replicating the performance of its target strategies. Each Underlying Index is partially based on an assessment
of historical data sets. To the extent that data turns out not to be predictive of future event, the return on the Underlying Index may
deviate from its objective.
This risk applies to IQ Hedge Multi-Strategy
Tracker ETF, IQ Hedge Macro Tracker ETF, IQ Hedge Market Neutral Tracker ETF, IQ Hedge Long/Short Tracker ETF and IQ Hedge
Event-Driven Tracker ETF.
There is no assurance
that the Strategies that comprise the Underlying Indexes will track hedge fund returns, which, in turn, may adversely affect the Underlying
Index’s ability to meet its objectives. While the Strategies consist of multiple liquid Underlying Index Components, hedge funds
may invest in a much broader range of more geographically diverse and less liquid assets. The Underlying Indexes may be exposed to more
or less risk than hedge funds as an asset class. To the extent a Fund tracks its Underlying Index, these risks could also apply to an
investment in the Fund.
The Strategies
and the Underlying Indexes are based entirely on mathematical analysis of historical data related to volatility and returns. To the extent
that historical data turns out not to be predictive of future events, the return of the Strategies may deviate from the returns of the
hedge fund indexes they are trying to replicate.
IndexIQ does
not receive hedge fund holding information but rather uses the monthly returns of the hedge fund data provided by third parties as the
basis for estimating the asset class exposures of hedge funds as a group. There is a risk that hedge fund return data provided by third
party providers may be inaccurate or may not accurately reflect hedge fund returns due to survivorship bias, self-reporting selection
bias, or other biases.
Hedge funds often
adjust their investments rapidly in view of market, political, financial or other factors, whereas the composition of the Strategies and
the Underlying Indexes is adjusted only on a monthly basis. The potential lag between hedge fund strategy changes and Strategy changes
may cause the returns of the Strategies to deviate from the data received from the third party providers.
This risk applies to IQ Real Return
ETF.
The Underlying
Index is partially based on an assessment of historical data sets related to volatility and returns. To the extent that data turns out
not to be predictive of future events, the return of the Underlying Index may deviate from its objective.
Industry Sector Risk
The risk of concentrating
Fund investments in a limited number of issuers conducting business in the same industry or group of industries will subject a Fund to
a greater risk of loss as a result of adverse economic, business or other developments than if its investments were diversified across
different industry sectors.
Consumer Discretionary
Sector Risk
A Fund may invest
a significant portion of its assets in companies in the consumer discretionary sector. The consumer discretionary sector may be affected
by changes in domestic and international economies, exchange and interest rates, worldwide demand, competition, consumers’ disposable
income levels, propensity to spend and consumer preferences, social trends and marketing campaigns. Companies in the consumer discretionary
sector have historically been characterized as relatively cyclical and therefore more volatile in times of change.
Biotechnology Companies Risk
Biotech companies invest heavily
in research and development which may not necessarily lead to commercially successful products. These companies are also subject to increased
governmental regulation which may delay or inhibit the release of new products. Many biotech companies are dependent upon their ability
to use and enforce intellectual property rights and patents. Any impairment of such rights may have adverse financial consequences. Biotech
stocks, especially those of smaller, less-seasoned companies, tend to be more volatile than the overall market. Biotech companies can
be significantly affected by technological change and obsolescence, product liability lawsuits and consequential high insurance costs.
Communication Services Sector
Risk
Companies in the communication
services sector may be adversely affected by, among other things, industry competition, substantial capital requirements, changes in
government regulation and obsolescence of communication services products due to technological advancement. Communication services companies
may also be subject to risks associated with intellectual property use, fluctuating domestic and international demand, shifting demographics
and changes in consumer tastes. While network security breaches can happen to all companies, certain communication services companies
are more susceptible to hacking, theft of proprietary or consumer information and disruptions in service.
Consumer Goods Risk
The consumer goods
industry includes companies involved in the design, production or distribution of goods for consumers, including food, household, home,
personal and office products, clothing and textiles. The success of the consumer goods industry is tied closely to the performance of
the domestic and international economy, interest rates, exchange rates, competition, consumer confidence and consumer disposable income.
The consumer goods industry may be affected by trends, marketing campaigns and other factors affecting consumer demand. Governmental regulation
affecting the use of various food additives may affect the profitability of certain companies in the consumer goods industry. Moreover,
international events may affect food and beverage companies that derive a substantial portion of their net income from foreign countries.
In addition, tobacco companies may be adversely affected by new laws, regulations and litigation. Many consumer goods may be marketed
globally, and consumer goods companies may be affected by the demand and market conditions in other countries and regions. Companies in
the consumer goods industry may be subject to severe competition, which may also have an adverse impact on their profitability. Changes
in demographics and consumer preferences may affect the success of consumer products.
Consumer Services Risk
The success of
consumer product manufacturers and retailers (including food and drug retailers, general retailers, media, and travel and leisure) is
tied closely to the performance of the domestic and international economy, interest rates, exchange rates, competition and consumer confidence.
The consumer services industry depends heavily on disposable household income and consumer spending. Companies in the consumer services
industry may be subject to severe competition, which may also have an adverse impact on their profitability. Changes in demographics and
consumer preferences may affect the success of consumer service providers.
Energy Sector Risk
A Fund may invest
a significant portion of its assets in companies in the energy sector. Companies in the energy sector are affected by supply and demand
both for their specific product or service and for energy products in general. The price of oil and gas, exploration and production spending,
government regulation, world events, exchange rates and economic conditions will have a significant impact on the performance of these
companies and securities of companies in the energy field are subject to swift price fluctuations caused by events relating to international
politics, energy conservation, the success of exploration projects, and tax and other governmental regulatory policies. Weak demand for
energy companies’ products or services or for energy products and services in general, as well as negative developments in these
other areas, could adversely impact performance of energy sector companies. Oil and gas exploration and production can be significantly
affected by natural disasters as well as changes in exchange rates, interest rates, government regulation, world events and economic conditions.
These companies may be at risk for environmental damage claims.
Financial Sector Risk
A Fund may invest
a significant portion of its assets in companies in the consumer financial sector. 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. During the financial
crisis that began in 2007, the deterioration of the credit markets impacted a broad range of mortgage, asset-backed, auction rate, sovereign
debt and other markets, including U.S. and non-U.S. credit and interbank money markets, thereby affecting a wide range of financial institutions
and markets. A number of large financial institutions failed during that time, merged with stronger institutions or had significant government
infusions of capital. Instability in the financial markets caused certain financial companies to incur large losses. Some financial companies
experienced declines in the valuations of their assets, took actions to raise capital (such as the issuance of debt or equity securities),
or even ceased operations. Some financial companies borrowed significant amounts of capital from government sources and may face future
government-imposed restrictions on their businesses or increased government intervention. Those actions caused the securities of many
financial companies to decline in value. The financial sector is particularly sensitive to fluctuations in interest rates.
In recent years,
the financial sector has been subject to increased scrutiny by international regulators and future regulations could be imposed that would
have an adverse economic impact on financial companies.
Health Care Sector Risk
Companies in the health care sector
may be adversely affected by, among other things, extensive, costly and uncertain government regulation, restrictions on government reimbursement
for medical expenses, product obsolescence, increased emphasis on outpatient services, limited number of products and fluctuations in
the costs of medical products. Many health care companies are heavily dependent on intellectual property protection, and the expiration
of a company’s patent may impact that company’s profitability. Many health care companies are subject to extensive litigation
based on product liability and similar claims. Health care companies are subject to competitive forces that may make it difficult to
raise prices and, in fact, may result in price discounting. Many new products in the health care sector may be subject to regulatory
approvals. The process of obtaining such approvals may be long and costly with no guarantee that any product will come to market.
Information Technology Sector
Risk
Companies in the information technology
sector may be adversely affected by, among other things, domestic and international market competition, obsolescence due to rapid technological
developments, new product introduction, unpredictable growth rates and competition for qualified personnel. Aggressive pricing and reduced
profit margins, intellectual property rights protections, cyclical market patterns and evolving industry standards and government regulations
may also impact information technology companies. The market prices of information technology securities may exhibit a greater degree
of market risk and more frequent, sharp price fluctuations than other types of securities. These securities may fall in and out of favor
with investors rapidly, which may cause sudden selling and dramatically lower market prices.
Industrials Sector Risk
The value of securities
issued by companies in the industrials sector may be adversely affected by supply of and demand for both their specific products or services
and for industrials sector products in general. The products of manufacturing companies may face obsolescence due to rapid technological
developments and frequent new product introduction. Government regulations, world events and economic conditions affect the performance
of companies in the industrials sector. The industrials sector may also be adversely affected by changes or trends in commodity prices,
which may be influenced by unpredictable factors. Aerospace and defense companies, a component of the industrials sector, can be significantly
affected by government spending policies because companies involved in this industry rely, to a significant extent, on government demand
for their products and services. Thus, the financial condition of, and investor interest in, aerospace and defense companies are heavily
influenced by governmental defense spending policies, which are typically under pressure from efforts to control government budgets. Transportation
stocks, a component of the industrials sector, are cyclical and can be significantly affected by economic changes, fuel prices, labor
relations and insurance costs. Transportation companies in certain countries may also be subject to significant government regulation
and oversight, which may adversely affect their businesses. For example, commodity price declines and unit volume reductions resulting
from an over-supply of materials used in the industrials sector can adversely affect the sector. Furthermore, companies in the industrials
sector may be subject to liability for environmental damage, product liability claims, depletion of resources, and mandated expenditures
for safety and pollution control.
Materials Sector Risk
Companies in the
materials sector may be significantly affected by commodity prices, exchange rates, government regulation, the economic cycle and consumer
demand. At times, worldwide production of industrial materials has exceeded demand as a result of over-building or economic downturns,
leading to poor investment returns or losses. Other risks may include liabilities for environmental damage and general civil liabilities,
depletion of resources, and mandated expenditures for safety and pollution control. The materials sector may also be affected by economic
cycles, technical progress, labor relations, and government regulations.
Lending of Portfolio Securities
The Funds may
lend portfolio securities constituting up to 33 1/3% of each Fund’s total assets (as permitted by the 1940 Act). Under present regulatory
policies, such loans may be made to institutions, such as brokers or dealers, pursuant to agreements requiring the loans to be continuously
secured by collateral in cash, securities issued or guaranteed by the U.S. Government or one of its agencies or instrumentalities, irrevocable
bank letters of credit (upon consent of the Board) or any combination thereof, marked to market daily, at least equal to the market value
of the securities loaned. Cash received as collateral for securities lending transactions may be invested in liquid, short-term investments
approved by the Investment Advisor.
Investing the
collateral subjects the Funds to risks, and each Fund will be responsible for any loss that may result from its investment of the borrowed
collateral. The Funds will have the right to terminate a loan at any time and recall the loaned securities within the normal and customary
settlement time for securities transactions. For the duration of a loan, the respective Fund will continue to receive the equivalent of
the interest or dividends paid by the issuer on the securities loaned and will also receive compensation from investment of the collateral.
These events could also trigger adverse tax consequences for a Fund.
The Funds will
generally not have the right to vote securities during the existence of the loan, but the Advisor may call the loan to exercise such Fund’s
voting or consent rights on material matters affecting the Fund’s investment in such loaned securities. As with other extensions
of credit there are risks of delay in recovering, or even loss of rights in, the collateral and loaned securities should the borrower
of the securities fail financially.
Loans will be
made only to firms deemed creditworthy, and when the consideration which can be earned from securities loans is deemed to justify the
attendant risk. The creditworthiness of a borrower will be considered in determining whether to lend portfolio securities and will be
monitored during the period of the loan. It is intended that the value of securities loaned by each Fund will not exceed one-third of
the value of the Fund’s total assets (including the loan collateral). Loan collateral (including any investment of the collateral)
is not subject to the percentage limitations stated elsewhere in this SAI or the Prospectus regarding investing in fixed-income securities
and cash equivalents.
Long/Short Risk
Certain Funds
seek long exposure to certain securities and may seek short exposure to certain other securities. There is no guarantee that the returns
on the Fund's long or short positions will produce high, or even positive, returns and the Fund could lose money if either or both the
Fund's long and short positions produce negative returns. In addition, the Fund may gain enhanced long exposure to certain securities
(i.e., obtain investment exposure that exceeds the amount directly invested in those assets, a form of leverage) and, under such circumstances,
will lose more money in market environments that are adverse to its long positions than funds that do not employ such leverage. As a result,
such investments may give rise to losses that exceed the amount invested in those assets.
Money Market Instruments
Each Fund may
invest a portion of its assets in high-quality money market instruments on an ongoing basis rather than in Underlying Index Components,
when it would be more efficient or less expensive for the Fund to do so, or as collateral for Financial Instruments, for liquidity purposes,
or to earn interest. The instruments in which each Fund may invest include: (1) short- term obligations issued by the U.S. government;
(2) negotiable certificates of deposit (“CDs”), fixed time deposits and bankers’ acceptances of U.S. and foreign
banks and similar institutions; (3) commercial paper; (4) repurchase agreements; and (5) money market mutual funds. CDs
are short-term negotiable obligations of commercial banks. Time deposits are non-negotiable deposits maintained in banking institutions
for specified periods of time at stated interest rates. Banker’s acceptances are time drafts drawn on commercial banks by borrowers,
usually in connection with international transactions.
Mortgage Related and Other Asset-Backed
Securities
Typically, mortgage-related
securities are interests in pools of residential or commercial mortgage loans or leases, including mortgage loans made by S&L institutions,
mortgage bankers, commercial banks and others.
Pools of mortgage
loans are assembled as securities for sale to investors by various governmental, government-related and private organizations (“mortgage
passthrough securities”).
Like other fixed-income
securities, when interest rates rise, the value of a mortgage-related security generally will decline. However, when interest rates are
declining, the value of a mortgage-related security with prepayment features may not increase as much as other fixed-income securities.
The value of these securities may be significantly affected by changes in interest rates, the market's perception of issuers, the creditworthiness
of the parties involved and the value of real property or other collateral underlying the mortgage-related security. Some securities may
have a structure that makes their reaction to interest rate changes and other factors difficult to predict, making their value highly
volatile. These securities may also be subject to prepayment risk and, if the security has been purchased at a premium, the amount of
the premium would be lost in the event of prepayment.
As in the case
with other fixed-income securities, when interest rates rise, the value of a mortgage-backed security generally will decline; however,
when interest rates are declining, the value of mortgage-backed securities with prepayment features may not increase as much as other
fixed-income securities.
Investment in
mortgage-backed securities poses several risks, including prepayment, extension market, and credit risk. Prepayment risk reflects the
chance that borrowers may prepay their mortgages faster than expected, thereby affecting the investment's average life and perhaps its
yield. Whether or not a mortgage loan is prepaid is almost entirely controlled by the borrower. Borrowers are most likely to exercise
their prepayment options at a time when it is least advantageous to investors, generally prepaying mortgages as interest rates fall, and
slowing payments as interest rates rise. Conversely, when interest rates are rising, the rate of prepayment tends to decrease, thereby
lengthening the average life of the mortgage-backed security. Besides the effect of prevailing interest rates, the rate of prepayment
and refinancing of mortgages may also be affected by changes in home values, ease of the refinancing process and local economic conditions.
Market risk reflects
the chance that the price of the security may fluctuate over time. The price of mortgage-backed securities may be particularly sensitive
to prevailing interest rates, the length of time the security is expected to be outstanding, and the liquidity of the issue. In a period
of unstable interest rates, there may be decreased demand for certain types of mortgage-backed securities, and a Fund invested in such
securities and wishing to sell them may find it difficult to find a buyer, which may in turn decrease the price at which they may be sold.
Credit risk reflects
the chance that a Fund may not receive all or part of its principal because the issuer or credit enhancer has defaulted on its obligations.
Obligations issued by U.S. government-related entities are guaranteed as to the payment of principal and interest, but are not backed
by the full faith and credit of the U.S. government. The performance of private label mortgage- backed securities, issued by private institutions,
is based on the financial health of those institutions.
To the extent
that mortgages underlying a mortgage-related security are so-called ”subprime mortgages” (i.e., mortgages granted to borrowers
whose credit history is not sufficient to obtain a conventional mortgage), the risk of default is higher. Subprime mortgages also have
higher serious delinquency rates than prime loans.
Risk of Investing in Developing
Countries
Many countries
with developed markets have recently experienced significant economic pressures. These countries generally tend to rely on the services
sectors (e.g., the financial services sector) as the primary source of economic growth and may be susceptible to the risks of individual
service sectors. For example, companies in the financial services sector are subject to governmental regulation and, recently, government
intervention, which may adversely affect the scope of their activities, the prices they can charge and amount of capital they must maintain.
Recent dislocations in the financial sector and perceived or actual governmental influence over certain financial companies may lead to
credit rating downgrades and, as a result, impact,
among other things, revenue growth for such companies. If financial companies experience
a prolonged decline in revenue growth, certain developed countries that rely heavily on financial companies as an economic driver may
experience a correlative slowdown. Recently, new concerns have emerged with respect to the economic health of certain developed countries.
These concerns primarily stem from heavy indebtedness of many developed countries and their perceived inability to continue to service
high debt loads without simultaneously implementing stringent austerity measures. Such concerns have led to tremendous downward pressure
on the economies of these countries. As a result, it is possible that interest rates on debt of certain developed countries may rise to
levels that make it difficult for such countries to service such debt. Spending on health care and retirement pensions in most developed
countries has risen dramatically over the last few years. Medical innovation, extended life expectancy and higher public expectations
are likely to continue the increase in health care and pension costs. Any increase in health care and pension costs will likely have a
negative impact on the economic growth of many developed countries. Certain developed countries rely on imports of certain key items,
such as crude oil, natural gas, and other commodities. As a result, an increase in demand for, or price fluctuations of, certain commodities
may negatively affect developed country economies. Developed market countries generally are dependent on the economies of certain key
trading partners. Changes in any one economy may cause an adverse impact on several developed countries. In addition, heavy regulation
of, among others, labor and product markets may have an adverse effect on certain issuers. Such regulations may negatively affect economic
growth or cause prolonged periods of recession. Such risks, among others, may adversely affect the value of a Fund’s investments.
Risk of Investing in Large-Capitalization
Companies
Large-capitalization
companies may be less able than smaller capitalization companies to adapt to changing market conditions. Large-capitalization companies
may be more mature and subject to more limited growth potential compared with smaller capitalization companies. Over certain periods,
the performance of large-capitalization companies has trailed the performance of overall markets.
Risk of Investing in Small-Capitalization
Companies
Stock prices
of small-capitalization companies may be more volatile than those of larger companies and therefore a Fund’s share price may be
more volatile than those of funds that invest a larger percentage of their assets in stocks issued by large- capitalization or mid-capitalization
companies. Stock prices of small-capitalization companies are generally more vulnerable than those of large-capitalization or mid-capitalization
companies to adverse business and economic developments. The stocks of small-capitalization companies may be thinly traded, making it
difficult for the Funds to buy and sell them. In addition, small-capitalization companies are typically less financially stable than larger,
more established companies and may depend on a small number of essential personnel, making them more vulnerable to loss of personnel.
Small-capitalization companies also normally have less diverse product lines than those of large-capitalization companies and are more
susceptible to adverse developments concerning their products.
Risk of Investing in Mid-Capitalization
Companies
Stock prices
of mid-capitalization companies may be more volatile than those of large-capitalization companies, therefore impacting the value of the
Fund’s investment in mid-capitalization companies. Stock prices of mid-capitalization companies are also more vulnerable than those
of large-capitalization companies to adverse business or economic developments, and the stocks of mid-capitalization companies may be
less liquid, making it more difficult for the Fund to buy and sell them. In addition, mid-capitalization companies generally have less
diverse product lines than large-capitalization companies and are more susceptible to adverse developments related to their products.
Risk of Preferred Stock
A Fund that invests
in preferred stock may be exposed to certain risks not typically encountered by investing in common stock. Many preferred stocks pay dividends
at a fixed rate, therefore, a preferred stock’s market price may be sensitive to changes in interest rates in a manner similar to
bonds — that is, as interest rates rise, the value of the preferred stock is likely to decline. Many preferred stocks also allow
holders to convert the preferred stock into common stock of the issuer; the market price of such preferred stocks can be sensitive to
changes in the value of the issuer’s common stock. In addition, the ability of an issuer of preferred stock to pay dividends may
deteriorate or the issuer may default (i.e., fail to make scheduled dividend payments on the preferred stock or scheduled interest payments
on other obligations of the issuer), which would negatively affect the value of any such holding. Dividend payments on a preferred stock
typically must be declared by the issuer’s board of directors. An issuer’s board of directors is generally not under any obligation
to pay a dividend (even if such dividends have accrued), and may suspend payment of dividends on preferred stock at any time. Preferred
stock is also subject to market volatility and the price of preferred stock will fluctuate based on market demand. Preferred stock often
has a call feature which allows the issuer to redeem the security at its discretion. Therefore, preferred stocks having a higher than
average yield may be called by the issuer, which may cause a decrease in the yield of a fund that invested in the preferred stock.
Risk of Investing in the U.S.
Certain Funds
may have significant exposure to U.S. issuers. A decrease in imports or exports, changes in trade regulations, tariffs or the threat of
tariffs, and/or an economic recession in the U.S. may have a material adverse effect on the U.S. economy and the securities listed on
U.S. exchanges. Proposed and adopted policy and legislative changes in the U.S. are changing many aspects of financial and other regulation
and may have a significant effect on the U.S. markets generally, as well as the value of certain securities. In addition, a continued
rise in the U.S. public debt level or U.S. austerity measures may adversely affect U.S. economic growth and the securities to which the
Fund has exposure.
Short Sales Risk
Certain Funds
may engage in short sales. Short sales are transactions in which the Fund sells a security it does not own to obtain an inverse exposure
to that security. To complete such a transaction, the Fund must borrow the security to make delivery to the buyer. The Fund then is obligated
to replace the security borrowed by purchasing it at the market price at the time of replacement. The price at such time may be more or
less than the price at which the security was sold by the applicable Fund. Until the security is replaced, the Fund is required to pay
to the lender amounts equal to any dividend which accrues during the period of the loan. To borrow the security, the Fund also may be
required to pay a premium, which would increase the cost of the security sold. There will also be other costs associated with short sales.
The Fund will
incur a loss as a result of the short sale if the price of the security increases between the date of the short sale and the date on which
the Fund replaces the borrowed security. The Fund will realize a gain if the security declines in price between those dates. This result
is the opposite of what one would expect from a cash purchase of a long position in a security. The amount of any gain will be decreased,
and the amount of any loss increased, by the amount of any premium or amounts in lieu of interest the Fund may be required to pay in connection
with a short sale, and will be also decreased by any transaction or other costs.
Until the Fund
replaces a borrowed security in connection with a short sale, the Fund will (a) identify cash or liquid assets at such a level that
such assets plus any amount deposited with the broker as collateral will equal the current value of the security sold short or (b) otherwise
cover its short position in accordance with applicable law.
There is no guarantee
that the Fund will be able to close out a short position at any particular time or at an acceptable price. During the time that the Fund
is short a security, it is subject to the risk that the lender of the security will terminate the loan at a time when the Fund is unable
to borrow the same security from another lender. If that occurs, the Fund may be ”bought in” at the price required to purchase
the security needed to close out the short position, which may be a disadvantageous price.
Total Return Swaps
Total return
swaps give each Fund the right to receive the appreciation in the value of a specified security, index or other instrument in return for
a fee paid to the counterparty, which will typically be an agreed upon interest rate. Total return swaps can also be used to replicate
an exposure to a short position in an asset class where the Fund has the right to receive the depreciation in value of a specified security,
index or other instrument (“inverse swaps”). If the underlying asset in a total return swap declines in value (or increases
in value, if an inverse swap) over the term of the swap, a Fund may also be required to pay the dollar value of that decline (or increase,
if an inverse swap) to the counterparty.
The Funds may
use total return swaps to replicate an Underlying Index Component’s performance. These total return swaps would reference the performance
of an security that is an Underlying Index Component or a ETF, ETN or ETV (each an “exchange-traded issuer”) that is an Underlying
Index Component, an index on which such an exchange-traded issuer is based, or one or more of the portfolio constituents of such exchange-traded
issuer.
Total return
swaps are considered illiquid by the Funds. Consequently, each Fund will segregate liquid assets, which may include securities, cash or
cash equivalents, to cover the Fund’s daily marked-to-market net obligations under outstanding swap agreements. This segregation
of assets may limit a Fund’s investment flexibility, as well as its ability to meet redemption requests or other current obligations.
All counterparties
are subject to pre-approval by the Board. The Board’s pre-approval is based on the creditworthiness of each potential swap counterparty.
In addition, the Advisor will monitor and manage the counterparty risk posed by the counterparties and take actions as necessary to decrease
counterparty risk to a Fund by, among other things, reducing swap exposures to certain counterparties and/or seeking alternate or additional
counterparties.
The number of
counterparties may vary over time. During periods of credit market turmoil or when the aggregate swap notional amount needed by a Fund
is relatively small given the level of the Fund’s net assets, the Fund may have only one or a few counterparties. In such circumstances,
a Fund will be exposed to greater counterparty risk. Moreover, a Fund may be unable to enter into any total return swap on terms that
make economic sense (e.g., they may be too costly). To the extent that the Fund is unable to enter into any total return swaps,
it may not be able to meet its investment objective. If the Fund is unable to enter into total return swaps, it may engage in other types
of derivative transactions, although the added costs, higher asset
segregation requirements and lower correlation to Underlying Index
Component performance of these other derivatives may adversely affect a Fund’s ability to meet its investment objective.
Tracking Error Risk
A Fund’s
performance may not match its respective Underlying Index during any period of time. Although each Fund attempts to track the performance
of its Underlying Index, the Fund may not be able to duplicate its exact composition or return for any number of reasons, including but
not limited to the risk that the strategies used by the Advisor to match the performance of the Underlying Index may fail to produce the
intended results, liquidity risk and new fund risk, as well as the incurring of Fund expenses, which the Underlying Index does not incur.
For example, a Fund may not be able to invest in certain securities included in its Underlying Index due to restrictions or limitations
imposed, by or a lack of liquidity in, certain countries and stock exchanges in which such securities trade, or may be delayed in purchasing
or selling securities included in the Underlying Index. To the extent a Fund intends to engage principally in cash transactions for the
creation and redemption of Shares, such practice will affect the Fund’s ability to match the return of its Underlying Index. In
addition, tracking error may be created by the use of underlying ETFs or derivative instruments to track Underlying Index Components.
In addition, tracking error may occur because of differences in timing of the accrual or the valuation of dividends or interest or tax
gains or losses.
To the extent
a Fund calculates its NAV based on fair value prices and the value of the Underlying Index is based on the securities’ closing price
on local foreign markets (i.e., the value of the Underlying Index is not based on fair value prices), the Fund’s ability
to track the Underlying Index may be adversely affected. To the extent that the value of assets denominated in foreign currencies is converted
into U.S. dollars using exchange rates selected by the Advisor that differ from the exchange rates selected by the index provider for
use in calculating the Underlying Index, the Fund’s ability to track the Underlying Index may be adversely impacted. In addition,
the Fund may not be able to invest in certain securities included in the Underlying Index due to restrictions or limitations imposed by
or a lack of liquidity in certain countries and stock exchanges in which such securities trade or may be delayed in purchasing or selling
securities included in the Underlying Index. In addition, if the Fund utilizes depositary receipts and/or derivative instruments, its
return may not correlate as well with the Underlying Index as would be the case if the Fund purchased all the securities in the Underlying
Index directly.
Cyber Security and Disruptions
in Operations
With the increasing
use of the Internet and technology in connection with the Funds' operations, the Funds have become more susceptible to greater operational
and information security risks resulting through breaches in cyber security. Cyber incidents can result from unintentional events (such
as an inadvertent release of confidential information) or deliberate attacks by insiders or third parties, including cyber criminals,
competitors, nation-states and “hacktivists,” and can be perpetrated by a variety of complex means, including the use of stolen
access credentials, malware or other computer viruses, ransomware, phishing, structured query language injection attacks, and distributed
denial of service attacks, among other means. Cyber security breaches include, without limitation, infection by computer viruses and unauthorized
access to the Funds’ systems through “hacking” or other means for the purpose of misappropriating assets or sensitive
information, corrupting data, or causing operations to be disrupted. Cyber security breaches may also occur in a manner that does not
required gaining unauthorized access, such as denial-of-service attacks or situations where authorized individuals intentionally or unintentionally
release confidential information stored on the Funds’ system. A cyber security breach may cause disruptions and impact the Funds’
business operations, which could potentially result in financial losses, inability to determine a Fund’s NAV impediments to trading,
the inability of shareholders to transact business, violation of applicable law, regulatory penalties and/or fines, compliance and other
costs. The Funds and their shareholders could be negatively impacted as a result. Further, substantial costs may be incurred in order
to prevent future cyber incidents.
The Funds and
their shareholders could be negatively impacted as a result. Further, substantial cost may be incurred in order to prevent future cyber
incidents. In addition, because the Funds work closely with third-party service providers (e.g., custodians), indirect cyber security
breaches at such third-party service providers may subject a Fund's shareholders to the same risks associated with direct cyber security
breaches. Further, indirect cyber security breaches at an issuer of securities in which the Funds invest may similarly negatively impact
a Fund's shareholders because of a decrease in the value of these securities.
While the Funds
have established risk management systems designed to reduce the risks associated with cyber security breaches, there can be no assurances
that such measures will be successful particularly since the Funds do not control the cyber security systems of issuers or third-party
service providers. The Funds and their respective shareholders could be negatively impacted as a result.
Liquidation of a Fund
The Board may determine
to close and liquidate a Fund at any time, which may have adverse consequences for shareholders. In the event of the liquidation of a
Fund, shareholders will receive a liquidating distribution in cash or in-kind. A liquidating distribution may be a taxable event to shareholders,
resulting in a gain or loss for tax purposes, depending upon a shareholder's
basis in
his or her Shares of the Fund. A shareholder may receive an amount in liquidation less than the shareholder’s original investment.
MANAGEMENT
Board Responsibilities.
The business of the Trust is managed under the direction of the Board. The Board has considered and approved contracts, as described
herein, under which certain companies provide essential management and administrative services to the Trust. The day-to-day business of
the Trust, including the day-to-day management of risk, is performed by the service providers of the Trust, such as the Advisor, Distributor
and Administrator. The Board is responsible for overseeing the Trust’s service providers and, thus, has oversight responsibility
with respect to the risk management performed by those service providers. Risk management seeks to identify and eliminate or mitigate
the potential effects of risks such as events or circumstances that could have material adverse effects on the business, operations, shareholder
services, investment performance or reputation of the Trust or the Funds. The Board’s role in risk management oversight begins before
the inception of an investment portfolio, at which time the Advisor presents the Board with information concerning the investment objectives,
strategies and risks of the investment portfolio. Additionally, the Advisor provides the Board with an overview of, among other things,
the firm’s investment philosophy, brokerage practices and compliance infrastructure. Thereafter, the Board oversees the risk management
of the investment portfolio’s operations, in part, by requesting periodic reports from and otherwise communicating with various
personnel of the service providers, including the Trust’s Chief Compliance Officer and the independent registered public accounting
firm of the Trust. The Board and, with respect to identified risks that relate to its scope of expertise, the Audit Committee of the Board,
oversee efforts by management and service providers to manage risks to which the Funds may be exposed.
Under the overall
supervision of the Board and the Audit Committee (discussed in more detail below), the service providers to the Trust employ a variety
of processes, procedures and controls to identify risks relevant to the operations of the Trust and the Funds to lessen the probability
of their occurrence and/or to mitigate the effects of such events or circumstances if they do occur. Each service provider is responsible
for one or more discrete aspects of the Trust’s business and, consequently, for managing the risks associated with that activity.
The Board is
responsible for overseeing the nature, extent and quality of the services provided to the Funds by the Advisor and receives information
about those services at its regular meetings. In addition, on at least an annual basis, in connection with its consideration of whether
to renew the Advisory Agreement with the Advisor, the Board receives detailed information from the Advisor. Among other things, the Board
regularly considers the Advisor’s adherence to each Fund’s investment restrictions and compliance with various policies and
procedures of the Trust and with applicable securities regulations. The Board also reviews information about each Fund’s performance
and investments.
The Trust’s
Chief Compliance Officer meets regularly with the Board to review and discuss compliance and other issues. At least annually, the Trust’s
Chief Compliance Officer provides the Board with a report reviewing the adequacy and effectiveness of the Trust’s policies and procedures
and those of its service providers, including the Advisor. The report addresses the operation of the policies and procedures of the Trust
and each service provider since the date of the last report, material changes to the policies and procedures since the date of the last
report, any recommendations for material changes to the policies and procedures, and material compliance matters since the date of the
last report.
The Board receives
reports from the Trust’s service providers regarding operational risks, portfolio valuation and other matters. Annually, the independent
registered public accounting firm reviews with the Audit Committee its audit of the financial statements of the Funds, focusing on major
areas of risk encountered by the Trust and noting any significant deficiencies or material weaknesses in the Trust’s internal controls.
The Board recognizes
that not all risks that may affect the Funds can be identified, that it may not be practical or cost-effective to eliminate or mitigate
certain risks, that it may be necessary to bear certain risks (such as investment-related risks) to achieve each Fund’s goals, and
that the processes, procedures and controls employed to address certain risks may be limited in their effectiveness. Moreover, despite
the periodic reports the Board receives and the Board’s discussions with the service providers to the Trust, it may not be made
aware of all of the relevant information of a particular risk. Most of the Trust’s investment management and business affairs are
carried out by or through the Advisor and other service providers, each of which has an independent interest in risk management but whose
policies and the methods by which one or more risk management functions are carried out may differ from the Trust’s and each other’s
in the setting of priorities, the resources available or the effectiveness of relevant controls. As a result of the foregoing and other
factors, the Board’s risk management oversight is subject to substantial limitations.
Additionally,
as required by Rule 22e-4 under the 1940 Act, the Trust has implemented a written liquidity risk management program and related procedures
(“Liquidity Program”) that is reasonably designed to assess and manage the Funds’ “liquidity risk” (defined
by the SEC as the risk that a Fund could not meet requests to redeem shares issued by the Fund without significant dilution of remaining
investors’ interests in the Fund). The Liquidity Program is reasonably designed to assess and manage the Funds’ liquidity
risk. The Board, including a majority of the Independent Trustees, approved the designation of IndexIQ Advisors as the Liquidity Program’s
Administrator. The Board will review, no less frequently than annually, a written report
prepared by the Liquidity Program’s Administrator
that addresses the operation of the Liquidity Program and assesses its adequacy and effectiveness of implementation.
The Board also
benefits from other risk management resources and functions within New York Life, such as its risk management personnel and internal auditor
department. The Board recognizes that it is not possible to identify all of the risks that may affect a Fund or to develop processes and
controls to mitigate or eliminate all risks and their possible effects, and that it may be necessary to bear certain risks (such as investment
risks) to achieve each Fund’s investment objectives. The Board may, at any time and in its discretion, change the manner in which
it conducts risk oversight.
Members of
the Board and Officers of the Trust. Set forth below are the names, years of birth, position with the Trust, term of office, portfolios
supervised and the principal occupations and other directorships for a minimum of the last five years of each of the persons currently
serving as members of the Board and as Executive Officers of the Trust. Also included below is the term of office for each of the Executive
Officers of the Trust. The members of the Board serve as Trustees for the life of the Trust or until retirement, removal, or their office
is terminated pursuant to the Trust’s Declaration of Trust.
Reena Aggarwal,
an Independent Trustee, is Chair of the Board of Trustees. Three of the Trustees, Reena Aggarwal, Michael Pignataro and Paul Schaeffer,
and their immediate family members have no affiliation or business connection with the Advisor or the Funds’ principal underwriter
or any of their affiliated persons and do not own any stock or other securities issued by the Advisor or the Funds’ principal underwriter.
These Trustees are not Interested Persons of the Trust and are referred to herein as “Independent Trustees.” Kirk Lehneis
(the “Interested Trustee”) is an interested person of the Trust as that term is defined under Section 2(a) (19)
of the 1940 Act because of his affiliation with the Advisor.
There is an Audit
Committee and Nominating Committee of the Board, each of which is chaired by an Independent Trustee and comprised solely of Independent
Trustees. The Committee chair for each is responsible for running the Committee meeting, formulating agendas for those meetings, and coordinating
with management to serve as a liaison between the Independent Trustees and management on matters within the scope of the responsibilities
of such Committee as set forth in its Board- approved charter. There is a Valuation Committee, which is comprised of the Independent Trustees
and representatives of the Advisor to take action in connection with the valuation of portfolio securities held by a Fund in accordance
with the Board-approved Valuation Procedures. The Board has determined that this leadership structure is appropriate given the specific
characteristics and circumstances of the Funds. The Board made this determination in consideration of, among other things, the fact that
the Independent Trustees constitute a majority of the Board, the assets under management of the Funds, the number of portfolios overseen
by the Board and the total number of trustees on the Board.
Independent
Trustees |
|
|
|
Name
and
Year of Birth(1) |
Position(s) Held
with
Trust |
Term
of Office and
Length of Time
Served(2) |
Principal
Occupation(s)
During Past 5 Years |
Number
of
Portfolios in Fund
Complex
Overseen by
Trustee(3) |
Other Directorships Held by
Trustee
During Past 5 Years |
|
|
|
|
|
|
Reena
Aggarwal, 1957 |
Trustee
Chair |
Since August 2008
Since January
2018 |
Vice Provost of Faculty (2016 to present), Georgetown
University, Robert E. McDonough Professor (2003 to present) and Professor of Finance, McDonough School of Business, Georgetown
University (2000 to present); Director, Georgetown Center for Financial Markets and Policy (2010 to present); Co-Chair of Board,
Social Innovations and Public Service Fund, Georgetown University (2012 to 2014). |
21 |
FBR & Co. (investment
banking) (2011 to 2017); Cohen & Steers (asset management) (2017 to present);
Director, Brightwood Capital Advisors, L.P. (private
equity investment) (2013 to present); Nuveen Churchill BDC (2019 to present).). |
Michael A.
Pignataro, 1959 |
Trustee |
Since
April 2015 |
Retired;
formerly, Director, Credit Suisse Asset Management (2001 to 2012); and Chief Financial Officer, Credit Suisse Funds (1996 to 2013). |
21 |
The
New Ireland Fund, Inc. (closed-end fund) (2015 to present). |
Paul D.
Schaeffer, 1951 |
Trustee |
Since
April 2015 |
President,
ASP (dba Aspiring Solution Partners) (financial services consulting) (2013 to present); Consultant and Executive Advisor, Aquiline
Capital Partners LLC (private equity investment) (2014 to present). |
21 |
Management
Board Member, RIA in a Box LLC (financial services consulting) (2018 to present); Context Capital Funds (mutual fund trust) (2 Portfolios)
(2014 to 2018); Management Board Member, Altegris Investments, LLC (registered broker-dealer) (2016 to 2018); Management Board Member,
AssetMark Inc. (financial services consulting) (2016 to 2017); PopTech! (conference operator) (2012 to 2016); Board Member, Pathways
Core Training (non-profit) (2019 to present); Board Member, Center for Collaborative Investigative Journalism (non-profit) (2020-present). |
Interested
Trustee |
Name and
Year of Birth(1) |
Position(s) Held
with
Trust |
Term
of Office
and Length of
Time Served(2) |
Principal
Occupation(s) During
Past 5 Years |
Number
of
Portfolios in Fund
Complex
Overseen by
Trustee(3) |
Other Directorships Held by
Trustee
During Past 5 Years |
|
|
|
|
|
|
Kirk
C. Lehneis, 1974(4) |
Trustee,
President and Principal |
Since
January 2018 |
Chief
Operating Officer and Senior Managing Director, New York Life Investment Management LLC (since 2016); Chief Executive Officer, IndexIQ
Advisors LLC (since 2018); Chairman of the Board, NYLIM Service Company LLC (since September 2017); President, MainStay DefinedTerm
Municipal Opportunities Fund, MainStay Funds, MainStay Funds Trust, and MainStay VP Funds Trust (since September 2017). |
21 |
None. |
Officers |
|
|
|
Names
and Year of Birth(1) |
Position(s) Held
with Trust |
Term
of Office and
Length of Time Served (2) |
Principal
Occupation(s) During Past 5 Years |
Jonathan
Zimmerman, 1982 |
Executive
Vice President |
Since
April 2018 |
Chief
Operating Officer, IndexIQ Advisors (2018 to present); Managing Director, New York Life Investments LLC (2018 to present); Director,
New York Life Investment Management LLC (2015 to 2018); Vice President, Morgan Stanley (2007 to 2015). |
Adefolahan
Oyefeso, 1974 |
Treasurer,
Principal Financial Officer and Principal Accounting Officer |
Since
April 2018 |
Vice
President of Operations & Finance, IndexIQ Advisors (2015 to present); Director of the Fund Administration Client Service
Department at The Bank of New York Mellon (2007 to 2015). |
Matthew
V. Curtin, 1982 |
Secretary
and Chief Legal Officer |
Since
June 2015 |
Secretary
and Chief Legal Officer, IndexIQ Advisors, IndexIQ Trust, IndexIQ ETF Trust and IndexIQ Active ETF Trust (June 2015
to January 2017); Associate General Counsel, New York Life Insurance Company (since February 2015); Associate, Dechert
LLP (2007 to 2015). |
Kevin
M. Bopp, 1969 |
Chief
Compliance Officer |
Since June 2021 |
Chief
Compliance Officer, IndexIQ ETF Trust and IndexIQ Active ETF Trust (since 2021); Head of Investments Compliance, New York Life
Investments (since 2019); Chief Compliance Officer, IndexIQ Advisors (since 2017); Chief Compliance Officer, IndexIQ ETF
Trust and IndexIQ Active ETF Trust (2017 to 2019) Vice President and Chief Compliance Officer, The MainStay Funds, MainStay Funds
Trust, MainStay MacKay DefinedTerm Municipal Opportunities Fund and MainStay VP Funds Trust (2014 to 2019). |
| (1) | The address of each Trustee or officer is c/o IndexIQ Advisors, 51 Madison Avenue, New York, New York
10010. |
| (2) | Trustees and Officers serve until their successors are duly elected and qualified. |
| (3) | The Fund is part of a “fund complex”
as defined in the 1940 Act. The fund complex includes all operational open-end funds (including
all of their portfolios) advised by the Advisor and any funds that have an investment advisor
that is an affiliated person the Advisor. |
| (4) | Mr. Lehneis is an “interested person” of the Trust (as that term is defined in the 1940
Act) because of his affiliations with the Advisor. |
The Board
met 5 times during the fiscal year ended April 30, 2021.
Description of Standing Board Committees
Audit Committee.
The principal responsibilities of the Audit Committee are the appointment, compensation and oversight of the Trust’s independent
auditors, including the resolution of disagreements regarding financial reporting between Trust management and such independent auditors.
The Audit Committee’s responsibilities include, without limitation, to (i) oversee the accounting and financial reporting
processes of the Trust and its internal control over financial reporting and, as the Committee deems appropriate, to inquire into the
internal control over financial reporting of certain third-party service providers; (ii) oversee the quality and integrity of the
each funds’ financial statements and the independent audits thereof; (iii) oversee, or, as appropriate, assist Board oversight
of, the Trust’s compliance with legal and regulatory requirements that relate to the Trust’s accounting and financial reporting,
internal control over financial reporting and independent audits; (iv) approve prior to appointment the engagement of the Trust’s
independent auditors and, in connection therewith, to review and evaluate the qualifications, independence and performance of the Trust’s
independent auditors; and (v) act as a liaison between the Trust’s independent auditors and the full Board. The Board has
adopted a written charter for the Audit Committee. All of the Independent Trustees serve on the Trust’s Audit Committee. During
the fiscal year ended April 30, 2021, the Audit Committee met 4 times.
Nominating Committee.
The Nominating Committee has been established to: (i) assist the Board in matters involving mutual fund governance and industry
practices; (ii) select and nominate candidates for appointment or election to serve as Trustees who are not “interested persons”
of the Trust or its Advisor or distributor (as defined by the 1940 Act); and (iii) advise the Board of Trustees on ways to improve
its effectiveness. All of the Independent Trustees serve on the Nominating Committee. As stated above, each Trustee holds office for
an indefinite term until the occurrence of certain events. In filling Board vacancies, the Nominating Committee will consider nominees
recommended by shareholders. Nominee recommendations should be submitted to the Trust at its mailing address stated in the Fund’s
Prospectus and should be directed to the attention of the IndexIQ ETF Trust Nominating Committee. During the fiscal year ended April 30,
2021, the Nominating Committee met 1 time.
Valuation Committee.
The Valuation Committee shall oversee the implementation of the Trust’s Valuation Procedures. The Valuation Committee shall make
fair value determinations on behalf of the Board as specified in the Valuation Procedures. The Valuation Committee has appointed the
Advisor Fair Valuation Committee to deal in the first instance with questions that arise or cannot be resolved under the Valuation Procedures.
All of the Independent Trustees serve on the Trust’s Valuation Committee. During the fiscal year ended April 30, 2021, the
Valuation Committee met 4 times.
Individual Trustee Qualifications
The Trust has
concluded that each of the Trustees should serve on the Board because of their ability to review and understand information about the
Trust and the funds provided to them by management, to identify and request other information they may deem relevant to the performance
of their duties, to question management and other service providers regarding material factors bearing on the management and administration
of the funds, and to exercise their business judgment in a manner that serves the best interests of each funds’ shareholders. The
Trust has concluded that each of the Trustees should serve as a Trustee based on their own experience, qualifications, attributes and
skills as described below.
The Trust has
concluded that Ms. Aggarwal should serve as trustee of the Trust and as an audit committee financial expert because of the experience
she has gained as a professor of finance, deputy dean at Georgetown University’s McDonough School of Business and Director of the
Georgetown Center for Financial Markets and Policy, her service as trustee for another mutual fund family, the experience she has gained
serving as trustee of the Trust since 2008 and her general expertise with respect to financial matters and accounting principles.
The Trust has
concluded that Mr. Pignataro should serve as trustee of the Trust and as an audit committee financial expert because of the experience
he has gained as a businessman and, in particular, his prior service in the financial services industry as a Director of Credit Suisse
Asset Management and Chief Financial Officer of the Credit Suisse Funds.
The Trust has
concluded that Mr. Schaeffer should serve as trustee of the Trust because of his experience in the financial services industry, including
his experience as a director of and service provider to investment companies.
The Trust has
concluded that Mr. Lehneis should serve as trustee of the Trust because of the experience he has gained as President of the MainStay
Funds, Chief Operating Officer of New York Life Investment Management LLC and President of IndexIQ Advisors, his knowledge of and experience
in the financial services industry and the experience he has gained serving as Chairman of the Board of New York Life Investment Management
LLC since 2017.
Trustee Ownership of Shares
Listed below for
each Trustee is a dollar range of securities beneficially owned in the Trust together with the aggregate dollar range of equity securities
in all registered investment companies overseen by each Trustee that are in the same family of investment companies as the Trust, as
of December 31, 2020. As of the December 31, 2020, IQ Chaikin U.S. Dividend Achievers ETF and IQ S&P U.S. Preferred
Stock Low Volatility High Dividend ETF have not yet commenced operations.
Name of Trustee |
Fund Name |
Dollar Range of Equity
Securities in the Funds |
Aggregate Dollar Range of Equity
Securities in All Registered
Investment Companies Overseen by
Trustees in Family of Investment
Companies(1) |
Reena Aggarwal |
None |
None |
None |
Michael Pignataro |
None |
None |
None |
Paul Schaeffer |
IQ Merger Arbitrage ETF
IQ Hedge Multi-Strategy Tracker ETF |
$10,001-$50,000
$50,001-$100,000 |
$50,0001 - $100,000 |
Kirk Lehneis(2) |
None |
None |
None |
| (1) | The fund complex includes all operational
open-end funds (including all of their portfolios) advised by the Advisor and any funds that
have an investment advisor that is an affiliated person of the Advisor. |
| (2) | Mr. Lehneis is an “interested person” of the Trust (as that term is defined in the 1940
Act) because of his affiliations with the Advisor. |
Board Compensation
Effective, October 1,
2020, each Independent Trustee receives from the Fund Complex, either directly or indirectly, an annual retained of $52,000. Prior to
October 1, 2020, each Independent Trustee received from the Fund Complex, either directly or indirectly, an annual retainer of $46,000.
In addition, as the Chair of the Board, Ms. Aggarwal receives an annual stipend of $35,000; as Audit Committee chair, Mr. Pignataro
receives an annual stipend of $10,000; and as Valuation Committee chair, Mr. Schaeffer receives an annual stipend of $10,000. In
addition, the Independent Trustees are reimbursed for all reasonable travel expenses relating to their attendance at the Board Meetings.
The following table sets forth certain information with respect to the compensation of each Trustee for the fiscal year ended April 30,
2021:
Name and Position |
Pension
or Retirement
Benefits Accrued As Part
of Trust Expenses |
Estimated
Annual Benefits
Upon Retirement |
Total
Compensation From Trust
and Fund Complex Paid to
Trustees(1) |
Reena
Aggarwal, Trustee |
N/A |
N/A |
$84,500 |
Michael
Pignataro, Trustee |
N/A |
N/A |
$59,500 |
Paul
Schaeffer, Trustee |
N/A |
N/A |
$59,500 |
Kirk
C. Lehneis, Trustee, President and Principal Executive Officer (2) |
None |
None |
None |
| (1) | The fund complex includes all operational
open-end funds (including all of their portfolios) advised by the Advisor and any funds that
have an investment advisor that is an affiliated person of the Advisor. |
| (2) | Mr. Lehneis is an “interested person” of the Trust (as that term is defined in the 1940
Act) because of his affiliations with the Advisor. |
Code of Ethics
The Trust, its
Advisor and principal underwriter have each adopted a code ethics under Rule 17j-1 of the 1940 Act that permit personnel subject
to their particular codes of ethics to invest in securities, including securities that may be purchased or held by the Fund.
PROXY VOTING POLICIES
The Board believes
that the voting of proxies on securities held by the Funds is an important element of the overall investment process. As such, the Board
has delegated responsibility for decisions regarding proxy voting for securities held by each Fund to the Advisor. The Advisor will vote
such proxies in accordance with its proxy policies and procedures, a summary of which is included in Appendix A to this Statement of Additional
Information. The Board will periodically review each Fund’s proxy voting record.
The Trust is
required to disclose annually the Funds’ complete proxy voting record on Form N-PX covering the period July 1 through
June 30 and file it with the SEC no later than August 31 of each year. The Fund’s Form N-PX will be available at
no charge upon request by calling 1-888-474-7725. It will also be available on the SEC’s website at www.sec.gov.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF
SECURITIES
Although the Trust
does not have information concerning the beneficial ownership of shares held in the names of Depository Trust Company (“DTC”)
participants (“DTC Participants”), as of July 31, 2021 the name and percentage ownership of each DTC Participant that
owned of record 5% or more of the outstanding shares of a Fund is set forth in the table below. As of the
date of this SAI, IQ
Chaikin U.S. Dividend Achievers ETF and IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF have not yet commenced operations
and information is not presented for such Funds.
Fund
Name |
DTC
Participants |
Percentage of Ownership
(rounded to the nearest
whole percentage) |
IQ
Hedge Multi-Strategy Tracker ETF |
Morgan Stanley Smith Barney LLC
1300 Thames St. 6th Floor
Baltimore, MD 21231 |
30.56% |
|
Charles Schwab & Co., Inc.
2423 E Lincoln Drive
Phoenix, AZ 85016-1215 |
17.32% |
|
National Financial Services LLC
499 Washington Blvd.
Jersey City, NJ 07310 |
13.49% |
|
American Enterprise Investment Services
Inc.
901 Third Ave. South
Minneapolis, MN 55474
|
5.98% |
IQ
Hedge Macro Tracker ETF |
Stifel Nicolaus & Company, Incorporated
501 North Broadway
St. Louis, Missouri 63102 |
29.28% |
|
Bank of America
200 North College Street
Charlotte, NC 28255 |
23.26% |
|
TD Ameritrade
4700 Alliance Gateway Freeway
Fort Worth, TX 76177
|
13.36% |
|
National Financial Services LLC
499 Washington Blvd.
Jersey City, NJ 07310
|
6.97% |
|
BNP Paribas
AXA Equitable Bldg.
787 7th Ave.
New York, NY 10019
|
5.77% |
IQ
Hedge Market Neutral Tracker ETF |
Charles Schwab & Co., Inc.
2423 E Lincoln Drive
Phoenix, AZ 85016-1215 |
63.04% |
|
TD Ameritrade
1005 North Ameritrade Place Bellevue, NE 68005-4245
|
15.63% |
|
Morgan Stanley Smith Barney LLC
1300 Thames St. 6th Floor
Baltimore, MD 21231 |
7.83% |
IQ
Hedge Long/Short Tracker ETF |
TD Ameritrade
4700 Alliance Gateway Freeway
Fort Worth, TX 76177
|
39.72% |
|
Charles Schwab & Co., Inc.
2423 E Lincoln Drive
Phoenix, AZ 85016-1215
|
21.71% |
|
National Financial Services LLC
499 Washington Blvd.
Jersey City, NJ 07310
|
15.85% |
Fund
Name |
DTC
Participants |
Percentage of Ownership
(rounded to the nearest
whole percentage) |
|
The Northern Trust Company
801 S. Canal St.
Attn: Capital Structures C1N
Chicago, IL 60607 |
15.67% |
IQ
Hedge Event-Driven Tracker ETF |
TD Ameritrade
4700 Alliance Gateway Freeway
Fort Worth, TX 76177 |
41.97% |
|
Charles Schwab & Co., Inc.
2423 E Lincoln Drive
Phoenix, AZ 85016-1215
|
18.05% |
|
National Financial Services LLC
499 Washington Blvd.
Jersey City, NJ 07310
|
16.72% |
|
Wells Clearing, LLC
2801 Market Street
St. Louis, MO 63103
|
7.74% |
IQ
Real Return ETF |
Charles Schwab & Co., Inc.
2423 E Lincoln Drive
Phoenix, AZ 85016-1215 |
90.91% |
IQ
Merger Arbitrage ETF |
Charles Schwab & Co., Inc.
2423 E Lincoln Drive
Phoenix, AZ 85016-1215 |
25.98% |
|
TD Ameritrade
4700 Alliance Gateway Freeway
Fort Worth, TX 76177
|
14.29% |
|
National Financial Services LLC
499 Washington Blvd.
Jersey City, NJ 07310
|
11.57% |
|
American Enterprise Investment Services
Inc.
901 Third Ave. South
Minneapolis, MN 55474 |
8.71% |
|
The Northern Trust Company
801 S. Canal St.
Attn: Capital Structures C1N
Chicago, IL 60607
|
7.57% |
|
Morgan Stanley Smith Barney LLC
1300 Thames St 6th Floor
Baltimore, MD 21231
|
5.34% |
IQ
Global Resources ETF |
Merrill Lynch, Pierce, Fenner &
Smith Inc.
4804 Deerlake Dr. E.
Jacksonville, FL 32246 |
17.59%
|
|
Wells Clearing, LLC
2801 Market Street
St. Louis, MO 63103 |
15.44% |
|
Charles Schwab & Co., Inc.
2423 E Lincoln Drive
Phoenix, AZ 85016-1215 |
11.47% |
|
National Financial Services LLC
499 Washington Blvd.
Jersey City, NJ 07310 |
10.27% |
Fund
Name |
DTC
Participants |
Percentage of Ownership
(rounded to the nearest
whole percentage) |
|
Morgan Stanley Smith Barney LLC
1300 Thames St 6th Floor
Baltimore, MD 21231 |
8.82% |
|
Pershing LLC
One Pershing Plaza
Jersey City, NJ 07399 |
7.92% |
|
TD Ameritrade
4700 Alliance Gateway Freeway
Fort Worth, TX 76177 |
5.68% |
IQ
50 Percent Hedged FTSE International ETF |
JP Morgan Chase Bank, Nat’l Association
14201 Dallas Parkway
Dallas, TX 75254 |
49.28% |
|
UBS Financial Services
1000 Harbour Blvd.
Weehawken, NJ 07086 |
9.76% |
|
Merrill Lynch, Pierce, Fenner & Smith Inc.
4804 Deerlake Dr. E.
Jacksonville, FL 32246 |
7.78% |
|
Morgan Stanley Smith Barney LLC
1300 Thames St 6th Floor
Baltimore, MD 21231 |
7.26% |
|
Charles Schwab & Co., Inc.
2423 E Lincoln Drive
Phoenix, AZ 85016-1215 |
5.90% |
IQ
Chaikin U.S. Large Cap ETF |
JP Morgan Chase Bank, Nat’l
Association
14201 Dallas Parkway
Dallas, TX 75254
|
98.31%
|
IQ
Chaikin U.S. Small Cap ETF |
JP Morgan Chase Bank, Nat’l
Association
14201 Dallas Parkway
Dallas, TX 75254 |
80.31% |
IQ
500 International ETF |
JP Morgan Chase Bank, Nat’l
Association
14201 Dallas Parkway
Dallas, TX 75254 |
99.19% |
IQ Candriam ESG US Equity
ETF
|
JP Morgan Chase Bank, Nat’l
Association
14201 Dallas Parkway
Dallas, TX 75254 |
96.88% |
IQ Candriam ESG International
Equity ETF
|
JP Morgan Chase Bank, Nat’l
Association
14201 Dallas Parkway
Dallas, TX 75254 |
94.56% |
IQ
Healthy Hearts ETF |
The Bank of NY Mellon
535 William Penn Place
Suite 153-0400
Pittsburgh, PA 15259
|
79.62%
|
|
JP Morgan Chase Bank, Nat’l
Association
14201 Dallas Parkway
Dallas, TX 75254 |
13.90% |
The Advisor is an affiliate and subsidiary
of New York Life Investment Management LLC (“NYLIM”) and of New York Life Insurance & Annuity Corporation (“NYLife”).
As of July 31, 2021, NYLIM and NYLife owned Shares of the Funds as set
forth below. NYLIM and NYLife own Shares of
the Funds on their own behalf or on behalf of funds or accounts managed by NYLIM or NYLife.
New
York Life Investment Management LLC |
Fund
Name |
Percentage
of Ownership (rounded to the
nearest whole percentage) |
IQ
500 International ETF |
7% |
IQ
50 Percent Hedged FTSE International ETF |
6% |
IQ
Chaikin U.S. Small Cap ETF |
5% |
IQ
Chaikin U.S. Large Cap ETF |
9% |
IQ
Candriam ESG International Equity ETF |
6% |
IQ
Candriam ESG US Equity ETF |
11% |
IQ
Healthy Hearts ETF |
1% |
MANAGEMENT SERVICES
The following information supplements and should
be read in conjunction with the section in the Prospectus entitled “Management.”
Investment Advisor
IndexIQ Advisors LLC, the Advisor, serves as investment
advisor to the Funds and has overall responsibility for the general management and administration of the Trust, pursuant to the Investment
Advisory Agreement between the Trust and the Advisor (the “Advisory Agreement”). Under the Advisory Agreement, the Advisor,
subject to the supervision of the Board, provides an investment program for each Fund and is responsible for the investment of the Fund’s
assets in conformity with the stated investment objective and principal investment policies of each Fund. The Advisor is responsible for
placing purchase and sale orders and providing continuous supervision of the investment portfolio of each of the Funds. The Advisor also
arranges for the provision of distribution, transfer agency, custody, administration and all other services necessary for the Funds to
operate.
Section 15(a) of
the 1940 Act requires that all contracts pursuant to which persons serve as investment advisors to investment companies be approved by
shareholders. As interpreted, this requirement also applies to the appointment of subadvisors to the Fund. The Advisor and the Fund have
obtained an exemptive order (the “Order”) from the SEC permitting the Advisor, on behalf of the Fund and subject to the approval
of the Board, including a majority of the Independent Trustees, to hire or terminate unaffiliated subadvisors and to modify any existing
or future subadvisory agreement with unaffiliated subadvisors without shareholder approval. This authority is subject to certain conditions.
The Fund will notify shareholders and provide them with certain information required by the Order within 90 days of hiring a new subadvisor.
The Fund’s sole shareholder has approved the use of the Order.
The Advisory
Agreement will remain in effect with respect to the Funds from year to year provided such continuance is specifically approved at least
annually by (i) the vote of a majority of the Funds’ outstanding voting securities or a majority of the Trustees of the Trust,
and (ii) the vote of a majority of the Independent Trustees of the Trust, cast in person at a meeting called for the purpose of voting
on such approval.
The Advisory Agreement will terminate automatically
if assigned (as defined in the 1940 Act). The Advisory Agreement is also terminable at any time without penalty by the Board of Trustees
of the Trust or by vote of a majority of the outstanding voting securities of the Funds on 60 days’ written notice to the Advisor
or by the Advisor on 60 days’ written notice to the Trust.
Pursuant to the Advisory Agreement, the Advisor
is entitled to receive a fee, payable monthly in arrears, at the annual rate for each of the Funds based on a percentage of each Fund’s
average daily net assets as follows:
Fund Name | |
Management Fee | |
IQ Hedge Multi-Strategy Tracker ETF | |
| 0.75 | % |
IQ Hedge Macro Tracker ETF | |
| 0.75 | % |
IQ Hedge Market Neutral Tracker ETF | |
| 0.75 | % |
IQ Hedge Long/Short Tracker ETF | |
| 0.75 | % |
IQ Hedge Event-Driven Tracker ETF | |
| 0.75 | % |
IQ Real Return ETF | |
| 0.48 | % |
IQ Merger Arbitrage ETF | |
| 0.75 | % |
IQ Global Resources ETF | |
| 0.30 | % |
IQ U.S. Real Estate Small Cap ETF | |
| 0.69 | % |
IQ 50 Percent Hedged FTSE International ETF | |
| 0.35 | % |
IQ Chaikin U.S. Dividend Achievers ETF | |
| 0.35 | % |
IQ Chaikin U.S. Large Cap ETF | |
| 0.25 | % |
IQ Chaikin U.S. Small Cap ETF | |
| 0.35 | % |
IQ Candriam ESG US Equity ETF | |
| 0.09 | % |
IQ Candriam ESG International Equity ETF | |
| 0.15 | % |
IQ S&P U.S. Preferred Stock Low Volatility High Dividend
ETF | |
| 0.35 | % |
IQ 500 International ETF | |
| 0.25 | % |
IQ Healthy Hearts ETF | |
| 0.45 | % |
In consideration of the fees paid with respect
to the Funds, the Advisor has agreed to pay all expenses of the Trust, except (i) brokerage and other transaction expenses, including
taxes; (ii) extraordinary legal fees or expenses, such as those for litigation or arbitration; (iii) compensation and expenses
of the Independent Trustees, counsel to the Independent Trustees, and the Trust’s chief compliance officer; (iv) extraordinary
expenses; (v) distribution fees and expenses paid by the Trust under any distribution plan adopted pursuant to Rule 12b-1 under
the 1940 Act; and (vi) the advisory fee payable to the Advisor hereunder.
In addition to
providing advisory services under the Advisory Agreement, the Advisor also: (i) supervises all non-advisory operations of the Funds;
(ii) provides personnel to perform such executive, administrative and clerical services as are reasonably necessary to provide effective
administration of the Funds; (iii) arranges for (a) the preparation of all required tax returns, (b) the preparation and
submission of reports to existing shareholders, (c) the periodic updating of prospectuses and statements of additional information
and (d) the preparation of reports to be filed with the SEC and other regulatory authorities; (iv) maintains the Funds’
records; and (v) provides office space and all necessary office equipment and services.
For the last three fiscal years ended April 30,
advisory fees paid to the Advisor were as follows:
Fund Name | |
Commencement
of Operations | |
Fees Paid to the
Advisor for the
Fiscal Year Ended
2019 | | |
Fees Paid to the
Advisor for the
Fiscal Year
Ended 2020 | | |
Fees Paid to the
Advisor for the
Fiscal Year
Ended 2021 | |
IQ Hedge Multi-Strategy Tracker ETF | |
3/25/09 | |
$ | 8,587,212 | | |
$ | 6,283,817 | | |
$ | 5,774,948 | |
IQ Hedge Macro Tracker ETF | |
6/9/09 | |
$ | 47,173 | | |
$ | 35,558 | | |
$ | 31,216 | |
IQ Hedge Market Neutral Tracker ETF | |
10/4/12 | |
$ | 104,012 | | |
$ | 111,287 | | |
$ | 132,640 | |
IQ Hedge Long/Short Tracker ETF | |
03/24/15 | |
$ | 50,223 | | |
$ | 53,170 | | |
$ | 84,252 | |
IQ Hedge Event-Driven Tracker ETF | |
03/24/15 | |
$ | 24,917 | | |
$ | 43,345 | | |
$ | 54,959 | |
IQ Real Return ETF | |
10/27/09 | |
$ | 253,347 | | |
$ | 264,346 | | |
$ | 248,708 | |
IQ Global Resources ETF | |
10/27/09 | |
$ | 1,663,902 | | |
$ | 832,807 | | |
$ | 166,784 | |
IQ Merger Arbitrage ETF | |
11/17/09 | |
$ | 5,468,960 | | |
$ | 6,882,342 | | |
$ | 5,409,284 | |
IQ U.S. Real Estate Small Cap ETF | |
6/14/11 | |
$ | 542,471 | | |
$ | 432,887 | | |
$ | 294,480 | |
IQ 50 Percent Hedged FTSE International ETF | |
7/22/15 | |
$ | 1,576,189 | | |
$ | 917,703 | | |
$ | 977,173 | |
IQ Chaikin U.S. Small Cap ETF | |
5/16/17 | |
$ | 1,545,749 | | |
$ | 733,348 | | |
$ | 525,573 | |
IQ Chaikin U.S. Large Cap ETF | |
12/13/17 | |
$ | 912,282 | | |
$ | 649,586 | | |
$ | 664,355 | |
IQ 500 International ETF | |
12/13/18 | |
$ | 57,555 | | |
$ | 374,289 | | |
$ | 594,716 | |
IQ Candriam ESG US Equity ETF | |
12/17/19 | |
| N/A | | |
$ | 2,134 | | |
$ | 202,743 | |
IQ Candriam ESG International Equity ETF | |
12/17/19 | |
| N/A | | |
$ | 6,699 | | |
$ | 181,840 | |
IQ Healthy Hearts ETF | |
1/14/21 | |
| N/A | | |
| N/A | | |
$ | 8,062 | |
As of the date of this SAI, IQ Chaikin
U.S. Dividend Achievers ETF and IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF have not commenced operations and, therefore,
have not yet incurred any advisory fees under the Advisory Agreement.
Fee Waiver Agreement
The Advisor has entered into a Fee Waiver
Agreement with certain Funds under which it has contractually agreed to waive a portion of its management fee equal a percentage of the
average daily net assets of such Funds until August 31, 2022, as follows:
Fund Name | |
Management
Fee Waiver | |
IQ Hedge Multi-Strategy Tracker ETF | |
| 0.22 | % |
IQ Hedge Macro Tracker ETF | |
| 0.35 | % |
IQ Hedge Market Neutral Tracker ETF | |
| 0.35 | % |
IQ Hedge Event-Driven Tracker ETF | |
| 0.35 | % |
IQ Real Return ETF | |
| 0.28 | % |
IQ Hedge Long/Short Tracker ETF | |
| 0.35 | % |
The Advisor may
voluntarily waive any portion of its advisory fee from time to time, and may discontinue or modify any such voluntary limitations in the
future at its discretion.
Expense Limitation Agreement
The Advisor has entered into an Expense Limitation
Agreement (“Expense Limitation Agreement”) with certain Funds under which it has agreed to waive or reduce its fees and to
assume other expenses of the Funds in an amount that limits "Total Annual Fund Operating Expenses" (exclusive of interest,
taxes, brokerage commissions and other expenses that are capitalized in accordance with generally accepted accounting principles, dividends,
interest and brokerage expenses paid on short sales, acquired und fees and expenses, extraordinary expenses, if any, and payments, if
any, under the Rule 12b-1 Plan) to not more than the percentage of the average daily net assets of such Funds until August 31,
2022 as follows:
Fund Name | |
Total Annual Fund
Operating Expenses
After Expense
Waiver/Reimbursement | |
IQ 50 Percent Hedged FTSE International ETF | |
| 0.20 | % |
IQ Chaikin U.S. Dividend Achievers ETF | |
| 0.35 | % |
IQ Chaikin U.S. Small Cap ETF | |
| 0.35 | % |
IQ Chaikin U.S. Large Cap ETF | |
| 0.25 | % |
IQ S&P U.S. Preferred Stock Low Volatility High Dividend
ETF | |
| 0.35 | % |
IQ 500 International ETF | |
| 0.25 | % |
IQ Candriam ESG US Equity ETF | |
| 0.09 | % |
IQ Candriam ESG International Equity ETF | |
| 0.15 | % |
IQ Global Resources ETF | |
| 0.30 | % |
IQ Healthy Hearts ETF | |
| 0.45 | % |
For the last three fiscal years ended April 30,
the Advisor waived fees and reimbursed expenses as follows:
Fund Name | |
Commencement
of Operations | |
Fees
Waived/
Expenses
Reimbursed
2019 | | |
Fees
Waived/
Expenses
Reimbursed
2020 | | |
Fees
Waived/
Expenses
Reimbursed
2021 | |
IQ Hedge Multi-Strategy Tracker ETF | |
3/25/09 | |
$ | 2,522,422 | | |
$ | 1,843,444 | | |
$ | 1,693,984 | |
IQ Hedge Macro Tracker ETF | |
6/9/09 | |
| N/A | | |
$ | 10,619 | | |
$ | 14,568 | |
IQ Hedge Market Neutral Tracker ETF | |
10/4/12 | |
| N/A | | |
$ | 34,906 | | |
$ | 61,898 | |
IQ Hedge Long/Short Tracker ETF | |
3/24/15 | |
| N/A | | |
$ | 17,906 | | |
$ | 39,186 | |
IQ Hedge Event-Driven Tracker ETF | |
3/24/15 | |
| N/A | | |
$ | 15,348 | | |
$ | 25,527 | |
IQ Real Return ETF | |
10/27/09 | |
$ | 62,966 | | |
$ | 154,202 | | |
$ | 145,079 | |
IQ Chaikin U.S. Large Cap ETF | |
12/13/17 | |
$ | 33,909 | | |
$ | 28,673 | | |
$ | 27,601 | |
IQ Chaikin U.S. Small Cap ETF | |
5/16/17 | |
$ | 41,982 | | |
$ | 22.718 | | |
$ | 15,291 | |
IQ 50 Percent Hedged FTSE International ETF | |
7/22/15 | |
$ | 716,212 | | |
$ | 426,263 | | |
$ | 447,510 | |
IQ 500 International ETF | |
12/13/18 | |
$ | 2,515 | | |
$ | 17,185 | | |
$ | 24,997 | |
IQ Candriam ESG US Equity ETF | |
12/17/19 | |
| N/A | | |
$ | 399 | | |
$ | 21,676 | |
IQ Candriam ESG International Equity ETF | |
12/17/19 | |
| N/A | | |
$ | 597 | | |
$ | 12,439 | |
IQ Healthy Hearts ETF | |
1/14/21 | |
| N/A | | |
| N/A | | |
$ | 231 | |
The Advisor currently expects that the contractual
agreement will continue from fiscal year-to-fiscal year, provided such continuance is approved by the Board on behalf of the Funds. The
terms of the Expense Limitation Agreements may be revised upon renewal. The Board may terminate the Expense Limitation Agreements at any
time. The Advisor may also terminate the Expense Limitation Agreements at the end of the then-current term upon not less than 90 days’
notice to the Trust.
Portfolio Managers
The Advisor utilizes
a team of investment professionals acting together to manage the assets of the Funds. The team meets regularly to review portfolio holdings
and to discuss purchase and sale activity. The team adjusts holdings in the portfolio as they deem appropriate in the pursuit of the Fund’s
investment objective.
The portfolio
managers who are currently jointly and primarily responsible for the day-to-day management of the Funds’ portfolios are Greg Barrato
and James Harrison.
Greg Barrato
joined the Advisor as Vice President in November 2010 and has been Senior Vice President of the Advisor since August 2013 and
portfolio manager of the Funds since February 2011. Prior to joining the Advisor, Mr. Barrato served as Head Global Equity Trader
and Trader at Lucerne Capital Management, LLC from 2008 to 2010 and as Assistant Trader and Operations Manager at ReachCapital Management,
LP from 2004 to 2008. Mr. Barrato is a graduate of the University of Connecticut.
James Harrison
has been a member of the portfolio management team of the Advisor since 2015 and has been a Vice President of the Advisor since June 2018.
Prior to joining the Advisor, Mr. Harrison served as a New York Stock Exchange member Floor Broker and Equity Sales Trader for Cuttone
and Company from 2010 to 2015. Mr. Harrison is a graduate of St. Lawrence University.
Other Accounts
Managed
The following tables
provide additional information about other portfolios or accounts managed by the Funds’ portfolio managers as of April 30,
2021.
Total number
of other accounts managed by the portfolio managers within each category below and the total assets in the accounts managed within each
category below.
| |
Registered
Investment Companies | | |
Other
Pooled Investment Vehicles | | |
Other
Accounts | |
Portfolio Manager | |
Number
of Accounts | | |
Total
Assets ($mm) | | |
Number
of Accounts | | |
Total
Assets ($mm) | | |
Number
of Accounts | | |
Total
Assets ($mm) | |
Greg Barrato | |
| 17 | | |
$ | 3,833 | | |
| 0 | | |
$ | 0 | | |
| 0 | | |
$ | 0 | |
James Harrison | |
| 17 | | |
$ | 3,833 | | |
| 0 | | |
$ | 0 | | |
| 0 | | |
$ | 0 | |
Material Conflicts of Interest.
Because the portfolio
managers manage multiple portfolios for multiple clients, the potential for conflicts of interest exists. Each portfolio manager may manage
portfolios having substantially the same investment style as the Funds. However, the portfolios managed by a portfolio manager may not
have portfolio compositions identical to those of the Funds managed by the portfolio manager due, for example, to specific investment
limitations or guidelines present in some portfolios or accounts, but not others. The portfolio managers may purchase securities for one
portfolio and not another portfolio, and the performance of securities purchased for one portfolio may vary from the performance of securities
purchased for other portfolios. A portfolio manager may place transactions on behalf of other accounts that are directly or indirectly
contrary to investment decisions made on behalf of the Fund, or make investment decisions that are similar to those made for the Fund,
both of which have the potential to adversely impact the Fund depending on market conditions. For example, a portfolio manager may purchase
a security in one portfolio while appropriately selling that same security in another portfolio. In addition, some of these portfolios
have fee structures that are or have the potential to be higher than the advisory fees paid by the Funds, which can cause potential conflicts
in the allocation of investment opportunities between the Funds and the other accounts. However, the compensation structure for portfolio
managers does not generally provide incentive to favor one account over another because that part of a manager’s bonus based on
performance is not based on the performance of one account to the exclusion of others. There are many other factors considered in determining
the portfolio managers’ bonus and there is no formula that is applied to weight the factors listed (see “Compensation for
the Portfolio Managers”). In addition, current trading practices do not allow the Subadvisors to intentionally favor one portfolio
over another as trades are executed as trade orders are received. Portfolios’ rebalancing dates also generally vary between fund
families. Program trades created from the portfolio rebalance are executed at market on close.
Compensation for the Portfolio
Managers
The portfolio
managers receive a base pay and an annual bonus incentive based on performance against individual and organizational unit objectives,
as well as overall Advisor results. The plan is designed to align manager compensation with investors' goals by rewarding portfolio managers
who obtain results consistent with the objectives of the products under the individual’s management. In addition, these employees
also participate in a long-term incentive program. The long-term incentive plan is eligible to senior level employees and is designed
to reward profitable growth in company value. An
employee's total compensation package is reviewed periodically to ensure that they are
competitive relative to the external marketplace.
Ownership of Securities
The portfolio
managers do not own Shares of the Funds.
OTHER SERVICE PROVIDERS
Fund Administrator, Custodian,
Transfer Agent and Securities Lending Agent
The Bank of New
York Mellon (“BNY Mellon”) serves as the Funds’ administrator, custodian, transfer agent and securities lending agent.
BNY Mellon’s principal address is 240 Greenwich Street, New York, New York 10286. Under the Fund Administration and Accounting Agreement,
BNY Mellon provides necessary administrative, legal, tax, accounting services, and financial reporting for the maintenance and operations
of the Trust and each Fund. In addition, BNY Mellon makes available the office space, equipment, personnel and facilities required to
provide such services.
BNY Mellon supervises
the overall administration of the Trust and the Funds, including, among other responsibilities, assisting in the preparation and filing
of documents required for compliance by the Funds with applicable laws and regulations and arranging for the maintenance of books and
records of the Funds. BNY Mellon provides persons satisfactory to the Board to serve as officers of the Trust.
BNY Mellon is
the principal operating subsidiary of The Bank of New York Mellon Corporation.
BNY Mellon serves
as custodian of the Funds’ assets (the “Custodian”). Under the Custody Agreement with the Trust, BNY Mellon maintains
in separate accounts cash, securities and other assets of the Trust and the Funds, keeps all necessary accounts and records, and provides
other services. BNY Mellon is required, upon order of the Trust, to deliver securities held by BNY Mellon and to make payments for securities
purchased by the Trust for the Funds. Under the Custody Agreement, BNY Mellon is also authorized to appoint certain foreign custodians
or foreign custody managers for Fund investments outside the U.S.
The Custodian
has agreed to (1) make receipts and disbursements of money on behalf of the Funds; (2) collect and receive all income and other
payments and distributions on account of each Fund’s portfolio investments; (3) respond to correspondence from Fund shareholders
and others relating to its duties; and (4) make periodic reports to each Fund concerning the Funds’ operations. The Custodian
does not exercise any supervisory function over the purchase and sale of securities. The Advisor pays the Custodian fees out of the Advisor’s
unified management fee.
BNY Mellon serves
as transfer agent and dividend paying agent for the Funds (the “Transfer Agent”). The Transfer Agent has agreed to (1) issue
and redeem Shares of the Funds; (2) make dividend and other distributions to shareholders of the Funds; (3) respond to correspondence
by Fund shareholders and others relating to its duties; (4) maintain shareholder accounts; and (5) make periodic reports to
the Funds. The Advisor pays the Transfer Agent out of the Advisor’s unified management fee.
As compensation
for the foregoing services, BNY Mellon receives certain out of pocket costs, transaction fees and asset based fees, which are accrued
daily and paid monthly by the Trust.
The Advisor paid
BNY Mellon the following amounts for the last three fiscal years ended April 30 for the foregoing services:
Fund Name | |
Commencement
of Operations | |
Administration,
Custody and
Transfer
Agency Fees
for Fiscal Year
Ended
2019 | | |
Administration,
Custody and
Transfer Agency
Fees for Fiscal
Year Ended
2020 | | |
Administration,
Custody and
Transfer Agency
Fees for Fiscal
Year Ended
2021 | |
IQ Hedge Multi-Strategy Tracker
ETF | |
3/25/09 | |
$ | 443,553 | | |
$ | 311,350 | | |
$ | 282,548 | |
IQ Hedge Macro Tracker ETF | |
6/9/09 | |
$ | 17,942 | | |
$ | 18,510 | | |
$ | 17,964 | |
IQ Hedge Market Neutral Tracker ETF | |
10/4/12 | |
$ | 19,033 | | |
$ | 22.075 | | |
$ | 21,487 | |
IQ Hedge Long/Short Tracker ETF | |
3/24/15 | |
$ | 13,789 | | |
$ | 16,563 | | |
$ | 17,633 | |
IQ Hedge Event-Driven Tracker ETF | |
03/24/15 | |
$ | 11,382 | | |
$ | 13,961 | | |
$ | 14,521 | |
IQ Real Return ETF | |
10/27/09 | |
$ | 29,422 | | |
$ | 37,559 | | |
$ | 33,228 | |
IQ Merger Arbitrage ETF | |
11/17/09 | |
$ | 281,278 | | |
$ | 411,118 | | |
$ | 292,937 | |
IQ Global Resources ETF | |
10/27/09 | |
$ | 179,867 | | |
$ | 119,680 | | |
$ | 73,703 | |
IQ U.S. Real Estate Small Cap ETF | |
6/14/11 | |
$ | 46,856 | | |
$ | 49,002 | | |
$ | 44,128 | |
IQ Chaikin U.S. Large Cap ETF | |
12/13/17 | |
$ | 144,346 | | |
$ | 105,170 | | |
$ | 102,278 | |
IQ Chaikin U.S. Small Cap ETF | |
5/16/17 | |
$ | 200,889 | | |
$ | 114.144 | | |
$ | 103,705 | |
IQ 50 Percent Hedged FTSE International
ETF | |
7/22/15 | |
$ | 460,485 | | |
$ | 320,690 | | |
$ | 281,131 | |
IQ 500 International ETF | |
12/13/18 | |
$ | 21,728 | | |
$ | 154,579 | | |
$ | 184,297 | |
IQ Candriam ESG US Equity ETF | |
12/17/19 | |
| N/A | | |
$ | 9,957 | | |
$ | 102,926 | |
IQ Candriam ESG International Equity ETF | |
12/17/19 | |
| N/A | | |
$ | 25,372 | | |
$ | 158,811 | |
IQ Healthy Hearts ETF | |
1/14/21 | |
| N/A | | |
| N/A | | |
$ | 6,650 | |
As of the date of this SAI,
the IQ Chaikin U.S. Dividend Achievers ETF and IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF have not commenced operations
and, therefore, have not yet paid any administration fees.
Securities Lending
BNY Mellon also
serves as the Trust’s securities lending agent pursuant to a Securities Lending Authorization Agreement. As compensation for providing
securities lending services, BNY Mellon receives a portion of the income earned by the Fund on collateral investments in connection with
the lending program.
The dollar amounts
of income and fees and compensation paid to all service providers related to those Funds that participated in securities lending activities
during the most recent fiscal year were as follows:
Fund Name | |
IQ Hedge
Multi-
Strategy Tracker
ETF | | |
IQ Hedge
Macro
Tracker ETF | | |
IQ Hedge
Market
Neutral Tracker ETF | | |
IQ Hedge
Long/Short Tracker ETF | | |
IQ Hedge
Event-
Driven Tracker
ETF | |
Gross
Income1 | |
$ | 222,181 | | |
$ | 850 | | |
$ | 5,424 | | |
$ | 8,221 | | |
$ | 1,915 | |
Revenue
Split2 | |
$ | 392,202 | | |
$ | 2,364 | | |
$ | 11,034 | | |
$ | 4,616 | | |
$ | 2,322 | |
Cash Collateral Management Fees | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Administrative Fees | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Indemnification Fees | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Net Rebate Paid / Received | |
$ | 1,085,238 | | |
$ | 7,050 | | |
$ | 31,368 | | |
$ | 7,177 | | |
$ | 5,829 | |
Other Fees | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Aggregate Fees for Securities Lending Activities | |
| (693,036 | ) | |
$ | (4,686 | ) | |
$ | (20,334 | ) | |
$ | (2,561 | ) | |
$ | (3,507 | ) |
Net Income from Securities Lending Activities | |
$ | 915,216 | | |
$ | 5,536 | | |
$ | 25,758 | | |
$ | 10,781 | | |
$ | 5,422 | |
Fund Name | |
IQ Real
Return ETF | | |
IQ Healthy
Hearts
ETF | | |
IQ Merger
Arbitrage ETF | | |
IQ Global
Resources ETF | |
Gross
Income1 | |
$ | 12,925 | | |
$ | 7 | | |
$ | 31,498 | | |
$ | 1,121 | |
Revenue
Split2 | |
$ | 26,494 | | |
$ | 5 | | |
$ | 185,868 | | |
$ | 1,380 | |
Cash Collateral Management Fees | |
| - | | |
| - | | |
| - | | |
| - | |
Administrative Fees | |
| - | | |
| - | | |
| - | | |
| - | |
Indemnification Fees | |
| - | | |
| - | | |
| - | | |
| - | |
Net Rebate Paid / Received | |
$ | 75,402 | | |
$ | 12 | | |
$ | 588,071 | | |
$ | 3,396 | |
Other Fees | |
| - | | |
| - | | |
| - | | |
| - | |
Aggregate Fees for Securities Lending Activities | |
| (48,907 | ) | |
$ | (6 | ) | |
$ | (402,203 | ) | |
$ | (2,016 | ) |
Net Income from Securities Lending Activities | |
$ | 61,832 | | |
$ | 13 | | |
$ | 433,701 | | |
$ | 3,228 | |
Fund Name | |
IQ U.S.
Real Estate
Small Cap ETF | | |
IQ
500
International
ETF | | |
IQ 50
Percent
Hedged FTSE
International ETF | | |
IQ Candriam
ESG
International
Equity ETF | | |
IQ Candriam
ESG
US Equity ETF | |
Gross
Income1 | |
$ | 2,826 | | |
$ | 15,047 | | |
$ | 12,042 | | |
$ | 2,229 | | |
$ | 11,152 | |
Revenue
Split2 | |
$ | 1,940 | | |
$ | 60,851 | | |
$ | 15,078 | | |
$ | 4,035 | | |
$ | 3,658 | |
Cash Collateral Management Fees | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Administrative Fees | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Indemnification Fees | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Net Rebate Paid / Received | |
$ | 3,644 | | |
$ | 187,804 | | |
$ | 38,233 | | |
$ | 11,227 | | |
$ | 1,051 | |
Other Fees | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Aggregate Fees for Securities Lending Activities | |
| (1,704 | ) | |
$ | (126,952 | ) | |
$ | (23,154 | ) | |
$ | (7,192 | ) | |
$ | (2,607 | ) |
Net Income from Securities Lending Activities | |
$ | 4,530 | | |
$ | 141,999 | | |
$ | 35,196 | | |
$ | 9,421 | | |
$ | 8,545 | |
Fund Name | |
IQ Chaikin
U.S.
Large Cap ETF | | |
IQ Chaikin
U.S.
Small Cap ETF | |
Gross
Income1 | |
$ | 7,418 | | |
$ | 24,556 | |
Revenue
Split2 | |
$ | 2,268 | | |
$ | 54,740 | |
Cash Collateral Management Fees | |
| - | | |
| - | |
Administrative Fees | |
| - | | |
| - | |
Indemnification Fees | |
| - | | |
| - | |
Net Rebate Paid / Received | |
$ | 142 | | |
$ | 157,944 | |
Other Fees | |
| - | | |
| | |
Aggregate Fees for Securities Lending Activities | |
$ | 2,126 | | |
$ | (103,205 | ) |
Net Income from Securities Lending Activities | |
$ | 5,293 | | |
$ | 127,761 | |
| 1 | Gross income includes income from cash collateral reinvestment. |
| 2 | Revenue split represents the share of revenue generated by the securities lending program and paid to
BNYM. |
Pursuant to an
agreement between the Trust, on behalf of the Funds, and BNY Mellon, the Funds may lend their portfolio securities to certain qualified
borrowers. As securities lending agent for the Funds, BNY Mellon administers the Funds’ securities lending program. The services
provided to the Funds by BNY Mellon with respect to the Funds’ securities lending activities during the most recent fiscal year
included, among other things: locating approved borrowers and arranging loans; collecting fees and rebates due to a Fund from a borrower;
monitoring daily the value of the loaned securities and collateral and marking to market the daily value of securities on loan; collecting
and maintaining necessary collateral; managing cash collateral, which may include investing the cash collateral in approved investment
pools; managing qualified dividends; negotiating loan terms; recordkeeping and account servicing; monitoring dividend activity and proxy
votes relating to loaned securities; and arranging for return of loaned securities to a Fund at loan termination.
During the most
recent fiscal year end, none of the other Funds covered in this SAI engaged in securities lending activities, and, as a result, did not
earn income or incur costs or expenses associated with such activities.
Index Providers
IndexIQ is the
index provider for the Funds (except the IQ 50 Percent Hedged FTSE International ETF, the IQ Chaikin Funds and IQ S&P U.S. Preferred
Stock Low Volatility High Dividend ETF). IndexIQ is in the business of developing and maintaining financial indexes, including the Underlying
Indexes. Presently, IndexIQ has developed and is maintaining a number of indexes in addition to the Underlying Indexes. IndexIQ has
entered into an index licensing agreement (the “Licensing Agreement”) with the Advisor to allow the Advisor’s use of
the Underlying Indexes for the operation of the Funds. The Advisor has, in turn, entered into a sublicensing agreement (the “Sub-Licensing
Agreement”) with the Trust to allow the Funds to utilize the Underlying Indexes. The Funds pay no fees to IndexIQ or the Advisor
under the Sub-Licensing Agreement.
For the IQ 50
Percent Hedged FTSE International ETF, the index provider is FTSE International Ltd. (“FTSE”). FTSE developed and sponsors
the Underlying Index. The Advisor has entered into a licensing agreement with FTSE to license the Underlying Index on behalf of the Fund.
The Advisor has entered into a Sub-Licensing Agreement with the Trust to allow the Fund to utilize an Underlying Index. The Fund pays
no fees under the Sub-Licensing Agreement.
For the IQ Chaikin
Funds, the index provider is Nasdaq, Inc. Nasdaq developed and sponsors each Underlying Index. The Advisor has entered into a licensing
agreement with Nasdaq to license the Underlying Indices on behalf of the IQ Chaikin Funds. The Advisor has entered into a Sub-Licensing
Agreement with the Trust to allow a Fund to utilize an Underlying Index. A Fund pays no fees under the Sub-Licensing Agreement.
For the IQ S&P
U.S. Preferred Stock Low Volatility High Dividend ETF, the index provider is S&P Opco, LLC. The Advisor has entered into a licensing
agreement with S&P Opco to license the Underlying Index on behalf of the Fund. The Advisor has entered into a Sub-Licensing Agreement
with the Trust to allow a Fund to utilize an Underlying Index. A Fund pays no fees under the Sub-Licensing Agreement.
For the IQ Candriam Funds
and IQ Healthy Hearts ETF, Solactive AG is the Index calculator and benchmark administrator. The value of an Underlying Index is calculated
every weekday (“Business Day”) based on the prices on the respective Exchanges on which the Component Securities are listed.
For each update, the most recent prices of all Component Securities are used. Prices of Component Securities not listed in U.S. Dollars
are converted using spot foreign exchange rates quoted by Reuters. The daily index closing value is calculated using WM/Reuters closing
spot rates from 4:00 pm London time. Should there be no current price available on Reuters, the most recent price or the Trading Price
(as defined below) on Reuters for the preceding Trading Day (as defined below) is used in the calculation. The Underlying Indices are
calculated continuously every Business Day from 9:00 am to 10:30 pm, CET, with updates every 15 seconds. In the event that data cannot
be provided to Reuters or to the pricing services of Boerse Stuttgart AG, an Underlying Index cannot be distributed.
Any incorrect
calculation is adjusted on a retrospective basis. At the time of the calculation and publication of an Underlying Index, the prices used
for the calculation may already have changed. A committee (the “Committee”) composed of staff from Solactive AG is responsible
for any amendments to the rules; provided that the starting universe for the composition of an Underlying Index and its relevant specifications
are established by IndexIQ. The composition of an Underlying Index is determined according to the procedures outlined in the Underlying
Index rulebook. Solactive AG may consult IndexIQ for decisions regarding the composition of an Underlying Index. All specifications and
information relevant for calculating an Underlying Index are made available on Solactive AG’s website. The financial instrument
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 an Underlying Index and/or Underlying Index trade mark or an Underlying
Index price at any time or in any other respect. The Underlying Indices are calculated and published by Solactive AG. Solactive AG uses
its best efforts to ensure that the Underlying Indices are calculated correctly. Irrespective of its obligations towards the Issuer, Solactive
AG has no obligation to point out errors in an Underlying Index to third parties including but not limited to investors and/or financial
intermediaries of the financial instrument. Neither publication of an Underlying Index by Solactive AG nor the licensing of an Underlying
Index or Underlying Index trade mark for the purpose of use in connection with the financial
instrument constitutes a recommendation by
Solactive AG to invest capital in said financial instrument nor does it in any way represent an assurance or opinion of Solactive AG with
regard to any investment in this financial instrument.
Index Consultant
For the IQ Candriam Funds and IQ Healthy Hearts
ETF, Candriam serves as the index consultant to IndexIQ for the Underlying Indices. In its role as index consultant, Candriam assists
IndexIQ with the development, calculation and maintenance of the Underlying Indices. Candriam is an investment advisor with experience
with ESG strategies. IndexIQ pays Candriam for these services. The IQ Candriam Funds pay no fees to Candriam.
Distributor
ALPS Distributors, Inc., the Distributor,
is located at 1290 Broadway, Suite 1100, Denver, Colorado 80203. The Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and a member of the Financial Industry Regulatory Authority (“FINRA”).
NYLIFE Distributors LLC has entered into a Services Agreement with ALPS to market the Funds.
Shares will be continuously offered for sale by
the Trust through the Distributor only in whole Creation Units, as described in the section of this SAI entitled “Purchase and Redemption
of Creation Units.” The Distributor also acts as an agent for the Trust. The Distributor will deliver a prospectus to authorized
participants purchasing Shares in Creation Units and will maintain records of both orders placed with it and confirmations of acceptance
furnished by it. The Distributor has no role in determining the investment policies of the Funds or which securities are to be purchased
or sold by the Funds.
As compensation for the foregoing services, the
Distributor receives certain out-of-pocket and per Fund flat fees, which are accrued daily and paid monthly by the Advisor.
The Board of Trustees has adopted a Distribution
and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with its Distribution and Service Plan, each Fund is authorized
to pay an amount up to 0.10% of its average daily net assets each year to finance activities primarily intended to result in the sale
of Creation Units of each Fund or the provision of investor services. No Rule 12b-1 fees are currently paid by the Funds and there
are no plans to impose these fees. However, in the event Rule 12b-1 fees are charged in the future, they will be paid out of the
respective Fund’s assets, and over time these fees will increase the cost of your investment and they may cost you more than certain
other types of sales charges.
Under the Service and Distribution Plan, and as
required by Rule 12b-1, the Trustees will receive and review after the end of each calendar quarter a written report provided by
the Distributor of the amounts expended under the Plan, if any, and the purpose for which such expenditures were made.
The Advisor and its affiliates may, out of their
own resources, pay amounts to third parties for distribution or marketing services on behalf of the Funds. The making of these payments
could create a conflict of interest for a financial intermediary receiving such payments.
Independent Registered Public Accounting
Firm
PricewaterhouseCoopers LLP, located at 300 Madison
Avenue, New York, NY 10017, serves as the independent registered public accounting firm to the Trust. PricewaterhouseCoopers LLP will
perform the annual audit of the Funds’ financial statements.
Ernst & Young LLP, located at 5 Times
Square, New York, New York 10036, serves as tax advisor to the Trust and will prepare the Funds’ federal, state and excise tax returns,
and advise the Trust on matters of accounting and federal and state income taxation.
Legal Counsel
Chapman and Cutler, LLP, located at 1717 Rhode
Island Avenue, N.W., Washington, D.C. 20036, serves as legal counsel to the Trust and the Funds.
CERTAIN CONFLICTS OF INTEREST
IndexIQ and the Advisor have established policies,
procedures, systems and infrastructure to address any potential conflicts of interest that may arise because of IndexIQ, an affiliate
of the Advisor, serving as index provider for the Funds (except for the IQ 50 Percent Hedged Funds, the IQ Chaikin Funds and IQ S&P
U.S. Preferred Stock Low Volatility High Dividend ETF).
IndexIQ maintains policies and procedures designed
to limit or prohibit communication between the employees of IndexIQ with ultimate responsibility for the Underlying Indexes (the “Index
Group”) and the employees of the Advisor with respect to issues related to the maintenance, calculation and reconstitution of the
Underlying Indexes (the “Policies and Procedures”). Furthermore, IndexIQ has retained an unaffiliated third party to
calculate each Underlying Index (the “Calculation Agent”).
Changes to the constituents of the Underlying
Indexes made by IndexIQ or the Calculation Agent will be disclosed by IndexIQ and published on its website at newyorklifeinvestments.com.
Any such IndexIQ announcements or website disclosures to the public will be made in such a manner that none of the IndexIQ employees
outside of the Index Group, the Advisor, or a Fund, is notified of actions prior to the general investing public.
IndexIQ, as index provider, has adopted Policies
and Procedures prohibiting its employees from disclosing or using any non- public information acquired through his or her employment,
except as appropriate in connection with the rendering of services to the administration of the Underlying Indexes. Also, IndexIQ
has adopted Policies and Procedures that prohibit and are designed to prevent anyone, including the members of the Index Group, from disseminating
or using nonpublic information about pending changes to Underlying Indexes constituents or Index Methodology. These policies specifically
prohibit anyone, including the members of the Index Group, from sharing any non-public information about an Underlying Index with any
personnel of the Advisor responsible for management of the related Fund or any affiliated person. The Advisor also has adopted policies
that prohibit personnel responsible for the management of a Fund from sharing any non-public information about the management of the Fund
with any personnel of the Index Group, especially those persons responsible for creating, monitoring, calculating, maintaining or disseminating
its Underlying Index.
In addition, IndexIQ has retained an unaffiliated
third-party Calculation Agent to calculate and maintain the Underlying Indexes on a daily basis. The Calculation Agent will be instructed
to not communicate any non-public information about the Underlying Indexes to anyone, and expressly not to the personnel of the Advisor
responsible for the management of the Funds.
The Index Group personnel responsible for creating
and monitoring the Underlying Indexes, the personnel of the Calculation Agent responsible for calculating and maintaining the Underlying
Indexes, and the portfolio managers responsible for day-to-day portfolio management of the Fund are employees of separate legal organizations
and the Calculation Agent personnel are located in physically separate offices from the Index Group personnel and portfolio managers.
The Calculation Agent is not, and will not be, affiliated with IndexIQ or the Advisor.
Members of the Index Group will not have access
to paper or electronic files used by the Advisor in connection with their portfolio management activities. Neither the Advisor will have
access to the computer systems used by the Calculation Agent, nor to the computer systems used by the Index Group to monitor, calculate
and rebalance the Underlying Indexes. The Advisor has also adopted Policies and Procedures and a Code of Ethics that require, among other
things, any personnel responsible for the management of a Fund and any investment account to (i) pre-clear all non-exempt personal
securities transactions with a designated senior employee of the Advisor, and (ii) require reporting of securities transactions to
such designated employee in accordance with Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Investment Advisers Act
of 1940, as amended (the “Advisers Act”).
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Board,
the Advisor is responsible for decisions to buy and sell securities for the Funds, the selection of brokers and dealers to effect the
transactions, and the negotiation of brokerage commissions. The Funds may execute brokerage or other agency transactions through registered
broker-dealers who receive compensation for their services in conformity with the 1940 Act, the Exchange Act of 1934, and the rules and
regulations thereunder. Compensation may also be paid in connection with riskless principal transactions (on Nasdaq or over the-counter
securities and securities listed on an exchange) and agency Nasdaq or over-the-counter transactions executed with an electronic communications
network or an alternative trading system.
During the fiscal year ended April 30,
2021, commissions for securities transactions to brokers which provided research services to the Funds were as follows:
Fund Name | |
Value
of Securities Transactions | | |
Brokerage
Commissions | |
IQ Hedge Multi-Strategy Tracker
ETF | |
$ | 2,522,515,492 | | |
$ | 803,496 | |
IQ Hedge Macro Tracker ETF | |
$ | 8,750,644 | | |
$ | 2,771 | |
IQ Hedge Market Neutral Tracker ETF | |
$ | 41,444,045 | | |
$ | 12,491 | |
IQ Real Return ETF | |
$ | 68,936,279 | | |
$ | 13,591 | |
IQ Merger Arbitrage ETF | |
$ | 3,650,699,705 | | |
$ | 1,459,436 | |
IQ Global Resources ETF | |
$ | 44,496,673 | | |
$ | 21,879 | |
IQ U.S. Real Estate Small Cap ETF | |
$ | 32,327,275 | | |
$ | 11,883 | |
IQ Hedge Long/Short Tracker ETF | |
$ | 34,305,918 | | |
$ | 10,213 | |
IQ Hedge Event Driven Tracker ETF | |
$ | 10,077,490 | | |
$ | 3,011 | |
IQ 50 Percent Hedged FTSE International
ETF | |
$ | 65,242,053 | | |
$ | 38,891 | |
IQ Chaikin U.S. Small Cap ETF | |
$ | 237,788,564 | | |
$ | 48,582 | |
IQ Chaikin U.S. Large Cap ETF | |
$ | 378,361,695 | | |
$ | 50,790 | |
IQ 500 International ETF | |
$ | 46,303,453 | | |
$ | 27,704 | |
IQ Candriam
ESG US Equity ETF(1) | |
$ | 91,723,923 | | |
$ | 16,219 | |
IQ Candriam ESG International Equity ETF | |
$ | 56,379,808 | | |
$ | 33,599 | |
IQ Healthy Hearts
ETF(1) | |
$ | 1,843,507 | | |
$ | 685 | |
(1) Commenced operations on January 14,
2021.
During the fiscal year ended April 30, 2020,
commissions for securities transactions to brokers which provided research services to the Funds were as follows:
Fund Name | |
Value
of Securities Transactions | | |
Brokerage
Commissions | |
IQ Hedge Multi-Strategy Tracker
ETF | |
$ | 2,786,043,824 | | |
$ | 911,792 | |
IQ Hedge Macro Tracker ETF | |
$ | 9,883,147 | | |
$ | 3,160 | |
IQ Hedge Market Neutral Tracker ETF | |
$ | 23,182,110 | | |
$ | 6,245 | |
IQ Real Return ETF | |
$ | 74,732,013 | | |
$ | 24,059 | |
IQ Merger Arbitrage ETF | |
$ | 4,204,722,768 | | |
$ | 1,645,657 | |
IQ Global Resources ETF | |
$ | 186,059,914 | | |
$ | 101,382 | |
IQ U.S. Real Estate Small Cap ETF | |
$ | 32,082,290 | | |
$ | 9,528 | |
IQ Hedge Long/Short Tracker ETF | |
$ | 19,187,034 | | |
$ | 6,577 | |
IQ Hedge Event Driven Tracker ETF | |
$ | 8,759,216 | | |
$ | 2,659 | |
IQ 50 Percent Hedged FTSE International ETF | |
$ | 45,949,597 | | |
$ | 25,916 | |
IQ Chaikin U.S. Small Cap ETF | |
$ | 178,588,099 | | |
$ | 40,409 | |
IQ Chaikin U.S. Large Cap ETF | |
$ | 304,046,605 | | |
$ | 62,411 | |
IQ 500 International ETF | |
$ | 46,199,625 | | |
$ | 27,301 | |
IQ Candriam
ESG US Equity ETF(1) | |
$ | 1,383,820 | | |
$ | 349 | |
IQ Candriam
ESG International Equity ETF(1) | |
$ | 2,437,167 | | |
$ | 1,315 | |
(1) Commenced
operations on December 17, 2019.
During the fiscal year ended April 30, 2019,
commissions for securities transactions to brokers which provided research services to the Funds were as follows:
Fund Name | |
Value
of Securities Transactions | | |
Brokerage
Commissions | |
IQ Hedge Multi-Strategy Tracker
ETF | |
$ | 2,834,912,125 | | |
$ | 947,116 | |
IQ Hedge Macro Tracker ETF | |
$ | 10,361,493 | | |
$ | 3,278 | |
IQ Hedge Market Neutral Tracker ETF | |
$ | 30,064,403 | | |
$ | 10,215 | |
IQ Real Return ETF | |
$ | 102,442,682 | | |
$ | 27,806 | |
IQ Merger Arbitrage ETF | |
$ | 3,412,220,395 | | |
$ | 1,429,710 | |
IQ Global Resources ETF | |
$ | 527,837,049 | | |
$ | 280,979 | |
IQ U.S. Real Estate Small Cap ETF | |
$ | 36,784,600 | | |
$ | 11,035 | |
IQ Hedge Long/Short Tracker ETF | |
$ | 12,718,476 | | |
$ | 4,429 | |
IQ Hedge Event Driven Tracker ETF | |
$ | 3,234,924 | | |
$ | 1,313 | |
IQ 50 Percent Hedged FTSE International ETF | |
$ | 113,424,932 | | |
$ | 65,999 | |
IQ Chaikin U.S. Small Cap ETF | |
$ | 496,690,254 | | |
$ | 71,694 | |
IQ Chaikin U.S. Large Cap ETF | |
$ | 366,498,030 | | |
$ | 76,105 | |
IQ 500 International ETF | |
$ | 2,254,344 | | |
$ | 1,178 | |
| (1) | Commenced operations on December 18, 2018 |
| (2) | Commended operations on December 13, 2018 |
As of the date of this SAI, IQ Chaikin
U.S. Dividend Achievers ETF and IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF have not commenced operations and, therefore,
not entered into securities transactions.
The Funds are required to identify any securities
of the Funds’ regular broker-dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents held by the Funds as of
the end of most recent fiscal year. As of April 30, 2021, the following Funds held the following securities of their regular broker-dealers
or their parents:
Fund Name | |
Broker/Dealer | |
Market
Value | |
IQ Candriam ESG US Equity ETF | |
Morgan Stanley | |
$ | 1,902,200 | |
DISCLOSURE OF PORTFOLIO HOLDINGS
Portfolio Disclosure Policy
The Trust has adopted a Portfolio Holdings Policy
(the “Policy”) designed to govern the disclosure of Fund portfolio holdings and the use of material non-public information
about Fund holdings. The Policy applies to all officers, employees and agents of the Funds, including the Advisor. The Policy is designed
to ensure that the disclosure of information about each Fund’s portfolio holdings is consistent with applicable legal requirements
and otherwise in the best interest of each Fund. 57 As an ETF, information about each Fund’s portfolio holdings is made available
on a daily basis in accordance with the provisions of any Order of the SEC applicable to the Exchange and other applicable SEC regulations,
orders and no-action relief. Such information typically reflects all or a portion of a Fund’s anticipated portfolio holdings as
of the next Business Day (as defined below in the section entitled, “Purchase and Redemption of Creation Units”). This information
is used in connection with the creation and redemption process and is disseminated on a daily basis through the facilities of the Exchange,
the National Securities Clearing Corporation (the “NSCC”) and/or third-party service providers.
Each Fund will disclose on the Funds’
website (newyorklifeinvestments.com) at the start of each Business Day the identities and quantities of the securities and other assets
held by each Fund that will form the basis of the Fund’s calculation of its NAV on that Business Day. The portfolio holdings so
disclosed will be based on information as of the close of business on the prior Business Day and/or trades that have been completed prior
to the opening of business on that Business Day and that are expected to settle on the Business Day. Online disclosure of such holdings
is publicly available at no charge.
Daily access to each Fund’s portfolio holdings
is permitted to personnel of the Advisor, the Distributor and the Funds’ administrator, custodian and accountant and other agents
or service providers of the trust who have need of such information in connection with the ordinary course of their respective duties
to the Funds. The Funds' Chief Compliance Officer may authorize disclosure of portfolio holdings.
Each Fund will disclose its complete portfolio
holdings schedule in public filings with the SEC on a quarterly basis, based on the Fund’s fiscal year, within sixty (60) days of
the end of the quarter, and will provide that information to shareholders, as required by federal securities laws and regulations thereunder.
No person is authorized to disclose a Fund’s
portfolio holdings or other investment positions except in accordance with the Policy. The Trust’s Board reviews the implementation
of the Policy on a periodic basis.
ADDITIONAL INFORMATION CONCERNING SHARES
Organization and Description of
Shares of Beneficial Interest
The Trust is a Delaware statutory trust and registered
investment company. The Trust was organized on July 1, 2008, and has authorized capital of an unlimited number of shares of beneficial
interest of no par value that may be issued in more than one class or series.
Under Delaware
law, the Trust is not required to hold an annual shareholders meeting if the 1940 Act does not require such a meeting. Generally, there
will not be annual meetings of Trust shareholders. If requested by shareholders of at least 10% of the outstanding Shares of the Trust,
the Trust will call a meeting of the Trust’s shareholders for the purpose of voting upon the question of removal of a Trustee and
will assist in communications with other Trust shareholders. Shareholders holding two-thirds of Shares outstanding may remove Trustees
from office by votes cast at a meeting of Trust shareholders or by written consent.
When issued,
Shares are fully-paid, non-assessable, redeemable and freely transferable; provided, however, that Shares may not be redeemed individually,
but only in Creation Units. The Shares do not have preemptive rights or cumulative voting rights, and none of the Shares do not have any
preference to conversion, exchange, dividends, retirements, liquidation, redemption or any other feature. Shares have equal voting rights,
except that, if the Trust creates additional funds, only Shares of that fund may be entitled to vote on a matter affecting that particular
fund. Trust shareholders are entitled to require the Trust to redeem Creation Units if such shareholders are Authorized Participants.
The Declaration of Trust confers upon the Board the power, by resolution, to alter the number of Shares constituting a Creation Unit or
to specify that Shares of the Trust may be individually redeemable. The Trust reserves the right to adjust the stock prices of Shares
to maintain convenient trading ranges for investors. Any such adjustments would be accomplished through stock splits or reverse stock
splits which would have no effect on the net assets of the Funds.
The Trust’s
Declaration of Trust disclaims liability of the shareholders or the officers of the Trust for acts or obligations of the Trust which are
binding only on the assets and property of the Trust. The Declaration of Trust provides for indemnification by the Trust for all loss
and expense of the Funds’ shareholders held personally liable for the obligations of the Trust. The risk of a Trust’s shareholder
incurring financial loss on account of shareholder liability is limited to circumstances in which the Funds
themselves would not be able
to meet the Trust’s obligations and this risk should be considered remote. If a Fund does not grow to a size to permit it to be
economically viable, the Fund may cease operations. In such an event, shareholders may be required to liquidate or transfer their Shares
at an inopportune time and shareholders may lose money on their investment.
Book Entry Only System
The Depositary
Trust Company (“DTC”) will act as securities depositary for the Shares. The Shares of the Funds are represented by global
securities registered in the name of DTC or its nominee and deposited with, or on behalf of, DTC. Except as provided below, certificates
will not be issued for Shares.
DTC has advised
the Trust as follows: DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New
York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform
Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues
and money market instruments (from over 100 countries). DTC was created to hold securities of its participants (the “DTC Participants”)
and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic
computerized book-entry transfers and pledges in accounts of DTC Participants, thereby eliminating the need for physical movement of securities
certificates. DTC Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. DTC is a wholly- owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”).
DTCC is the holding company for DTC, the NSCC and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC
is owned by the users of its regulated subsidiaries. More specifically, DTCC is owned by a number of its DTC Participants and by the New
York Stock Exchange, Inc., the NYSE Alternext U.S. (formerly known as the American Stock Exchange LLC) (the “Alternext”)
and FINRA.
Access to DTC
system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing
corporations that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (“Indirect
Participants”). DTC agrees with and represents to DTC Participants that it will administer its book-entry system in accordance with
its rules and bylaws and requirements of law. Beneficial ownership of Shares will be limited to DTC Participants, Indirect Participants
and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in Shares (owners
of such beneficial interests are referred to herein as “Beneficial Owners”) will be shown on, and the transfer of ownership
will be effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with
respect to Indirect Participants and Beneficial Owners that are not DTC Participants).
Beneficial Owners
will receive from or through DTC Participant a written confirmation relating to their purchase of Shares. The laws of some jurisdictions
may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair the
ability of certain investors to acquire beneficial interests in Shares.
Beneficial Owners
of Shares will not be entitled to have Shares registered in their names, will not receive or be entitled to receive physical delivery
of certificates in definitive form and are not considered the registered holders of the Shares. Accordingly, each Beneficial Owner must
rely on the procedures of DTC, DTC Participants and any Indirect Participants through which such Beneficial Owner holds its interests
in order to exercise any rights of a holder of Shares. The Trust understands that under existing industry practice, in the event the Trust
requests any action of holders of Shares, or a Beneficial Owner desires to take any action that DTC, as the record owner of all outstanding
Shares, is entitled to take, DTC would authorize the DTC Participants to take such action and that the DTC Participants would authorize
the Indirect Participants and Beneficial Owners acting through such DTC Participants to take such action and would otherwise act upon
the instructions of Beneficial Owners owning through them. DTC, through its nominee Cede & Co., is the record owner of all outstanding
Shares.
Conveyance of
all notices, statements and other communications to Beneficial Owners will be effected as follows. DTC will make available to the Trust
upon request and for a fee to be charged to the Trust a listing of Shares holdings of each DTC Participant. The Trust shall inquire of
each such DTC Participant as to the number of Beneficial Owners holding Shares, directly or indirectly, through such DTC Participant.
The Trust will provide each such DTC Participant with copies of such notice, statement or other communication, in such form, number and
at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted
by such DTC Participant, directly or indirectly, to such Beneficial Owners. In addition, the Trust shall pay to each such DTC Participant
a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and
regulatory requirements. Beneficial Owners may wish to take certain steps to augment the transmission to them of notices of significant
events with respect to Shares by providing their names and addresses to the DTC registrar and request that copies of notices be provided
directly to them.
Distributions
of Shares shall be made to DTC or its nominee, Cede & Co., as the registered holder of all Shares. DTC or its nominee, upon receipt
of any such distributions, shall immediately credit DTC Participants’ accounts with payments in amounts proportionate to their respective
beneficial interests in Shares as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and
Beneficial Owners of Shares held through such DTC Participants will be governed by standing instructions and customary practices, as is
now the case with securities held for the accounts of customers in bearer form or registered in a “street name,” and will
be the responsibility of such DTC Participants. The Trust has no responsibility or liability for any aspects of the records relating to
or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such Shares, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between DTC and the
DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through
such DTC Participants.
DTC may determine
to discontinue providing its service with respect to Shares at any time by giving reasonable notice to the Trust and discharging its responsibilities
with respect thereto under applicable law. Under such circumstances, the Trust shall take action either to find a replacement for DTC
to perform its functions at a comparable cost or, if such a replacement is unavailable, to issue and deliver printed certificates representing
ownership of Shares, unless the Trust makes other arrangements with respect thereto satisfactory to the Exchange.
DTC rules applicable to DTC Participants
are on file with the SEC. More information about DTC can be found at www.dtcc.com and www.dtc.org.
PURCHASE AND REDEMPTION OF CREATION UNITS
Creation
The Trust issues
and sells Shares of each Fund only in Creation Units on a continuous basis on any Business Day (as defined below) through the Distributor
at the Shares’ NAV next determined after receipt of an order in proper form. The Distributor processes purchase orders only on a
day that the Exchange is open for trading (a “Business Day”). The Exchange is open for trading Monday through Friday except
for the following holidays: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
Deposit of Securities and Deposit
or Delivery of Cash
The consideration
for purchase of Creation Units of a Fund generally consists of the Deposit Securities for each Creation Unit constituting a substantial
replication, or representation, of the securities included in the relevant Fund’s portfolio as selected by the Advisor (“Fund
Securities”) and the Cash Component computed as described below. Together, the Deposit Securities and the Cash Component constitute
the “Fund Deposit,” which represents the minimum investment amount for a Creation Unit of a Fund.
The Cash Component
serves to compensate the Trust or the Authorized Participant, as applicable, for any differences between the NAV per Creation Unit and
the Deposit Amount (as defined below). The Cash Component is an amount equal to the difference between the NAV of the Shares (per Creation
Unit) and the “Deposit Amount,” an amount equal to the market value of the Deposit Securities. If the Cash Component is a
positive number (i.e., the NAV per Creation Unit exceeds the Deposit Amount), the Authorized Participant will deliver the Cash
Component. If the Cash Component is a negative number (i.e., the NAV per Creation Unit is less than the Deposit Amount), the Authorized
Participant will receive the Cash Component.
In addition,
the Trust reserves the right to permit or require the substitution of an amount of cash (that is a “cash in lieu” amount)
to be added to the Cash Component to replace any Deposit Security which may not be available in sufficient quantity for delivery or that
may not be eligible for transfer through the systems of DTC or the Clearing Process (discussed below) or for other similar reasons. The
Trust also reserves the right to permit or require a “cash in lieu” amount where the delivery of Deposit Securities by the
Authorized Participant (as described below) would be restricted under the securities laws or where delivery of Deposit Securities to the
Authorized Participant would result in the disposition of Deposit Securities by the Authorized Participant becoming restricted under the
securities laws, and in certain other situations.
The Custodian
through the NSCC (see the section of this SAI entitled “Purchase and Redemption of Creation Units—Creation— Procedures
for Creation of Creation Units”), makes available on each Business Day, prior to the opening of business on the Exchange (currently
9:30 a.m. Eastern time), the list of the name and the required number of shares of each Deposit Security to be included in the current
Fund Deposit (based on information at the end of the previous Business Day) for each Fund. This Fund Deposit is applicable, subject to
any adjustments as described below, to orders to effect creations of Creation Units of the Fund until such time as the next-announced
composition of the Deposit Securities is made available.
The identity
and number of shares of the Deposit Securities required for a Fund Deposit for each Fund changes from time to time. In addition, the Trust
reserves the right to permit or require the substitution of an amount of cash (that is a “cash in lieu” amount) to be added
to the Cash Component to replace any Deposit Security that may not be available in sufficient quantity for delivery or that may not be
eligible for transfer through the systems of DTC or the Clearing Process (discussed below) or
for other similar reasons. The Trust also
reserves the right to permit or require a “cash in lieu” amount where the delivery of Deposit Securities by the Authorized
Participant (as described below) would be restricted under the securities laws or where delivery of Deposit Securities to the Authorized
Participant would result in the disposition of Deposit Securities by the Authorized Participant becoming restricted under the securities
laws, and in certain other situations.
In addition to
the list of names and number of securities constituting the current Deposit Securities of a Fund Deposit, the Custodian, through the NSCC,
also makes available on each Business Day the estimated Cash Component, effective through and including the previous Business Day, per
outstanding Creation Unit of the Fund.
Procedures for Creation of Creation
Units
All orders to
create Creation Units must be placed with the Distributor either (1) through Continuous Net Settlement System of the NSCC (the “Clearing
Process”), a clearing agency that is registered with the SEC, by a “Participating Party,” i.e., a broker-dealer
or other participant in the Clearing Process; or (2) outside the Clearing Process by a DTC Participant (see the section of this SAI
entitled “Additional Information Concerning Shares — Book Entry Only System”). In each case, the Participating Party
or the DTC Participant must have executed an agreement with the Distributor with respect to creations and redemptions of Creation Units
(a “Participant Agreement”); and accepted by the Transfer Agent such parties are collectively referred to as “APs”
or “Authorized Participants.” Investors should contact the Distributor for the names of Authorized Participants. All Shares,
whether created through or outside the Clearing Process, will be entered on the records of DTC in the name of Cede & Co. for
the account of a DTC Participant.
Except as described
below, and in all cases subject to the terms of the applicable Participant Agreement, all orders to create Creation Units of a Fund generally
must be received by the Distributor by the time specified in the Participant Agreement and the applicable order form (“Order Time”)
in each case on the date such order is placed for creation of Creation Units to be effected based on the NAV of Shares of the Fund as
next determined after receipt of an order in proper form. Orders consisting of cash only or requesting substitution of a “cash-in-lieu”
amount (collectively, “Custom Orders”) must be received by the Transfer Agent no later than the time specified in the Participant
Agreement and the applicable order form. On days when the Exchange closes earlier than normal (such as the day before a holiday), a Fund
may require orders to create Creation Units, including Custom Orders, to be placed earlier in the day. The date on which an order to
create Creation Units (or an order to redeem Creation Units, as discussed below) is placed is referred to as the “Transmittal Date.”
Orders must be transmitted by an Authorized Participant by telephone, electronic order entry system or other transmission method acceptable
to the Transfer Agent pursuant to procedures set forth in the Participant Agreement. Economic or market disruption or changes, or telephone,
electronic or communication failure may impede the ability to reach the Transfer Agent or an Authorized Participant.
All orders to
create Creation Units from investors who are not Authorized Participants shall be placed with an Authorized Participant in the form required
by such Authorized Participant. In addition, the Authorized Participant may request the investor to make certain representations or enter
into agreements with respect to the order, e.g., to provide for payments of cash, when required. Investors should be aware that
their particular broker may not have executed a Participant Agreement and, therefore, orders to create Creation Units of a Fund have to
be placed by the investor’s broker through an Authorized Participant that has executed a Participant Agreement. In such cases there
may be additional charges to such investor. At any given time, there may be only a limited number of broker-dealers that have executed
a Participant Agreement.
Those placing
orders for Creation Units through the Clearing Process should afford sufficient time to permit proper submission of the order to the Distributor
prior to the Closing Time on the Transmittal Date. Orders for Creation Units that are effected outside the Clearing Process are likely
to require transmittal by the DTC Participant earlier on the Transmittal Date than orders effected using the Clearing Process. Those persons
placing orders outside the Clearing Process should ascertain the deadlines applicable to DTC and the Federal Reserve Bank wire system
by contacting the operations department of the broker or depository institution effectuating such transfer of the Fund Deposit. For more
information about Clearing Process and DTC, see the sections of this SAI entitled “Purchase and Redemption of Creation Units—Creation—Placement
of Creation Orders Using the Clearing Process” and “Purchase and Redemption of Creation Units— Creation—Placement
of Creation Orders Outside the Clearing Process.”
Placement of Creation Orders Using the Clearing Process
The Clearing
Process is the process of creating or redeeming Creation Units through the Continuous Net Settlement System of the NSCC. Fund Deposits
made through the Clearing Process must be delivered through a Participating Party that has executed a Participant Agreement. The Participant
Agreement authorizes the Distributor to transmit through the Custodian to NSCC, on behalf of the Participating Party, such trade instructions
as are necessary to effect the Participating Party’s creation order. Pursuant to such trade instructions to NSCC, the Participating
Party agrees to deliver the Fund Deposit to the Trust, together with such additional information as may be required by the Distributor.
An order to create Creation Units through the Clearing Process is deemed received by the Distributor on the Transmittal Date if (1) such
order is received by the Distributor not later than the Closing Time on such Transmittal Date and (2) all other procedures set forth
in the Participant Agreement are properly followed.
Placement of Creation Orders Outside
the Clearing Process
Fund Deposits
made outside the Clearing Process must be delivered through a DTC Participant that has executed a Participant Agreement. A DTC Participant
who wishes to place an order creating Creation Units to be effected outside the Clearing Process does not need to be a Participating Party,
but such orders must state that the DTC Participant is not using the Clearing Process and that the creation of Creation Units will instead
be effected through a transfer of securities and cash directly through DTC. The Fund Deposit transfer must be ordered by the DTC Participant
on the Transmittal Date in a timely fashion so as to ensure the delivery of the requisite number of Deposit Securities through DTC to
the account of the Fund by no later than 11:00 a.m. Eastern time on the next Business Day following the Transmittal Date (the “DTC
Cut-Off-Time”).
All questions
as to the number of Deposit Securities to be delivered, and the validity, form and eligibility (including time of receipt) for the deposit
of any tendered securities, will be determined by the Trust, whose determination shall be final and binding. The amount of cash equal
to the Cash Component must be transferred directly to the Custodian through the Federal Reserve Bank wire transfer system in a timely
manner so as to be received by the Custodian no later than 2:00 p.m. Eastern time on the next Business Day following the Transmittal
Date. An order to create Creation Units outside the Clearing Process is deemed received by the Distributor on the Transmittal Date if
(1) such order is received by the Distributor not later than the Closing Time on such Transmittal Date and (2) all other procedures
set forth in the Participant Agreement are properly followed. However, if the Custodian does not receive both the required Deposit Securities
and the Cash Component by 11:00 a.m. and 2:00 p.m., Eastern time, respectively, on the next Business Day following the Transmittal
Date, such order will be canceled. Upon written notice to the Distributor, such canceled order may be resubmitted the following Business
Day using a Fund Deposit as newly constituted to reflect the then-current Deposit Securities and Cash Component. The delivery of Creation
Units so created will occur no later than the second Business Day following the day on which the purchase order is deemed received by
the Distributor.
Additional transaction
fees may be imposed with respect to transactions effected through a DTC participant outside the Clearing Process and in the limited circumstances
in which any cash can be used in lieu of Deposit Securities to create Creation Units. See the section of this SAI entitled “Purchase
and Sale of Creation Units—Creation—Creation Transaction Fee.”
Creation Units
may be created in advance of receipt by the Trust of all or a portion of the applicable Deposit Securities. In these circumstances, the
initial deposit will have a value greater than the NAV of the Shares on the date the order is placed in proper form since, in addition
to available Deposit Securities, cash must be deposited in an amount equal to the sum of (1) the Cash Component plus (2) up
to 115% of the then-current market value of the undelivered Deposit Securities (the “Additional Cash Deposit”). The order
shall be deemed to be received on the Business Day on which the order is placed provided that the order is placed in proper form prior
to Closing Time and funds in the appropriate amount are deposited with the Custodian by 11:00 a.m. Eastern time the following Business
Day. If the order is not placed in proper form by Closing Time or funds in the appropriate amount are not received by 11:00 a.m. the
next Business Day, then the order may be deemed to be canceled and the Authorized Participant shall be liable to the Fund for losses,
if any, resulting therefrom. An additional amount of cash shall be required to be deposited with the Trust, pending receipt of the undelivered
Deposit Securities to the extent necessary to maintain the Additional Cash Deposit with the Trust in an amount at least equal up to 115%
of the daily marked-to-market value of the undelivered Deposit Securities. To the extent that undelivered Deposit Securities are not received
by 1:00 p.m. Eastern time on the second Business Day following the day on which the purchase order is deemed received by the Distributor,
or in the event a marked-to- market payment is not made within one Business Day following notification by the Distributor that such a
payment is required, the Trust may use the cash on deposit to purchase the undelivered Deposit Securities. Authorized Participants will
be liable to the Trust and the Fund for the costs incurred by the Trust in connection with any such purchases. These costs will be deemed
to include the amount by which the actual purchase price of the Deposit Securities exceeds the market value of such Deposit Securities
on the day the purchase order was deemed received by the Distributor plus the brokerage and related transaction costs associated with
such purchases. The Trust will return any unused portion of the Additional Cash Deposit once all of the undelivered Deposit Securities
have been properly received by the Custodian or purchased by the Trust and deposited into the Trust. In addition, a transaction fee will
be charged in all cases. See the section of this SAI entitled “Purchase and Redemption of Creation Units—Creation—Creation
Transaction Fee.” The delivery of Creation Units so created will occur no later than the second Business Day following the day on
which the purchase order is deemed received by the Distributor.
Acceptance of Orders for Creation
Units
The Trust reserves
the absolute right to reject a creation order transmitted to it by the Distributor if: (1) the order is not in proper form; (2) the
investor(s), upon obtaining the Shares ordered, would own 80% or more of the currently outstanding Shares of any Fund; (3) the Deposit
Securities delivered are not as disseminated for that date by the Custodian, as described above; (4) acceptance of the Deposit Securities
would have certain adverse tax consequences to the Fund; (5) acceptance of the Fund Deposit would, in the opinion of counsel, be
unlawful; (6) acceptance of the Fund Deposit would otherwise, in the discretion of the Trust or the Advisor, have an adverse effect
on the Trust or the rights of beneficial owners; or (7) there exist circumstances outside the control of the Trust, the Custodian,
the Distributor and the Advisor that make it for all practical purposes impossible to process creation orders. Examples of such circumstances
include acts of God; public service or utility problems such as fires,
floods, extreme weather conditions and power outages resulting
in telephone, telecopy and computer failures; market conditions or activities causing trading halts; systems failures involving computer
or other information systems affecting the Trust, the Advisor, the Distributor, DTC, NSCC, the Custodian or sub-custodian or any other
participant in the creation process and similar extraordinary events. The Distributor shall notify the Authorized Participant of its rejection
of the order. The Trust, the Custodian, any sub-custodian and the Distributor are under no duty, however, to give notification of any
defects or irregularities in the delivery of Fund Deposits nor shall any of them incur any liability for the failure to give any such
notification. All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility
and acceptance for deposit of any securities to be delivered shall be determined by the Trust and the Trust’s determination shall
be final and binding.
Creation Units
typically are issued on a “T+2 basis” (that is two Business Days after trade date).
However, for
the IQ 50 Percent Hedged FTSE International ETF, IQ Real Return ETF, IQ Merger Arbitrage ETF, IQ Global Resources ETF, IQ
500 International ETF, IQ U.S. Real Estate Small Cap ETF, and IQ Candriam ESG US Equity ETF, as discussed in Appendix B, each Fund
reserves the right to settle Creation Unit transactions on a basis other than T+2 in order to accommodate foreign market holiday schedules,
to account for different treatment among foreign and U.S. markets of dividend record dates and ex-dividend dates (that is the last day
the holder of a security can sell the security and still receive dividends payable on the security), and in certain other circumstances.
To the extent
contemplated by a Participant Agreement with the Distributor, the Trust will issue Creation Units to such Authorized Participant notwithstanding
the fact that the corresponding Portfolio Deposits have not been received in part or in whole, in reliance on the undertaking of the Authorized
Participant to deliver the missing Deposit Securities as soon as possible, which undertaking shall be secured by such Authorized Participant’s
delivery and maintenance of collateral having a value equal to 110%, which the Adviser may change from time to time, of the value of the
missing Deposit Securities in accordance with the Trust’s then-effective procedures. Such collateral must be delivered no later
than 2:00 p.m., Eastern time, on the contractual settlement date. The only collateral that is acceptable to the Trust is cash in U.S.
Dollars or an irrevocable letter of credit in form, and drawn on a bank, that is satisfactory to the Trust. The cash collateral posted
by the Authorized Participant may be invested at the risk of the Authorized Participant, and income, if any, on invested cash collateral
will be paid to that Authorized Participant. Information concerning the Trust’s current procedures for collateralization of missing
Deposit Securities is available from the Transfer Agent. The Authorized Participant Agreement will permit the Trust to buy the missing
Deposit Securities at any time and will subject the Authorized Participant to liability for any shortfall between the cost to the Trust
of purchasing such securities and the cash collateral or the amount that may be drawn under any letter of credit.
In certain cases,
Authorized Participants will create and redeem Creation Units on the same trade date. In these instances, the Trust reserves the right
to settle these transactions on a net basis. All questions as to the number of shares of each security in the Deposit Securities and the
validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Trust, and the Trust’s
determination shall be final and binding.
Creation Transaction Fee
Investors will
be required to pay to the Custodian a fixed transaction fee (the “Creation Transaction Fee”) to offset the transfer and other
transaction costs associated with the issuance of Creation Units. The standard creation transaction fee will be the same regardless of
the number of Creation Units purchased by an investor on the applicable Business Day.
When determining
whether to waive the Creation Transaction Fee, the Advisor considers a number of factors including, but not limited to, whether waiving
the Creation Transaction Fee will: facilitate the initial launch of a Fund; reduce the cost of portfolio rebalancing; improve the quality
of the secondary trading market for a Fund's Shares and not result in a Fund bearing additional costs or expenses as a result of the waiver.
The Creation Transaction Fee for each creation order is set forth below:
Fund Name | |
Creation Transaction
Fee | |
IQ Hedge Multi-Strategy Tracker ETF | |
$ | 500 | |
IQ Hedge Macro Tracker ETF | |
$ | 500 | |
IQ Hedge Market Neutral Tracker ETF | |
$ | 500 | |
IQ Hedge Long/Short Tracker ETF | |
$ | 500 | |
IQ Hedge Event-Driven Tracker ETF | |
$ | 500 | |
IQ Real Return ETF | |
$ | 500 | |
IQ Merger Arbitrage ETF | |
$ | 500 | |
IQ Global Resources ETF | |
$ | 1,500 | |
IQ U.S. Real Estate Small Cap ETF | |
$ | 500 | |
IQ Chaikin U.S. Small Cap ETF | |
$ | 650 | |
IQ Chaikin U.S. Large Cap ETF | |
$ | 500 | |
IQ Chaikin U.S. Dividend Achievers ETF | |
$ | 650 | |
IQ 50 Percent Hedged FTSE International ETF | |
$ | 2,500 | |
IQ Candriam ESG US Equity ETF | |
$ | 500 | |
IQ Candriam ESG International Equity ETF | |
$ | 2,000 | |
IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF | |
$ | 500 | |
IQ 500 International ETF | |
$ | 2,500 | |
IQ Healthy Hearts ETF | |
$ | 500 | |
An additional
variable fee of up to four times the fixed transaction fee (expressed as a percentage of the value of the Deposit Securities) may be imposed
for (1) creations effected outside the Clearing Process and (2) cash creations (to offset the Trust’s brokerage and other
transaction costs associated with using cash to purchase the requisite Deposit Securities). Investors are responsible for the costs of
transferring the securities constituting the Deposit Securities to the account of the Trust.
In order to seek
to replicate the in-kind creation order process for creation orders executed in whole or in part with cash, the Trust expects to purchase,
in the Secondary Market or otherwise gain exposure to, the portfolio securities that could have been delivered as a result of an in-kind
creation order pursuant to local law or market convention, or for other reasons (“Creation Market Purchases”). In such cases
where the Trust makes Creation Market Purchases, the Authorized Participant will reimburse the Trust for, among other things, any difference
between the market value at which the securities and/or Financial Instruments were purchased by the Trust and the cash-in-lieu amount,
applicable registration fees, brokerage commissions and certain taxes.
Redemption
The process to
redeem Creation Units is essentially the reverse of the process by which Creation Units are created, as described above. To redeem Shares
directly from the Funds, an investor must be an Authorized Participant or must redeem through an Authorized Participant. The Trust redeems
Creation Units on a continuous basis on any Business Day through the Distributor at the Shares’ NAV next determined after receipt
of an order in proper form. A Fund will not redeem Shares in amounts less than Creation Units. Authorized Participants must accumulate
enough Shares in the Secondary Market to constitute a Creation Unit in order to have such Shares redeemed by the Trust. There can be no
assurance, however, that there will be sufficient liquidity in the public trading market at any time to permit assembly of a Creation
Unit.
With respect
to a Fund, the Custodian, through the NSCC, makes available prior to the opening of business on the Exchange (currently 9:30 a.m. Eastern
time) on each Business Day, the identity of the Fund Securities that will be applicable (subject to possible amendment or correction)
to redemption requests received in proper form (as described below) on that day. Fund Securities received on redemption may not be identical
to Deposit Securities that are applicable to creations of Creation Units. Unless cash redemptions are available or specified for a Fund,
the redemption proceeds for a Creation Unit generally consist of Fund Securities — as announced on the Business Day the request
for redemption is received in proper form — plus or minus cash in an amount equal to the difference between the NAV of the Shares
being redeemed, as next determined after a receipt of a redemption request in proper form, and the value of the Fund Securities (the “Cash
Redemption Amount”), less a redemption transaction fee (see the section of this SAI entitled “Purchase and Redemption of Creation
Units—Redemption— Redemption Transaction Fee”).
The right of
redemption may be suspended or the date of payment postponed (1) for any period during which the Exchange is closed (other than customary
weekend and holiday closings); (2) for any period during which trading on the Exchange is suspended or restricted; (3) for any
period during which an emergency exists as a result of which disposal of the Shares of the Fund or determination of a Fund’s NAV
is not reasonably practicable; or (4) in such other circumstances as is permitted by the SEC.
Deliveries of
redemption proceeds by a Fund generally will be made within two Business Days (that is “T+2”).
However, for
the IQ 50 Percent Hedged FTSE International ETF, IQ Real Return ETF, IQ Merger Arbitrage ETF, IQ Global Resources ETF, IQ
500 International ETF, IQ U.S. Real Estate Small Cap ETF, and IQ Candriam ESG International Equity ETF, as discussed in Appendix
B, each Fund reserves the right to settle redemption transactions and deliver redemption proceeds on a basis other than T+2 to accommodate
foreign market holiday schedules, to account for different treatment among foreign and U.S. markets of dividend record dates and dividend
ex-dates (that is the last date the holder of a security can sell the security and still receive dividends payable on the security sold),
and in certain other circumstances. For each country relating to a Fund, Appendix B hereto identifies the instances where more than seven
days would be needed to deliver redemption proceeds. Pursuant to an order of the SEC, in respect of such Fund, the Trust will make delivery
of in-kind redemption proceeds within the number of days stated in Appendix B to be the maximum number of days necessary to deliver redemption
proceeds.
In the event
that cash redemptions are permitted or required by the Trust, proceeds will be paid to the Authorized Participant redeeming Shares on
behalf of the redeeming investor as soon as practicable after the date of redemption (within seven calendar days thereafter, except for
the instances listed in Appendix B hereto where more than seven calendar days would be needed).
Placement of Redemption Orders Using the Clearing Process
Orders to redeem
Creation Units through the Clearing Process must be delivered through an Authorized Participant that has executed a Participant Agreement.
Investors other than Authorized Participants are responsible for making arrangements with an Authorized Participant for an order to redeem.
An order to redeem Creation Units is deemed received by the Trust on the Transmittal Date if: (1) such order is received by the Distributor
not later than Closing Time on such Transmittal Date; and (2) all other procedures set forth in the Participant Agreement are properly
followed. Such order will be effected based on the NAV of the relevant Fund as next determined. An order to redeem Creation Units using
the Clearing Process made in proper form but received by the Distributor after Closing Time will be deemed received on the next Business
Day immediately following the Transmittal Date and will be effected at the NAV determined on such next Business Day. The requisite Fund
Securities and the Cash Redemption Amount will be transferred by the second NSCC business day following the date on which such request
for redemption is deemed received.
Placement of Redemption Orders
Outside the Clearing Process
Orders to redeem
Creation Units outside the Clearing Process must be delivered through a DTC Participant that has executed the Participant Agreement. A
DTC Participant who wishes to place an order for redemption of Creation Units to be effected outside the Clearing Process does not need
to be a Participating Party, but such orders must state that the DTC Participant is not using the Clearing Process and that redemption
of Creation Units will instead be effected through transfer of Shares directly through DTC. An order to redeem Creation Units outside
the Clearing Process is deemed received by the Transfer Agent on the Transmittal Date if (1) such order is received by the Transfer
Agent not later than Closing Time on such Transmittal Date; (2) such order is accompanied or followed by the requisite number of
Shares, which delivery must be made through DTC to the Custodian no later than the DTC Cut-Off-Time, and the Cash Redemption Amount, if
owed to the Fund, which delivery must be made by 2:00 p.m. Eastern time; and (3) all other procedures set forth in the Participant
Agreement are properly followed. After the Transfer Agent receives an order for redemption outside the Clearing Process, the Transfer
Agent will initiate procedures to transfer the requisite Fund Securities which are expected to be delivered and the Cash Redemption Amount,
if any, by the second Business Day following the Transmittal Date.
The calculation
of the value of the Fund Securities and the Cash Redemption Amount to be delivered or received upon redemption (by the Authorized Participant
or the Trust, as applicable) will be made by the Custodian according to the procedures set forth the section of this SAI entitled “Determination
of Net Asset Value” computed on the Business Day on which a redemption order is deemed received by the Distributor. Therefore, if
a redemption order in proper form is submitted to the Transfer Agent by a DTC Participant not later than Closing Time on the Transmittal
Date, and the requisite number of Shares of the Fund are delivered to the Custodian prior to the DTC Cut-Off-Time, then the value of the
Fund Securities and the Cash Redemption Amount to be delivered or received (by the Authorized Participant or the Trust, as applicable)
will be determined by the Custodian on such Transmittal Date. If, however, either (1) the requisite number of Shares of the relevant
Fund are not delivered by the DTC Cut-Off Time, as described above, or (2) the redemption order is not submitted in proper form,
then the redemption order will not be deemed received as of the Transmittal Date. In such case, the value of the Fund Securities and the
Cash Redemption Amount to be delivered or received will be computed on the Business Day following the Transmittal Date provided that the
Shares of the relevant Fund are delivered through DTC to the Custodian by 11:00 a.m. Eastern time the following Business Day pursuant
to a properly submitted redemption order.
If it is not
possible to effect deliveries of the Fund Securities, the Trust may in its discretion exercise its option to redeem Shares in cash, and
the redeeming Authorized Participant will be required to receive its redemption proceeds in cash. In addition, an investor may request
a redemption in cash that the Trust may, in its sole discretion, permit. In either case, the investor will receive a cash payment equal
to the NAV of its Shares based on the NAV of Shares of the relevant Fund next determined after the redemption request is received in proper
form (minus a transaction fee which will include an additional charge for cash redemptions to offset the Fund’s brokerage and other
transaction costs associated with the disposition of Fund Securities). A Fund may also, in its sole discretion, upon request of a shareholder,
provide such redeemer a portfolio of securities that differs from the exact composition of the Fund Securities, or cash in lieu of some
securities added to the Cash Redemption Amount, but in no event will the total value of the securities delivered and the cash transmitted
differ from the NAV. Redemptions of Shares for Fund Securities will be subject to compliance with applicable federal and state securities
laws and the Fund (whether or not it otherwise permits cash redemptions) reserves the right to redeem Creation Units for cash to the extent
that the Trust could not lawfully deliver specific Fund Securities upon redemptions or could not do so without first registering the Fund
Securities under such laws. An Authorized Participant or an investor for which it is acting that is subject to a legal restriction with
respect to a particular security included in the Fund Securities applicable to the redemption of a Creation Unit may be paid an equivalent
amount of cash. The Authorized Participant may request the redeeming Beneficial Owner of the Shares to complete an order form or to enter
into agreements with respect to such matters as compensating cash payment, beneficial ownership of Shares or delivery instructions.
Redemption Transaction Fee
Investors will
be required to pay to the Custodian a fixed transaction fee (the “Redemption Transaction Fee”) to offset the transfer and
other transaction costs associated with the redemption of Creation Units. The standard redemption transaction fee will be the same regardless
of the number of Creation Units redeemed by an investor on the applicable Business Day.
When determining
whether to waive the Redemption Transaction Fee, the Advisor considers a number of factors including, but not limited to, whether waiving
the Redemption Transaction Fee will: reduce the cost of portfolio rebalancing; improve the quality of the Secondary Market for a Fund's
Shares and not result in a Fund bearing additional cost or expenses as a result of the waiver.
The Redemption
Transaction Fee for each redemption order is set forth below:
Fund Name | |
Redemption Transaction
Fee | |
IQ Hedge Multi-Strategy Tracker ETF | |
$ | 500 | |
IQ Hedge Macro Tracker ETF | |
$ | 500 | |
IQ Hedge Market Neutral Tracker ETF | |
$ | 500 | |
IQ Hedge Long/Short Tracker ETF | |
$ | 500 | |
IQ Hedge Event-Driven Tracker ETF | |
$ | 500 | |
IQ Real Return ETF | |
$ | 500 | |
IQ Merger Arbitrage ETF | |
$ | 500 | |
IQ Global Resources ETF | |
$ | 1,500 | |
IQ U.S. Real Estate Small Cap ETF | |
$ | 500 | |
IQ Chaikin U.S. Small Cap ETF | |
$ | 650 | |
IQ Chaikin U.S. Large Cap ETF | |
$ | 500 | |
IQ Chaikin U.S. Dividend Achievers ETF | |
$ | 650 | |
IQ 50 Percent Hedged FTSE International ETF | |
$ | 2,500 | |
IQ Candriam ESG US Equity ETF | |
$ | 500 | |
IQ Candriam ESG International Equity ETF | |
$ | 2,000 | |
IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF | |
$ | 500 | |
IQ 500 International ETF | |
$ | 2,500 | |
IQ Healthy Hearts ETF | |
$ | 500 | |
An additional
variable fee of up to four times the fixed transaction fee (expressed as a percentage value of the Fund Securities) may be imposed for
(1) redemptions effected outside the Clearing Process and (2) cash redemptions (to offset the Trust’s brokerage and other
transaction costs associate with the sale of Fund Securities). Investors will also bear the costs of transferring the Fund Securities
from the Trust to their account or on their order.
In order to seek
to replicate the in-kind redemption order process for creation orders executed in whole or in part with cash, the Trust expects to sell,
in the Secondary Market, the portfolio securities or settle any Financial Instruments that may not be permitted to be re-registered in
the name of the Participating Party as a result of an in-kind redemption order pursuant to local law or market convention, or for other
reasons (“Market Sales”). In such cases where the Trust makes Market Sales, the Authorized Participant will reimburse the
Trust for, among other things, any difference between the market value at which the securities and/or Financial Instruments were sold
or settled by the Trust and the cash in-lieu amount, applicable registration fees, brokerage commissions and certain taxes.
Cash Creations and Redemptions
The Trust reserves
the right to offer a “cash” option for creations and redemptions of Shares, although it has no current intention of doing
so for Funds. In each instance of such cash creations and redemptions, transaction fees may be imposed that will be higher than the transaction
fees associated with in-kind creations and redemptions. In all cases, such fees will be limited in accordance with the requirements of
the SEC applicable to management investment companies offering redeemable securities.
CONTINUOUS OFFERING
The method by
which Creation Units are created and traded may raise certain issues under applicable securities laws. Because new Creation Units are
issued and sold by the Trust on an ongoing basis, at any point a “distribution,” as such term is used in the Securities Act,
may occur. Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result
in their being deemed participants in a distribution in a manner which could render them statutory underwriters and subject them to the
prospectus delivery and liability provisions of the Securities Act.
For example,
a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the Distributor,
breaks them down into constituent Shares, and sells such Shares directly to customers, or if it chooses to couple the creation of a supply
of new Shares with an active selling effort involving solicitation of Secondary Market demand for Shares. A determination of whether one
is an underwriter for purposes of the Securities Act must take into account all the facts and circumstances pertaining to the activities
of the broker-dealer or its client in the particular case, and the examples
mentioned above should not be considered a complete description
of all the activities that could lead to a categorization as an underwriter.
Broker-dealers
who are not “underwriters” but are participating in a distribution (as contrasted to ordinary secondary trading transactions),
and thus dealing with Shares that are part of an “unsold allotment” within the meaning of Section 4(3)(C) of the
Securities Act, would be unable to take advantage of the prospectus delivery exemption provided by Section 4(3) of the Securities
Act. This is because the prospectus delivery exemption in Section 4(3) of the Securities Act is not available in respect of
such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who
are not underwriters but are participating in a distribution (as contrasted with ordinary Secondary Market transactions) and thus dealing
with the Shares that are part of an over-allotment within the meaning of Section 4(3)(A) of the Securities Act would be unable
to take advantage of the prospectus delivery exemption provided by Section 4(3) of the Securities Act. Firms that incur a prospectus
delivery obligation with respect to Shares are reminded that, under Rule 153 of the Securities Act, a prospectus delivery obligation
under Section 5(b)(2) of the Securities Act owed to an exchange member in connection with a sale on the Exchange is satisfied
by the fact that the prospectus is available at the Exchange upon request. The prospectus delivery mechanism provided in Rule 153
is only available with respect to transactions on an exchange.
DETERMINATION OF NET ASSET VALUE
The following
information supplements and should be read in conjunction with the section in the Prospectus entitled “Determination of Net Asset
Value (NAV).”
The NAV per Share
for each Fund is computed by dividing the value of the net assets of the Fund (i.e., the value of its total assets less total liabilities)
by the total number of Shares outstanding, rounded to the nearest cent. Expenses and fees, including the management fee, are accrued daily
and taken into account for purposes of determining NAV. The NAV of each Fund is determined as of the close of the regular trading session
on the Exchange (ordinarily 4:00 p.m., Eastern time) on each day that such exchange is open. Any assets or liabilities denominated in
currencies other than the U.S. dollar are converted into U.S. dollars at the current market rates on the date of valuation as quoted by
one or more sources.
In computing
each Fund’s NAV, the Fund’s portfolio securities are valued based on market quotations. When market quotations are not readily
available for a portfolio security a Fund must use such security’s fair value as determined in good faith in accordance with the
Fund’s Fair Value Pricing Procedures which are approved by the Board.
The value of
each Fund’s portfolio securities is based on such securities’ closing price on local markets when available. If a portfolio
security’s market price is not readily available or does not otherwise accurately reflect the fair value of such security, the portfolio
security will be valued by another method that the Advisor believes will better reflect fair value in accordance with the Trust’s
valuation policies and procedures approved by the Board. Each Fund may use fair value pricing in a variety of circumstances, including
but not limited to, situations when the value of a Fund’s portfolio security has been materially affected by events occurring after
the close of the market on which such security is principally traded (such as a corporate action or other news that may materially affect
the price of such security) or trading in such security has been suspended or halted. In addition, each Fund may fair value foreign equity
portfolio securities each day the Fund calculates its NAV. Accordingly, a Fund’s NAV may reflect certain portfolio securities’
fair values rather than their market prices. Fair value pricing involves subjective judgments and it is possible that a fair value determination
for a portfolio security is materially different than the value that could be realized upon the sale of such security. In addition, fair
value pricing could result in a difference between the prices used to calculate a Fund’s NAV and the prices used by the Fund’s
Underlying Index. This may adversely affect a Fund’s ability to track its Underlying Index. With respect to securities that are
primarily listed on foreign exchanges, the value of a Fund’s portfolio securities may change on days when you will not be able to
purchase or sell your Shares.
DIVIDENDS AND DISTRIBUTIONS
General Policies
The following
information supplements and should be read in conjunction with the section in the Prospectus entitled “Dividends, Distributions
and Taxes.”
Dividends from
net investment income are declared and paid at least annually by each Fund. Distributions of net realized capital gains, if any, generally
are declared and paid once a year, but the Trust may make distributions on a more frequent basis for each Fund to improve its Underlying
Index tracking or to comply with the distribution requirements of the Code, in all events in a manner consistent with the provisions of
the 1940 Act. In addition, the Trust may distribute at least annually amounts representing the full dividend yield on the underlying Portfolio
Securities of the Funds, net of expenses of the Funds, as if each Fund owned such underlying Portfolio Securities for the entire dividend
period in which case some portion of each distribution may result in a return of capital for tax purposes for certain shareholders.
Dividends and
other distributions on Shares are distributed, as described below, on a pro rata basis to Beneficial Owners of such Shares. Dividend payments
are made through DTC Participants and Indirect Participants to Beneficial Owners then of record with proceeds received from the Trust.
The Trust may make additional distributions to the extent necessary (i) to distribute the entire annual “investment company
taxable income” of the Trust, plus any net capital gains and (ii) to avoid imposition of the excise tax imposed by Section 4982
of the Code. Management of the Trust reserves the right to declare special dividends if, in its reasonable discretion, such action is
necessary or advisable to preserve the status of each Fund as a “regulated investment company” under the Code or to avoid
imposition of income or excise taxes on undistributed income.
Dividend Reinvestment Service
No reinvestment
service is provided by the Trust. Broker-dealers may make available the DTC book-entry Dividend Reinvestment Service for use by Beneficial
Owners of the Funds through DTC Participants for reinvestment of their dividend distributions. If this service is used, dividend distributions
of both income and realized gains will be automatically reinvested in additional whole Shares of the Funds. Beneficial Owners should contact
their broker to determine the availability and costs of the service and the details of participation therein. Brokers may require Beneficial
Owners to adhere to specific procedures and timetables.
U.S. FEDERAL INCOME TAXATION
Set forth below
is a discussion of certain U.S. federal income tax considerations affecting the Funds and the purchase, ownership and disposition of Shares.
It is based upon the U.S. Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury Department regulations promulgated
thereunder, judicial authorities, and administrative rulings and practices, all as in effect as of the date of this SAI and all of which
are subject to change, possibly with retroactive effect. The following information supplements should be read in conjunction with the
section in the Prospectus entitled “Dividends, Distributions and Taxes.”
Except to the
extent discussed below, this summary assumes that a Fund’s shareholder holds Shares as capital assets within the meaning of the
Code, and does not hold Shares in connection with a trade or business. This summary does not address all potential U.S. federal income
tax considerations possibly applicable to an investment in Shares, and does not address the tax consequences to Fund shareholders subject
to special tax rules, including, but not limited to, partnerships and the partners therein, those who hold Shares through an IRA, 401(k) plan
or other tax-advantaged account, and, except to the extent discussed below, tax-exempt shareholders. This discussion does not discuss
any aspect of U.S. state, local, estate and gift, or non-U.S., tax law. Furthermore, this discussion is not intended or written to be
legal or tax advice to any shareholder in a Fund or other person and is not intended or written to be used or relied on, and cannot be
used or relied on, by any such person for the purpose of avoiding any U.S. federal tax penalties that may be imposed on such person. Prospective
Fund shareholders are urged to consult their own tax advisers with respect to the specific U.S. federal, state and local, and non-U.S.,
tax consequences of investing in Shares based on their particular circumstances.
The Funds have
not requested and will not request an advance ruling from the U.S. Internal Revenue Service (“IRS”) as to the U.S. federal
income tax matters described below. The IRS could adopt positions contrary to those discussed below and such positions could be sustained.
Prospective investors should consult their own tax advisors with regard to the U.S. federal tax consequences of the purchase, ownership
or disposition of Shares, as well as the tax consequences arising under the laws of any state, non-U.S. country or other taxing jurisdiction.
Tax Treatment of the Funds
In General.
Each Fund intends to qualify and elect to be treated as a separate regulated investment company under the Code. As a RIC, a Fund generally
will not be required to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes to its
shareholders.
To qualify and
remain eligible for the special tax treatment accorded to RICs, each Fund must meet certain income, asset and distribution requirements,
described in more detail below. Specifically, each Fund must (i) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock, securities or foreign
currencies, other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies and net income derived from interests in qualified publicly traded partnerships
(“QPTPs”) (i.e., partnerships that are traded on an established securities market or readily tradable on a secondary
market, other than partnerships that derive at least 90% of their income from interest, dividends, and other qualifying RIC income described
above), and (ii) diversify its holdings so that, at the end of each quarter of the Fund’s taxable year, (a) at least 50%
of the value of the Fund’s assets is represented by cash, securities of other RICs, U.S. government securities and other securities,
with such other securities limited, in respect of any one issuer, to an amount not greater in value than 5% of the Fund’s total
assets and not greater than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of its
assets is invested in the securities (other than U.S. government securities or securities of other RICs) of any one issuer, any two or
more issuers of which 20% or more of the voting stock of each such issuer is held by the Fund and that are determined to be engaged in
the same or similar trades or businesses or related trades or
businesses or in the securities of one or more QPTPs. Furthermore, each
Fund must distribute annually at least 90% of the sum of (i) its “investment company taxable income” (which includes
dividends, interest and net short-term capital gains) and (ii) certain net tax-exempt income, if any.
Failure to
Maintain RIC Status. If a Fund fails to qualify as a RIC for any year (subject to certain curative measures allowed by the Code),
the Fund will be subject to regular corporate-level U.S. federal income tax in that year on all of its taxable income, regardless of whether
the Fund makes any distributions to its shareholders. In addition, in such case, distributions will be taxable to a Fund’s shareholders
generally as ordinary dividends to the extent of the Fund’s current and accumulated earnings and profits, possibly eligible for
(i) in the case of an individual Fund shareholder, treatment as a qualified dividend (as discussed below) subject to tax at preferential
long-term capital gains rates or (ii) in the case of a corporate Fund shareholder, a dividends-received deduction. The remainder
of this discussion assumes that the Funds will qualify for the special tax treatment accorded to RICs.
Excise Tax.
A Fund will be subject to a 4% excise tax on certain undistributed income generally if the Fund does not distribute to its shareholders
in each calendar year an amount at least equal to the sum of 98% of its ordinary income for the calendar year, 98.2% of its capital gain
net income for the twelve months ended October 31 of such year, plus 100% of any undistributed amounts from prior years. For these
purposes, a Fund will be treated as having distributed any amount on which it has been subject to U.S. corporate income tax for the taxable
year ending within such calendar year. Each Fund intends to make distributions necessary to avoid this 4% excise tax, although there can
be no assurance that it will be able to do so.
Phantom Income.
With respect to some or all of its investments, a Fund may be required to recognize taxable income in advance of receiving the related
cash payment. For example, under the “wash sale” rules, a Fund may not be able to deduct currently a loss on a disposition
of a portfolio security. As a result, a Fund may be required to make an annual income distribution greater than the total cash actually
received during the year. Such distribution may be made from the existing cash assets of the Fund or cash generated from selling portfolio
securities. The Fund may realize gains or losses from such sales, in which event the Fund’s shareholders may receive a larger capital
gain distribution than they would in the absence of such transactions. (See also — “Certain Debt Instruments” below.)
Certain Debt
Instruments. Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be
acquired by a Fund (such as zero-coupon debt instruments or debt instruments with payment in-kind interest) may be treated as debt securities
that are issued originally at a discount. Generally, the amount of original issue discount is treated as interest income and is included
in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the
debt security matures. If a Fund acquires debt securities (with a fixed maturity date of more than one year from the date of issuance)
in the secondary market, such debt securities may be treated as having market discount. Generally, any gain recognized on the disposition
of, and any partial payment of principal on, a debt security having market discount is treated as ordinary income to the extent the gain,
or principal payment, does not exceed the “accrued market discount” on such debt security. Market discount generally accrues
in equal daily installments. A Fund may make one or more of the elections applicable to debt securities having market discount, which
could affect the character and timing of recognition of income.
Some debt securities
(with a fixed maturity date of one year or less from the date of issuance) that may be acquired by the Funds may be treated as having
acquisition discount, or original issue, discount in the case of certain types of debt securities. Generally, the Fund will be required
to include the acquisition discount, or original issue discount, in income over the term of the debt security, even though payment of
that amount is not received until a later time, usually when the debt security matures. A Fund may make one or more of the elections applicable
to debt securities having acquisition discount, or original issue discount, which could affect the character and timing of recognition
of income.
PFIC Investments.
A Fund may purchase shares in a non-U.S. corporation treated as a “passive foreign investment company” (“PFIC”)
for U.S. federal income tax purposes. As a result, the Fund may be subject to increased U.S. federal income tax (plus charges in the nature
of interest on previously-deferred income taxes on the PFIC’s income) on any “excess distributions” made on, or gain
from a sale (or other disposition) of, the PFIC shares even if the Fund distributes such income to its shareholders.
In lieu of the
increased income tax and deferred tax interest charges on excess distributions on, and dispositions of, a PFIC’s shares, the Fund
can elect to treat the underlying PFIC as a “qualified electing fund,” provided that the PFIC agrees to provide the Fund with
certain information on an annual basis. With a “qualified electing fund” election in place, the Fund must include in its income
each year its share (whether distributed or not) of the ordinary earnings and net capital gain of the PFIC.
In the alternative,
a Fund can elect, under certain conditions, to mark-to-market at the end of each taxable year its PFIC shares. The Fund would recognize
as ordinary income any increase in the value of the PFIC shares and as an ordinary loss (up to any prior net income resulting from the
mark-to-market election) any decrease in the value of the PFIC shares.
With a “mark-to-market”
or “qualified election fund” election in place on a PFIC, a Fund might be required to recognize in a year income in excess
of the sum of the actual distributions received by it on the PFIC shares and the proceeds from its
dispositions of the PFIC’s shares.
Any such income generally would be subject to the RIC distribution requirements and would be taken into account for purposes of the 4%
excise tax (described above).
Section 1256
Contracts. A Fund’s investments in so-called “Section 1256 contracts,” such as certain futures contracts, most
non-U.S. currency forward contracts traded in the interbank market and options on most stock indices, are subject to special tax rules.
Section 1256 contracts held by a Fund at the end of its taxable year are required to be marked to their market value, and any unrealized
gain or loss on those positions will be included in a Fund’s income as if each position had been sold for its fair market value
at the end of the taxable year. The resulting gain or loss will be combined with any gain or loss realized by a Fund from positions in
Section 1256 contracts closed during the taxable year. Provided such positions were held as capital assets and were not part of a
“hedging transaction” or a “straddle,” 60% of the resulting net gain or loss will be treated as long-term gain
or loss, and 40% of such net gain or loss will be treated as short-term capital gain or loss, regardless of the period of time the positions
were actually held by a Fund. In addition, a Fund may be required to defer the recognition of losses on certain Section 1256 contracts
to the extent of any unrecognized gains on related positions held by the Fund. Income from Section 1256 contracts generally would
be subject to the RIC distribution requirements and would be taken into account for purposes of the 4% excise tax (described above).
Swaps.
As a result of entering into swap contracts, a Fund may make or receive periodic net payments. A Fund also may make or receive a payment
when a swap is terminated prior to maturity through an assignment of the swap or other closing transaction. Periodic net payments generally
will constitute ordinary income or deductions, while termination of a swap generally will result in capital gain or loss (which will be
a long-term capital gain or loss if a Fund has been a party to the swap for more than one year). With respect to certain types of swaps,
a Fund may be required to currently recognize income or loss with respect to future payments on such swaps or may elect under certain
circumstances to mark such swaps to market annually for tax purposes as ordinary income or loss. The tax treatment of many types of credit
default swaps is uncertain.
Short Sales.
In general, gain or loss on a short sale is recognized when a Fund closes the sale by delivering the borrowed property to the lender,
not when the borrowed property is sold. If, however, a Fund already owns property that is identical to the kind it borrows and sells pursuant
to a short sale “against the box,” and such pre-existing ownership position has appreciated (i.e., the fair market
value exceeds the Fund’s tax basis), the Fund may be required to recognize such gain at the time the borrowed stock is sold. Any
gain or loss realized upon closing out a short sale generally is considered as capital gain or loss to the extent that the property used
to close the short sale constitutes a capital asset in the Fund’s hands. Except with respect to certain situations where the property
used by a Fund to close a short sale has a long-term holding period on the date of the short sale, special rules generally would
treat the gains on short sales as short-term capital gains. These rules also may terminate the running of the holding period of “substantially
identical property” held by a Fund. Moreover, a loss on a short sale will be treated as long-term capital loss if, on the date of
the short sale, “substantially identical property” has been held by a Fund for more than one year. In general, a Fund will
not be permitted to deduct payments made to reimburse the lender of securities for dividends paid on borrowed stock if the short sale
is closed on or before the 45th day after the short sale is entered into.
Foreign Currency
Transactions. Gains or losses attributable to fluctuations in exchange rates between the time a Fund accrues income, expenses or other
items denominated in a foreign currency and the time the Fund actually collects or pays such items are generally treated as ordinary income
or loss. Similarly, gains or losses on foreign currency forward contracts, certain foreign currency options and futures contracts and
the disposition of debt securities denominated in a foreign currency, to the extent attributable to fluctuations in exchange rates between
the acquisition and disposition dates, generally are also treated as ordinary income or loss, unless a Fund were to elect otherwise where
such an election is permitted.
Non-U.S. Investments.
Dividends, interest and proceeds from the direct or indirect sale of non-U.S. securities may be subject to non-U.S. withholding tax and
other taxes, including financial transaction taxes. Even if a Fund is entitled to seek a refund in respect of such taxes, it may not have
sufficient information to do so or may choose not to do so. Tax treaties between certain countries and the U.S. may reduce or eliminate
such taxes in some cases. Non-U.S. taxes paid by a Fund will reduce the return from the Fund’s investments.
Special or
Uncertain Tax Consequences. A Fund’s investment or other activities could be subject to special and complex tax rules that
may produce differing tax consequences, such as disallowing or limiting the use of losses or deductions, causing the recognition of income
or gain without a corresponding receipt of cash, affecting the time as to when a purchase or sale of stock or securities is deemed to
occur or altering the characterization of certain complex financial transactions.
A Fund may engage
in investment or other activities the treatment of which may not be clear or may be subject to recharacterization by the IRS. In particular,
the tax treatment of certain swaps and other derivatives and income from foreign currency transactions is unclear for purposes of determining
a Fund’s status as a RIC. If a final determination on the tax treatment of a Fund’s investment or other activities differs
from the Fund’s original expectations, the final determination could adversely affect the Fund’s status as a RIC or the timing
or character of income recognized by the Fund, requiring the Fund to purchase or sell assets, alter its portfolio or take other action
in order to comply with the final determination.
Tax Treatment
of Fund Shareholders
Taxation of U.S. Shareholders
The following
is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Shares applicable to “U.S.
shareholders.” For purposes of this discussion, a “U.S. shareholder” is a beneficial owner of Shares who, for U.S. federal
income tax purposes, is (i) an individual who is a citizen or resident of the U.S.; (ii) a corporation (or an entity treated
as a corporation for U.S. federal income tax purposes) created or organized in the U.S. or under the laws of the U.S., or of any state
thereof, or the District of Columbia; (iii) an estate, the income of which is includable in gross income for U.S. federal income
tax purposes regardless of its source; or (iv) a trust, if (a) a U.S. court is able to exercise primary supervision over the
administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the
trust has a valid election in place to be treated as a U.S. person.
Fund Distributions.
In general, Fund distributions are subject to U.S. federal income tax when paid, regardless of whether they consist of cash or property
and regardless of whether they are re-invested in Shares. However, any Fund distribution declared in October, November or December of
any calendar year and payable to shareholders of record on a specified date during such month will be deemed to have been received by
each Fund shareholder on December 31 of such calendar year, provided such dividend is actually paid during January of the following
calendar year.
Distributions
of a Fund’s net investment income and a Fund’s net short-term capital gains in excess of net long-term capital losses (collectively
referred to as “ordinary income dividends”) are taxable as ordinary income to the extent of the Fund’s current and accumulated
earnings and profits (subject to an exception for distributions of “qualified dividend income, as discussed below). Corporate shareholders
of a Fund may be eligible to take a dividends-received deduction with respect to some of such distributions, provided the distributions
are attributable to dividends received by the Fund on stock of U.S. corporations with respect to which the Fund meets certain holding
period and other requirements. To the extent designated as “capital gain dividends” by a Fund, distributions of a Fund’s
net long-term capital gains in excess of net short-term capital losses (“net capital gain”) are taxable at long-term capital
gain tax rates to the extent of the Fund’s current and accumulated earnings and profits, regardless of a Fund shareholder’s
holding period in the Fund’s Shares. Such dividends will not be eligible for a dividends received deduction by corporate shareholders.
A Fund’s
net capital gain is computed by taking into account the Fund’s capital loss carryforwards, if any. Under the Regulated Investment
Company Modernization Act of 2010, capital losses incurred in tax years beginning after December 22, 2010 can be carried forward
indefinitely and retain the character of the original loss. To the extent that these carryforwards are available to offset future capital
gains, it is probable that the amount offset will not be distributed to shareholders. In the event that a Fund were to experience an ownership
change as defined under the Code, the Fund’s loss carryforwards, if any, may be subject to limitation.
Distributions
of “qualified dividend income” (defined below) are taxed to certain non-corporate shareholders at the reduced rates applicable
to long- term capital gain to the extent of the Fund’s current and accumulated earnings and profits, provided that the Fund shareholder
meets certain holding period and other requirements with respect to the distributing Fund’s Shares and the distributing Fund meets
certain holding period and other requirements with respect to the dividend-paying stocks. Dividends subject to these special rules, however,
are not actually treated as capital gains and, thus, are not included in the computation of a non-corporate shareholder’s net capital
gain and generally cannot be used to offset capital losses. The portion of distributions that a Fund may report as qualified dividend
income generally is limited to the amount of qualified dividend income received by the Fund, but if for any Fund taxable year 95% or more
of the Fund’s gross income (exclusive of net capital gain from sales of stock and securities) consists of qualified dividend income,
all distributions of such income for that taxable year may be reported as qualified dividend income. For this purpose, “qualified
dividend income” generally means income from dividends received by a Fund from a real estate investment trust (“REIT”)
or another RIC generally is qualified dividend income only to the extent that the dividend distributions are made out of qualified dividend
income received by such REIT or other RIC.
To the extent
that a Fund makes a distribution of income received by such Fund in lieu of dividends with respect to securities on loan pursuant to a
securities lending transaction, such income will not constitute qualified dividend income to individual shareholders and will not be eligible
for the dividends-received deduction for corporate shareholders.
Distributions
in excess of a Fund’s current and accumulated earnings and profits will, as to each shareholder, be treated as a tax- free return
of capital to the extent of the shareholder’s tax basis in its Shares of the Fund, and as a capital gain thereafter (assuming the
shareholder holds its Shares of the Fund as capital assets).
Each Fund intends
to distribute its net capital gain at least annually. However, by providing written notice to its shareholders no later than 60 days after
its year-end, a Fund may elect to retain some or all of its net capital gain and designate the retained amount as a “deemed distribution.”
In that event, the Fund pays U.S. federal income tax on the retained net capital gain, and each Fund shareholder recognizes a proportionate
share of the Fund’s undistributed net capital gain. In addition, each Fund shareholder can claim a tax credit or refund for the
shareholder’s proportionate share of the Fund’s U.S. federal income taxes paid on the undistributed net capital gain and increase
the shareholder’s tax basis in the Shares by an amount equal to the shareholder’s proportionate share of the Fund’s
undistributed net capital gain, reduced by the amount of the shareholder’s tax
credit or refund. Organizations or persons not subject
to U.S. federal income tax on such net capital gain will be entitled to a refund, if any, of their pro rata share of such taxes paid by
the Fund upon timely filing appropriate returns or claims for refund with the IRS.
With respect
to non-corporate Fund shareholders (i.e., individuals, trusts and estates), ordinary income and short-term capital gain are taxed
at a current maximum rate of 37% and long-term capital gain is taxed at a current maximum rate of 20%. Corporate shareholders are taxed
at a current maximum rate of 21% on their income and gain.
In addition,
high income individuals (and certain trusts and estates) generally will be subject to a 3.8% Medicare tax on “net investment income,”
in addition to otherwise applicable U.S. federal income tax. “Net investment income” generally will include dividends (including
capital gain dividends) received from a Fund and net gains from the redemption or other disposition of Shares. Please consult your tax
advisor regarding this tax.
If a Fund is
a “qualified fund of funds” (i.e., a RIC at least 50% of the Fund’s total assets at the end of the taxable year
consist of non-U.S. stock or securities, the Fund may elect to “pass through” to its shareholders certain non-U.S. income
taxes paid by the Fund. This means that each shareholder will be required to (i) include in gross income, even though not actually
received, the shareholder’s pro rata share of the Fund’s non-U.S. income taxes, and (ii) either take a corresponding
deduction (in calculating U.S. federal taxable income) or credit (in calculating U.S. federal income tax), subject to certain limitations.
Investors considering buying Shares just prior to a distribution should be aware that, although the price of the Shares purchased at such
time may reflect the forthcoming distribution, such distribution nevertheless may be taxable (as opposed to a non-taxable return of capital).
Exempt-Interest
Dividends. If at the end of each quarter of a Fund’s taxable year, (i) the Fund is a qualified fund of funds (as defined
above), or (ii) 50% or more of the value of the Fund’s assets, by value, consist of certain obligations exempt from U.S. federal
income tax under Section 103(a) of the Code (relating generally to obligations of a state or local governmental unit), the Fund
shall be qualified to designate a portion of its dividends as “exempt-interest dividends.” Exempt-interest dividends generally
will be excludable from a shareholder’s gross income for U.S. federal income tax purposes. Exempt-interest dividends will be included,
however, in determining the portion, if any, of a person’s social security and railroad retirement benefit payments subject to U.S.
federal income tax. Interest on indebtedness incurred to purchase or carry shares of a Fund that pays exempt-interest dividends will not
be deductible by the shareholders for U.S. federal income tax purposes to the extent attributable to exempt-interest dividends.
If a Fund invests
in “private activity bonds,” a portion of the exempt-interest dividends paid by such Fund may be treated as an item of “tax
preference” and, therefore, could be subject to the U.S. federal alternative minimum tax.
REIT/REMIC
Investments. A Fund may invest in REITs owning residual interests in REMICs. Certain income from a REIT that is attributable to a
REMIC residual interest (known as “excess inclusion” income) is allocated to a Fund’s shareholders in proportion to
the dividends received from the Fund, producing the same income tax consequences as if the Fund shareholders directly received the excess
inclusion income. In general, the taxable income of any holder of a residual interest cannot be less than the excess interest inclusion.
For example, excess inclusion income (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift
institutions), (ii) constitutes “unrelated business taxable income” to certain entities (such as a qualified pension
plan, an individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt entity), and (iii) in the case of a
non-U.S. shareholder, does not qualify for any withholding tax reduction or exemption. In addition, if at any time during any taxable
year certain types of entities own Shares, the Fund will be subject to a tax equal to the product of (i) the excess inclusion income
allocable to such entities and (ii) the highest U.S. federal income tax rate imposed on corporations (currently 21%). A Fund also
is subject to information reporting with respect to any excess inclusion income.
Sales of Shares.
Any capital gain or loss realized upon a sale or exchange of Shares generally is treated as a long- term gain or loss if the Shares have
been held for more than one year. Any capital gain or loss realized upon a sale of Shares held for one year or less generally is treated
as a short-term gain or loss, except that any capital loss on the sale of Shares held for six months or less is treated as long-term capital
loss to the extent that capital gain dividends were paid (or deemed to be paid) with respect to such Shares. All or a portion of any loss
realized upon a sale of Shares will be disallowed if substantially identical shares are purchased (through reinvestment of dividends or
otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date of disposition of the Shares. In such a case,
the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Legislation passed
by Congress requires reporting to the IRS and to taxpayers of adjusted cost basis information for “covered securities,” which
generally include shares of a RIC acquired on or after January 1, 2012. Shareholders should contact their brokers to obtain information
with respect to the available cost basis reporting methods and available elections for their accounts.
Creation Unit
Issues and Redemptions. On an issue of Shares as part of a Creation Unit, made by means of an in-kind deposit, an Authorized Participant
recognizes capital gain or loss (assuming the Authorized Participant does not hold the securities as inventory) equal to the difference
between (i) the fair market value (at issue) of the issued Shares (plus any cash received by
the Authorized Participant as part of
the issue) and (ii) the Authorized Participant’s aggregate basis in the exchanged securities (plus any cash paid by the Authorized
Participant as part of the issue). On a redemption of Shares as part of a Creation Unit where the redemption is conducted in-kind by a
payment of Fund Securities, an Authorized Participant recognizes capital gain or loss (assuming the Authorized Participant does not hold
the securities as inventory) equal to the difference between (i) the fair market value (at redemption) of the securities received
(plus any cash received by the Authorized Participant as part of the redemption) and (ii) the Authorized Participant’s basis
in the redeemed Shares (plus any cash paid by the Authorized Participant as part of the redemption). However, the IRS may assert, under
the “wash sale” rules or on the basis that there has been no significant change in the Authorized Participant’s
economic position, that any loss on an issue or redemption of Creation Units cannot be deducted currently.
In general, any
capital gain or loss recognized upon the issue or redemption of Shares (as components of a Creation Unit) is treated either as long-term
capital gain or loss, if the deposited securities (in the case of an issue) or the Shares (in the case of a redemption) have been held
for more than one year, or otherwise as short-term capital gain or loss. However, any capital loss on a redemption of Shares held for
six months or less is treated as long-term capital loss to the extent that capital gain dividends were paid (or deemed to be paid) with
respect to such Shares.
Reportable
Transactions. If a Fund shareholder recognizes a loss with respect to Shares of $2 million or more (for an individual Fund shareholder)
or $10 million or more (for a corporate shareholder) in any single taxable year (or a greater loss over a combination of years), the Fund
shareholder may be required file a disclosure statement with the IRS. Significant penalties may be imposed upon the failure to comply
with these reporting rules. Shareholders should consult their tax advisors to determine the applicability of these rules in light
of their individual circumstances.
Taxation of Non-U.S.
Shareholders
The following
is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Shares applicable to “non-U.S.
shareholders.” For purposes of this discussion, a “non-U.S. shareholder” is a beneficial owner of Shares that is not
a U.S. shareholder (as defined above) and is not an entity or arrangement treated as a partnership for U.S. federal income tax purposes.
The following discussion is based on current law, and is for general information only. It addresses only selected, and not all, aspects
of U.S. federal income taxation.
Dividends.
With respect to non-U.S. shareholders of a Fund, the Fund’s ordinary income dividends generally will be subject to U.S. federal
withholding tax at a rate of 30% (or at a lower rate established under an applicable tax treaty). However, ordinary income dividends that
are “interest-related dividends” or “short-term capital gain dividends” (each as defined below) and capital gain
dividends generally will not be subject to U.S. federal withholding (or income) tax, provided that, the non-U.S. shareholder furnishes
the Fund with a completed IRS Form W-8BEN or W-8BEN-E, as applicable, (or acceptable substitute documentation) establishing the non-U.S.
shareholder’s non-U.S. status and the Fund does not have actual knowledge or reason to know that the non-U.S. shareholder would
be subject to such withholding tax if the non-U.S. shareholder were to receive the related amounts directly rather than as dividends from
the Fund. “Interest-related dividends” generally means dividends designated by a Fund as attributable to such Fund’s
U.S.-source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which
such Fund is at least a 10% shareholder, reduced by expenses that are allocable to such income. “Short-term capital gain dividends”
generally means dividends designated by a Fund as attributable to the excess of such Fund’s net short-term capital gain over its
net long term capital loss. Depending on its circumstances, a Fund may treat such dividends, in whole or in part, as ineligible for these
exemptions from withholding.
Notwithstanding
the foregoing, special rules apply in certain cases, including as described below. For example, in cases where dividend income from
a non-U.S. shareholder’s investment in a Fund is effectively connected with a trade or business of the non-U.S. shareholder conducted
in the U.S., the non-U.S. shareholder generally will be exempt from withholding tax, but will be subject to U.S. federal income tax at
the graduated rates applicable to U.S. shareholders. Such income generally must be reported on a U.S. federal income tax return. Furthermore,
such income also may be subject to the 30% branch profits tax in the case of a non-U.S. shareholder that is a corporation. In addition,
if a non-U.S. shareholder is an individual who is present in the U.S. for 183 days or more during the taxable year and has “tax
home” in the U.S., any gain incurred by such shareholder with respect to his or her capital gain dividends and short-term capital
gain dividends would be subject to a 30% U.S. federal income tax (which, in the case of short-term capital gain dividends, may, in certain
instances, be withheld at source by a Fund). Lastly, special rules apply with respect to dividends that are subject to the Foreign
Investment in Real Property Act (“FIRPTA”), discussed below (see— “Investments in U.S. Real Property”).
Sales of Fund
Shares. Under current law, gain on a sale or exchange of Shares generally will be exempt from U.S. federal income tax (including withholding
at the source) unless (i) the non-U.S. shareholder is an individual who was physically present in the U.S. for 183 days or more during
the taxable year and has a “tax home” in the U.S., in which case the non-U.S. shareholder would incur a 30% U.S. federal income
tax on his capital gain, (ii) the gain is effectively connected with a U.S. trade or business conducted by the non-U.S. shareholder
(in which case the non-U.S. shareholder generally would be taxable on such gain at the same graduated rates applicable to U.S. shareholders,
would be required to file a U.S. federal income tax return and, in the case of a corporate non-U.S. shareholder, may also be subject to
the 30% branch profits tax), or (iii) the gain is subject to FIRPTA, as discussed below (see—“Investments in U.S. Real
Property”).
Credits or
Refunds. To claim a credit or refund for any Fund-level taxes on any undistributed long-term capital gains (as discussed above) or
any taxes collected through withholding, a non-U.S. Fund shareholder must obtain a U.S. taxpayer identification number and file a U.S.
federal income tax return even if the non-U.S. Fund shareholder would not otherwise be required to do so.
Investments
in U.S. Real Property. Subject to the exemptions described below, a non-U.S. shareholder generally will be subject to U.S. federal
income tax under FIRPTA on any gain from the sale or exchange of Shares if the Fund is a “U.S. real property holding corporation”
(as defined below) at any time during the shorter of the period during which the non-U.S. shareholder held such Shares and the five-year
period ending on the date of the disposition of those Shares. Any such gain will be taxed in the same manner as for income that is effectively
connected with a trade or business of the non-U.S. shareholder conducted in the U.S. and in certain cases will be collected through withholding
at the source in an amount equal to 15% of the sales proceeds. A Fund will be a “U.S. real property holding corporation” if
the fair market value of its “U.S. real property interests” (“USRPIs”) (which includes shares of U.S. real property
holding corporations and certain participating debt securities) equals or exceeds 50% of the fair market value of such interests plus
its interests in real property located outside the U.S. plus any other assets used or held for use in a business.
An exemption
from FIRPTA applies if either (i) the class of Shares disposed of by the non-U.S. shareholder is regularly traded on an established
securities market (as determined for U.S. federal income tax purposes) and the non-U.S. shareholder did not actually or constructively
hold more than 5% of such class of Shares at any time during the five-year period prior to the disposition, or (ii) the Fund is a
“domestically-controlled RIC.” A “domestically-controlled RIC” is any RIC in which at all times during the relevant
testing period 50% or more in value of the RIC’s stock is owned by U.S. persons.
Furthermore, special rules apply under FIRPTA
in respect of distributions attributable to gains from USRPIs. In general, if a Fund is a U.S. real property holding corporation (taking
certain special rules into account), distributions by such Fund attributable to gains from USRPIs will be treated as income effectively
connected with a trade or business within the U.S., subject generally to tax at the same graduated rates applicable to U.S. shareholders
and, in the case of a corporation that is a non-U.S. shareholder, a “branch profits” tax at a rate of 30% (or other applicable
lower treaty rate). Such distributions will be subject to U.S. federal withholding tax and generally will give rise to an obligation on
the part of the non-U.S. shareholder to file a U.S. federal income tax return.
Even if a Fund is treated as a U.S. real property
holding corporation, distributions on the Fund’s Shares will not be treated, under the rule described above, as income effectively
connected with a U.S. trade or business in the case of a non-U.S. shareholder that owns (for the applicable period) 5% or less (by class)
of Shares and such class is regularly traded on an established securities market for U.S. federal income tax purposes (but such distribution
will be treated as ordinary dividends, which may be subject to U.S. tax and withholding. Non-U.S. shareholders that engage in certain
“wash sale” and/or substitute dividend payment transactions the effect of which is to avoid the receipt of distributions from
the Fund that would be treated as gain effectively connected with a U.S. trade or business will be treated as having received such distributions.
All shareholders of the Fund should consult their
tax advisers regarding the application of the rules described above.
Back-Up Withholding
A Fund (or a financial intermediary such as a
broker through which a shareholder holds Shares in a Fund) may be required to report certain information on a Fund shareholder to the
IRS and withhold U.S. federal income tax (“backup withholding”) at a 24% rate from taxable distributions and redemption or
sale proceeds payable to the Fund shareholder if (i) the Fund shareholder fails to provide the Fund with a correct taxpayer identification
number or make required certifications, or if the IRS notifies the Fund that the Fund shareholder is otherwise subject to backup withholding,
and (ii) the Fund shareholder is not otherwise exempt from backup withholding. Non-U.S. shareholders can qualify for exemption from
backup withholding by submitting a properly completed IRS Form W-8BEN or W-8BEN-E. Backup withholding is not an additional tax and
any amount withheld may be credited against a Fund shareholder’s U.S. federal income tax liability.
Foreign Account Tax Compliance
Act
The U.S. Foreign Account Tax Compliance Act (“FATCA”)
generally imposes a 30% withholding tax on “withholdable payments” (defined below) made to (i) a “foreign financial
institution” (“FFI”), unless the FFI enters into an agreement with the IRS to provide information regarding certain
of its direct and indirect U.S. account holders and satisfy certain due diligence and other specified requirements, and (ii) a “non-financial
foreign entity” (“NFFE”) unless such NFFE provides certain information to the withholding agent about certain of its
direct and indirect “substantial U.S. owners” or certifies that it has no such U.S. owners. The beneficial owner of a “withholdable
payment” may be eligible for a refund or credit of the withheld tax. The U.S. government also has entered into several intergovernmental
agreements with other jurisdictions to provide an alternative, and generally easier, approach for FFIs to comply with FATCA.
“Withholdable payments” generally
include, among other items, (i) U.S.-source interest and dividends, and (ii) gross proceeds from the sale or disposition, occurring
on or after January 1, 2019, of property of a type that can produce U.S.-source interest or dividends. Proposed regulations may eliminate
the requirement to withhold on gross proceeds.
A Fund may be required to impose a 30% withholding
tax on withholdable payments to a shareholder if the shareholder fails to provide the Fund with the information, certifications or documentation
required under FATCA, including information, certification or documentation necessary for the Fund to determine if the shareholder is
a non-U.S. shareholder or a U.S. shareholder and, if it is a non-U.S. shareholder, if the non-U.S. shareholder has “substantial
U.S. owners” and/or is in compliance with (or meets an exception from) FATCA requirements. The Fund will not pay any additional
amounts to shareholders in respect of any amounts withheld. The Fund may disclose any shareholder information, certifications or documentation
to the IRS or other parties as necessary to comply with FATCA. The requirements of, and exceptions from, FATCA are complex. All prospective
shareholders are urged to consult their own tax advisors regarding the potential application of FATCA with respect to their own situation.
Section 351
The Trust, on behalf of each Fund, has the right
to reject an order for a purchase of Shares of the Fund if the purchaser (or any group of purchasers) would, upon obtaining the shares
so ordered, own 80% or more of the outstanding Shares of a given Fund and if, pursuant to Section 351 of the Code, that Fund would
have a basis in the Deposit Securities different from the market value of such securities on the date of deposit. The Trust also has the
right to require information necessary to determine beneficial share ownership for purposes of the 80% determination.
OTHER INFORMATION
The Funds are not sponsored, endorsed, sold or
promoted by the Exchange. The Exchange makes 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 Funds particularly or the ability of the Funds
to achieve their objective. The Exchange has no obligation or liability in connection with the administration, marketing or trading of
the Funds.
For purposes of the 1940 Act, the Funds are registered
investment companies, and the acquisition of Shares by other registered investment companies and companies relying on exemption from registration
as investment companies under Section 3(c)(1) or 3 (c)(7) of the 1940 Act is subject to the restrictions of Section 12(d)(1) of
the 1940 Act, except as permitted by an exemptive order that permits registered investment companies to invest in the Funds beyond those
limitations. Shareholder inquiries may be made by writing to the Trust, c/o IndexIQ Advisors LLC, 51 Madison Avenue, New York, New York
10010.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto for the IQ Hedge Multi-Strategy Tracker ETF, IQ Hedge Macro Tracker ETF, IQ Hedge Market Neutral Tracker ETF, IQ Hedge Long/Short Tracker ETF, IQ Hedge Event-Driven Tracker ETF, IQ 50 Percent Hedged FTSE International ETF, IQ Real Return ETF, IQ Merger Arbitrage ETF, IQ Global Resources ETF, IQ U.S. Real Estate Small Cap ETF, IQ Chaikin U.S. Small Cap ETF, IQ Chaikin U.S. Large Cap ETF, IQ 500 International ETF, IQ Candriam ESG US Equity ETF, IQ Candriam ESG International Equity ETF, and IQ Healthy Hearts ETF in the Funds’ Annual Report to Shareholders for their fiscal year ended April 30, 2021 (the “Annual Report”) are incorporated by reference into this SAI. No other parts of
the Annual Report are incorporated by reference herein.
The financial statements
included in the Annual Report have been audited by PricewaterhouseCoopers LLP, the Funds’ independent registered public
accounting firm, whose report thereon also appears in the Annual Report and is incorporated by reference into this SAI. Such financial
statements have been incorporated by reference herein in reliance upon such report given upon their authority as experts in accounting
and auditing.
As of April 30,
2021, IQ Chaikin U.S. Dividend Achievers ETF and IQ S&P U.S. Preferred Low Volatility High Dividend ETF had not commenced operations.
A copy of the Annual
Report for the fiscal period ended April 30, 2021 may be obtained upon request and without charge by calling the Advisor, writing
the Trust or visiting the Funds’ website as follows:
|
By telephone: |
1-888-474-7725 |
|
By mail: |
IndexIQ ETF Trust c/o |
|
|
IndexIQ 51 Madison Avenue |
|
|
New York, NY 10010 |
|
|
|
On the Internet: |
newyorklifeinvestments.com |
APPENDIX A
SUMMARY OF PROXY VOTING POLICY AND PROCEDURES
The Advisor exercises its proxy voting rights
with regard to the holdings in each Fund’s investment portfolio with the goals of maximizing the value of the Fund’s investments,
promoting accountability of a company’s management and board of directors (collectively, the “Management”) to its shareholders,
aligning the interests of management with those of shareholders, and increasing transparency of a company’s business and operations.
The Advisor seeks to avoid material conflicts
of interest through its use of a third-party proxy services vendor (the “Proxy Vendor”), which applies detailed, predetermined
proxy voting guidelines (the “Voting Guidelines”) in an objective and consistent manner across client accounts, based on research
and recommendations provided by a third-party vendor. For Funds that track an Index that incorporates environmental, sustainable and governance
factors (ESG), the Advisor will use Voting Guidelines designed to address ESG financial and social objectives of such investment strategies
and the Advisor’s assessment that investors in such Funds may expect portfolio companies to take more urgent action on certain proxy
voting proposals. The Advisor may vote differently on a proposal for different Funds. The Advisor engages a third party as an independent
fiduciary to vote all proxies for the Funds.
All proxy voting proposals are reviewed, categorized,
analyzed and voted in accordance with the Voting Guidelines. These guidelines are reviewed periodically and updated as necessary to reflect
new issues and any changes in our policies on specific issues. Items that can be categorized under the Voting Guidelines will be voted
in accordance with any applicable guidelines. Proposals that cannot be categorized under the Voting Guidelines will be referred to the
Portfolio Oversight Committee for discussion and vote. Additionally, the Portfolio Oversight Committee may review any proposal where it
has identified a particular company, industry or issue for special scrutiny. With regard to voting proxies of foreign companies, the Advisor
weighs the cost of voting, and potential inability to sell the securities (which may occur during the voting process) against the benefit
of voting the proxies to determine whether or not to vote.
APPENDIX B
SECURITIES
SETTLEMENTS FOR CREATIONS AND REDEMPTIONS
Each Fund
generally intends to effect deliveries of Creation Units and Deposit Securities on a basis of “T” plus two business days.
Each Fund may effect deliveries of Creation Units and Deposit Securities on a basis other than T plus two in order to accommodate local
holiday schedules, to account for different treatment among foreign and U.S. markets of dividend record dates and ex-dividend dates,
or under certain other circumstances. The ability of a Fund to effect in-kind creations and redemptions within two business days of receipt
of an order in good form is subject, among other things, to the condition that, within the time period from the date of the order to
the date of delivery of the securities, there are no days that are holidays in the applicable foreign market. For every occurrence of
one or more intervening holidays in the applicable foreign market that are not holidays observed in the U.S. equity market, the redemption
settlement cycle will be extended by the number of such intervening holidays, but not more than twelve calendar days. In the event that
a delay in a redemption settlement cycle will extend to more than twelve calendar days, the Fund will effect a cash-in-lieu redemption
to the extent necessary. In addition to holidays, other unforeseeable closings in a foreign market due to emergencies may also prevent
the Trust from delivering securities within the normal settlement period.
The securities
delivery cycles currently practicable for transferring Deposit Securities to redeeming investors, coupled with foreign market holiday
schedules, will require a delivery process longer than seven calendar days in certain circumstances.
The holidays
applicable to the Funds during such periods are listed below, as are instances where more than seven days will be needed to deliver redemption
proceeds. Although certain holidays may occur on different dates in subsequent years, the number of days required to deliver redemption
proceeds in any given year is not expected to exceed the maximum number of days listed below for the Funds. The proclamation of new holidays,
the treatment by market participants of certain days as “informal holidays” (e.g., days on which no or limited securities
transactions occur, as a result of substantially shortened trading hours), the elimination of existing holidays, or changes in local
securities delivery practices, could affect the information set forth herein at some time in the future.
The dates
of the Regular Holidays are:
Argentina |
Australia |
Austria |
Belgium |
Brazil |
Canada |
Chile |
August 17
October 12
November 23
December 8
December 25
January 1
February 15
February 16
March 24
April 1
April 2
May 25
June 17
July 9 |
December 25
December 28
January 1
January 26
April 2
April 5
|
October 26
December 8
December 25
January 1
April 2
April 5
May 24
|
November 11
December 25
January 1
April 2
April 5
|
September 7
October 12
November 2
November 20
December 24
December 25
December 31
January 1
February 15
February 16
February 17
April 2
April 21
|
August 3
September 7
October 12
November 11
December 24
December 25
December 28
January 1
February 15
April 2
May 24
July 1
|
August 15
September 18
October 12
December 8
December 25
January 1
April 2
May 21
June 28
July 16
|
China |
Denmark |
Finland |
France |
Germany |
Greece |
Hong
Kong |
October 1
October 2
October 5
October 6
October 7
January 1
February 11
February 12
February 15
February 16
February 17
April 5
June 14
|
December 24
December 25
December 31
January 1
April 1
April 2
April 5
April 30
May 13
May 24
|
December 24
December 25
December 31
January 1
April 2
April 5
May 13
|
December 24
December 25
December 31
January 1
April 2
April 5
|
December 24
December 25
December 31
January 1
April 2
April 5
May 24
|
October 28
December 24
December 25
December 31
January 1
January 6
March 15
March 25
April 2
April 5
April 30
May 1
May 3
June 21 |
October 1
October 7
December 25
December 26
January 1
February 12
February 15
April 2
April 5
May 3
May 19
July 1
|
India |
Ireland |
Israel |
Italy |
Japan |
Malaysia |
Mexico |
August 20
August 28
October 2
November 16
November 30
December 25
January 26
March 11
March 29
April 2
April 14
April 21
May 13
July 20
|
December 24
December 25
December 31
January 1
April 2
April 5
|
September 20
September 27
September 28
October 4
October 5
October 6
October 7
February 26
March 28
April 1
April 2
April 14
April 15
May 16
May 17
July 18
|
December 24
December 25
December 31
January 1
April 2
April 5
|
August 10
September 21
September 22
November 3
November 23
December 31
January 1
January 2
January 3
January 11
February 11
February 23
March 22
April 29
May 3
May 4
May 5
July 19 |
August 20
August 31
September 16
October 29
November 14
December 25
January 1
February 1
February 12
April 29
May 3
May 13
May 14
June 7
July 20
|
September 16
November 16
November 20
December 25
January 1
February 1
February 5
March 15
April 1
April 2
|
New
Zealand |
Netherlands |
Norway |
Portugal |
Singapore |
South
Africa |
South
Korea |
October 26
December 24
December 25
December 28
December 31
January 1
January 4
February 8
April 2
April 5
April 26
June 7 |
August 3
December 24
December 25
December 31
January 1
April 2
April 5
|
August 3
December 24
December 25
December 31
January 1
April 1
April 2
April 5
May 13
May 17
May 24
|
December 24
December 25
December 31
January 1
April 2
April 5
|
August 10
November 14
December 25
January 1
March 22
April 2
May 1
August 9
|
August 9
September 24
December 16
December 25
December 26
January 1
April 2
April 5
April 27
June 16
|
September 30
October 1
October 2
October 9
December 25
December 31
January 1
February 11
February 12
March 1
May 5
May 19 |
Spain |
Sweden |
Switzerland |
Taiwan |
Thailand |
United
Kingdom |
United
States |
December 24
December 25
December 31
January 1
April 2
April 5
|
December 24
December 25
December 31
January 1
April 2
April 5
May 13
June 25
|
December 24
December 25
December 31
January 1
April 2
April 5
May 13
May 24
|
October 1
October 9
October 10
January 1
February 11
February 12
February 15
February 16
April 5
June 14
|
August 12
October 13
October 23
December 7
December 10
December 31
January 1
April 6
April 13
April 14
April 15
May 3
May 4
June 3
July 28
|
August 31
December 24
December 25
December 31
January 1
April 2
April 5
May 3
May 31
|
September 7
November 26
December 25
January 1
January 18
February 15
April 2
May 31
July 5
|
STATEMENT OF ADDITIONAL INFORMATION
INDEXIQ ETF TRUST
51 MADISON AVENUE
NEW YORK, NEW YORK 10010
PHONE: (888) 474-7725
August 31, 2021
This Statement of
Additional Information (this “SAI”) is not a prospectus. It should be read in conjunction with and is incorporated by reference
into the prospectus dated August 31, 2021 (the “Prospectus”) for IQ S&P High Yield Low Volatility Bond ETF (“HYLV”)
(the “Fund”), a series of IndexIQ ETF Trust.
The Fund’s
Prospectus and the Fund’s Annual or Semi-Annual reports may be obtained without charge by writing to the Trust, c/o ALPS Distributors, Inc.,
1290 Broadway, Suite 1100, Denver, Colorado 80203, by calling (888) 474-7725, or by visiting the Trust’s website at newyorklifeinvestments.com.
Capitalized terms
used but not defined herein have the same meaning as in the Prospectus, unless otherwise noted.
Table
of Contents
No person has
been authorized to give any information or to make any representations other than those contained in this SAI and the Prospectus and,
if given or made, such information or representations may not be relied upon as having been authorized by the Trust.
The SAI does
not constitute an offer to sell securities.
The information
contained herein regarding the index underlying the Fund (the “Underlying Index”) and S&P Opco LLC (a subsidiary of S&P
Dow Jones Indices LLC) (the “Index Provider”) was provided by the Index Provider, while the information contained herein
regarding the securities markets and The Depository Trust Company was obtained from publicly available sources.
The Underlying
Index of the Fund is the S&P U.S. High Yield Low Volatility Corporate Bond Index.
GENERAL DESCRIPTION OF THE TRUST AND THE
FUND
The Trust was
organized as a Delaware statutory trust on July 1, 2008 and is authorized to have multiple segregated series or portfolios. The Trust
is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Trust currently consists of a number of separate investment portfolios, of which 17 are in operation. The Fund is deemed to be diversified
for the purposes of the 1940 Act. Other portfolios may be added to the Trust in the future. The shares of the Fund are referred to herein
as “Shares.” The offering of Shares is registered under the Securities Act of 1933, as amended (the “Securities Act”).
The Fund is managed
by IndexIQ Advisors LLC (the “Advisor”). The Advisor has been registered as an investment advisor with the Securities and
Exchange Commission (the “SEC”) since August 2007 and is a wholly-owned indirect subsidiary of New York Life Investment
Management Holdings LLC.
The Fund is Subadvised
by MacKay Shields LLC (the “Subadvisor”). The Subadvisor was incorporated in 1969 as an independent investment advisory firm
and has been registered as an investment advisor with the SEC since 1969. The Subadvisor was privately held until 1984 when it became
a wholly-owned subsidiary of New York Life.
The Fund offers
and issues Shares at net asset value (the “NAV”) only in aggregations of a specified number of Shares (each, a “Creation
Unit” or a “Creation Unit Aggregation”). The Shares of the Fund trade or are expected to trade on the NYSE Arca, Inc.
(the “Exchange”). Shares are redeemable only in Creation Unit Aggregations and, generally, in exchange for a basket Deposit
Securities together with a Cash Component. Creation Units are aggregations of 50,000 Shares of the Fund. In the event of the liquidation
of the Fund, the Trust may lower the number of Shares in a Creation Unit.
EXCHANGE LISTING AND TRADING
There can be
no assurance that the Fund will be able to maintain the listing of its Shares on an Exchange. The Exchange will consider the suspension
of trading and delisting of the Shares of the Fund from listing if (i) the Fund or Underlying Index does not comply with the Exchange’s
continuous listing requirements; or (ii) such other event shall occur or condition exist that, in the opinion of the Exchange, makes
further trading on the Exchange inadvisable. The Exchange will remove the Shares of the Fund from listing and trading upon termination
of the Fund.
The Fund’s
continued listing on the Exchange or another stock exchange or market system is a condition of the exemptive relief the Fund obtained
from the SEC to operate as an exchange-traded fund (“ETFs”). The Fund’s failure to be so listed would result in the
termination of the Fund.
As in the case
of other stocks traded on the Exchange, brokers’ commissions on transactions will be based on commission rates negotiated by an
investor and his or her broker.
The Trust reserves
the right to adjust the price levels of the Shares in the future to maintain convenient trading ranges for investors. Any adjustments
would be accomplished through stock splits or reverse stock splits, which would have no effect on the net assets of the Fund.
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives
The Fund has
an investment objective and policies that are distinct from the other series of the Trust. There can be no assurance that the Fund’s
objective will be achieved. The investment objective of the Fund is to provide investment results that correspond generally to the price
and yield (before the Fund’s fees and expenses) of a particular index Underlying Index.
All investment
objectives and investment policies not specifically designated as fundamental may be changed without shareholder approval. Additional
information about the Fund, its policies, and the investment instruments it may hold, is provided below.
The Fund’s
share prices will fluctuate with market and economic conditions. The Fund should not be relied upon as a complete investment program.
Investment Restrictions
The investment
restrictions set forth below have been adopted by the Board of Trustees of the Trust (the “Board”) as fundamental policies
that cannot be changed with respect to the Fund without the affirmative vote of the holders of a majority (as defined in the 1940 Act)
of the outstanding voting securities of the Fund. The investment objective of the Fund and all other investment policies or practices
of the Fund are considered by the Trust not to be fundamental and accordingly may be changed without shareholder approval. For purposes
of the 1940 Act, a “majority of the outstanding voting securities” means the lesser of the vote of (i) 67% or more of
the Shares of the Fund present at a meeting, if the holders of more than 50% of the outstanding Shares of the Fund are present or represented
by proxy, or (ii) more than 50% of the Shares of the Fund.
As a matter of
fundamental policy, the Fund:
| A. | May not invest 25% of its total assets in the securities of one or more issuers conducting their
principal business activities in the same industry or group of industries (excluding the United States (“U.S.”) government
or any of its agencies or instrumentalities). Nonetheless, to the extent the Fund’s Underlying Index is concentrated in a particular
industry or group of industries, the Fund’s investments will exceed this 25% limitation to the extent that it is necessary to gain
exposure to Underlying Index Components (as defined below) to track its Underlying Index. |
| B. | May borrow money, to the extent permitted under the 1940 Act, as such may be interpreted or modified
by regulatory authorities having jurisdiction, from time to time. |
| C. | May make loans permitted under the 1940 Act, as such may be interpreted or modified by regulatory
authorities having jurisdiction, from time to time. |
| D. | May act as an underwriter of securities within the meaning of the Securities Act, to the extent permitted
under the Securities Act, as such may be interpreted or modified by regulatory authorities having jurisdiction, from time to time. |
| E. | May purchase or sell real estate or any interest therein to the extent permitted under the 1940 Act,
as such may be interpreted or modified by regulatory authorities having jurisdiction, from time to time. |
| F. | May not purchase physical commodities or contracts relating to physical commodities, except as permitted
under the 1940 Act and other applicable laws, rules and regulations, as such may be interpreted or modified by regulatory authorities
having jurisdiction, from time to time. |
| G. | May issue senior securities, to the extent permitted under the 1940 Act, as such may be interpreted
or modified by regulatory authorities having jurisdiction, from time to time. |
Unless otherwise
indicated, all of the percentage limitations above and in the investment restrictions recited in the Prospectus apply only at the time
of an acquisition or encumbrance of securities or assets of the Fund, except that any borrowing by the Fund that exceeds applicable limitations
must be reduced to meet such limitations within the period required by the 1940 Act. Therefore, a change in the percentage that results
from a relative change in values or from a change in the Fund’s assets will not be considered a violation of the Fund’s policies
or restrictions. “Value” for the purposes of all investment restrictions shall mean the value used in determining the Fund’s
NAV.
INVESTMENT STRATEGIES AND RISKS
The general investment
strategies and risks of the Fund are described in the Prospectus. Additional information concerning the characteristics of certain of
the Fund’s investments, strategies and risk is set forth below.
General
Investment in
the Fund should be made with an understanding that the value of the portfolio of securities held by the Fund may fluctuate in accordance
with changes in the financial condition of the issuers of the portfolio securities, the value of corporate bonds and fixed income securities
generally, interest rates and other factors.
The Fund is not
actively managed by traditional methods and therefore the adverse financial condition of any one issuer will not result in the elimination
of its securities from the portfolio securities held by the Fund unless the securities of such issuer are removed from its respective
Underlying Index.
An investment
in the Fund should also be made with an understanding that the Fund will not be able to replicate exactly the performance of its Underlying
Index because the total return generated by its portfolio securities will be reduced by transaction costs incurred in adjusting the actual
balance of such securities and other Fund expenses, whereas such transaction costs and expenses are not included in the calculation of
its Underlying Index. It is also possible that for short periods of time, the Fund may not fully replicate the performance of its Underlying
Index due to the temporary unavailability of certain Underlying Index securities in the Secondary Market or due to other extraordinary
circumstances.
Such events are
unlikely to continue for an extended period of time because the Fund is required to correct such imbalances by means of adjusting the
composition of its portfolio securities. It is also possible that the composition of the Fund may not exactly replicate the composition
of its Underlying Index if the Fund has to adjust its portfolio securities in order to continue to qualify as a “regulated investment
company” under the Internal Revenue Code of 1986, as amended (the “Code”).
Under normal
circumstances, at least 80% of the Fund’s net assets, plus the amount of any borrowings for investment purposes, will be invested
in its Underlying Index Components. In determining the Fund’s net assets for the purposes of this 80% threshold, accounting practices
do not include collateral held under the Fund’s securities lending program, as such collateral does not represent a true asset of
the Fund. In addition, the Fund may invest up to 20% of its net assets in investments not included in its Underlying Index, but which
the Advisor believes will help the Fund track its Underlying Index. For example, there may be instances in which the Advisor may choose
to purchase (or sell) securities not in the Underlying Index that the Advisor believes are appropriate to substitute for one or more Underlying
Index Components in seeking to replicate, before fees and expenses, the performance of the Underlying Index.
Furthermore,
the Fund may invest in one or more financial instruments, including but not limited to futures contracts, swap agreements and forward
contracts, reverse repurchase agreements, and options on securities, and indices (collectively, “Financial Instruments”).
As an example of the use of such Financial Instruments, the Fund may use credit default swaps on one or more Underlying Index Components
in order to achieve exposures that are similar to those of the Underlying Index.
Bonds
The Fund invests a substantial portion of its
assets in corporate bonds. A bond is an interest-bearing security issued by a U.S. or non-U.S. company. The issuer of a bond has a contractual
obligation to pay interest at a stated rate on specific dates and to repay principal (the bond’s face value) periodically or on
a specified maturity date. Bonds generally are used by corporations and governments to borrow money from investors. The investment return
of corporate bonds reflects interest earned on the security and changes in the market value of the security. The market value of a corporate
bond may be affected by changes in the market rate of interest, the credit rating of the corporation, the corporation’s performance
and perceptions of the corporation in the market place. There is a risk that the issuers of the securities may not be able to meet their
obligations on interest or principal payments at the time called for by an instrument.
An issuer may
have the right to redeem or “call” a bond before maturity, in which case the Fund may have to reinvest the proceeds at lower
market rates. Similarly, the Fund may have to reinvest interest income or payments received when bonds mature, sometimes at lower market
rates. Most bonds bear interest income at a “coupon” rate that is fixed for the life of the bond. The value of a fixed-rate
bond usually rises when market interest rates fall, and falls when market interest rates rise. Accordingly, a fixed-rate bond’s
yield (income as a percent of the bond’s current value) may differ from its coupon rate as its value rises or falls. When an investor
purchases a fixed-rate bond at a price that is greater than its face value, the investor is purchasing the bond at a premium. Conversely,
when an investor purchases a fixed-rate bond at a price that is less than its face value, the investor is purchasing the bond at a discount.
Fixed-rate bonds that are purchased at a discount pay less current income than securities with comparable yields that are purchased at
face value, with the result that prices for such fixed-rate securities can be more volatile than prices for such securities that are purchased
at face value. Other types of bonds bear interest at an interest rate that is adjusted periodically. Interest rates on “floating
rate” or “variable rate” bonds may be higher or lower than current market rates for fixed-rate bonds of comparable quality
with similar final maturities. Because of their adjustable interest rates, the value of “floating rate” or “variable
rate” bonds fluctuates much less in response to market interest rate movements than the value of fixed-rate bonds, but their value
may decline if their interest rates do not rise as much, or as quickly, as interest rates in general. The Fund may treat some of these
bonds as having a shorter maturity for purposes of calculating the weighted average maturity of its investment portfolio. Generally, prices
of higher quality issues tend to fluctuate less with changes in market interest rates than prices of lower quality issues and prices of
longer maturity issues tend to fluctuate more than prices of shorter maturity issues. Bonds may be senior or subordinated obligations.
Senior obligations generally have the first claim on a corporation’s earnings and assets and, in the event of liquidation, are paid
before subordinated obligations. Bonds may be unsecured (backed only by the issuer’s general creditworthiness) or secured (backed
by specified collateral).
The value of
the debt securities generally will fluctuate depending on a number of factors, including, among others, changes in the perceived creditworthiness
of the issuers of those securities, movements in interest rates, and the maturity of the debt security. Generally, a rise in interest
rates will reduce the value of fixed-income securities, and a decline in interest rates will increase the value of fixed-income securities.
Longer term debt securities generally pay higher interest rates than do shorter term debt securities but also may experience greater price
volatility as interest rates change.
Ratings
The Fund will
invest in bonds that do not have an investment-grade rating. Bonds rated lower than Baa3 by Moody’s or BBB- by Standard &
Poor's Ratings Services or Fitch are considered below investment-grade quality and are obligations of issuers that are considered predominantly
speculative with respect to the issuer’s capacity to pay interest and repay principal according to the terms of the obligation and,
therefore, carry greater investment risk, including the possibility of issuer default and bankruptcy and increased market price volatility.
Such securities (“lower- rated securities”) are commonly referred to as “junk bonds” and are subject to a substantial
degree of credit risk. Lower-rated securities are often issued by smaller, less creditworthy companies or by highly leveraged (indebted)
firms, which are generally less able than more financially stable firms to make scheduled payments of interest and principal. The risks
posed by securities issued under such circumstances are substantial. Bonds rated below investment-grade tend to be less marketable than
higher-quality bonds because the market for them is less broad. The ratings of fixed-income securities by a credit rating agency are a
generally accepted barometer of credit risk. They are, however, subject to certain limitations from an investor's standpoint. The rating
of an issuer is heavily weighted by past developments and does not necessarily reflect future conditions. There is frequently a lag between
the time a rating is assigned and the time it is updated. In addition, there may be varying degrees of difference in credit risk of securities
in each rating category. Please see Appendix B of this SAI for a description of each rating category of Moody's, Standard & Poor's
Ratings Services and Fitch.
High Yield Securities
Typically, high
yield debt securities (sometimes called “junk bonds”) are rated below investment grade by one or more of the rating agencies
and are generally considered to be speculative. Investment in lower rated corporate debt securities provides greater income and increased
opportunity for capital appreciation than investments in higher quality securities, but they also typically entail greater price volatility
and principal and income risk. These high yield securities are regarded as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments.
Investors should
be willing to accept the risk associated with investment in high yield/high risk securities. Investment in high yield/high risk bonds
involves special risks in addition to the risks associated with investments in higher rated debt securities. High yield/high risk bonds
may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher grade bonds. The prices
of high yield/high risk bonds have been found to be less sensitive to interest-rate changes than more highly rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. The Secondary Market on which high yield/high risk bonds
are traded may be less liquid than the market for higher grade bonds. Less liquidity in the secondary trading market could adversely affect
the price at which the Fund could sell a high yield/high risk bond. A projection of an economic downturn or of a period of rising interest
rates, for example, could cause a decline in high yield/high risk bond prices because the advent of a recession could lessen the ability
of a highly leveraged company to make principal and interest payments on its debt securities. If such securities are determined to be
illiquid, then the Fund will limit its investment in these securities subject to its limitation on investments in illiquid securities.
Adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of high yield/high risk
bonds, especially in a thinly traded market.
Some high yield
securities are issued by smaller, less-seasoned companies, while others are issued as part of a corporate restructuring, such as an acquisition,
merger, or leveraged buyout. Companies that issue high yield securities are often highly leveraged and may not have available to them
more traditional methods of financing. Therefore, the risk associated with acquiring the securities of such issuers generally is greater
than is the case with investment-grade securities. Some high yield securities were once rated as investment-grade but have been downgraded
to junk bond status because of financial difficulties experienced by their issuers.
If the issuer
of high yield/high risk bonds defaults, the Fund may incur additional expenses to seek recovery. In the case of high yield/high risk bonds
structured as zero coupon or payment-in-kind securities, the market prices of such securities are affected to a greater extent by interest
rate changes, and therefore tend to be more volatile than securities that pay interest periodically and in cash.
Analysis of the
creditworthiness of issuers of high yield/high risk bonds may be more complex than for issuers of higher quality debt securities. When
Secondary Markets for high yield securities are less liquid than the market for higher grade securities, it may
be more difficult to value
the securities because such valuation may require more research, and elements of judgment may play a greater role in the valuation because
there is less reliable, objective data available. The use of credit ratings as the sole method for evaluating high yield/high risk bonds
also involves certain risks. For example, credit ratings evaluate the safety of principal and interest payments, not the market value
risk of high yield/high risk bonds. Also, credit rating agencies may fail to change credit ratings on a timely basis to reflect subsequent
events.
Floating and Variable Rate Securities
Floating and
variable rate securities provide for a periodic adjustment in the interest rate paid on the obligations. The terms of such obligations
must provide that interest rates are adjusted periodically based upon an interest rate adjustment index as provided in the respective
obligations. The adjustment intervals may be regular and range from daily up to annually, or may be based on an event, such as a change
in the prime rate.
Some variable
or floating rate securities are structured with liquidity features such as (1) put options or tender options that permit holders
(sometimes subject to conditions) to demand payment of the unpaid principal balance plus accrued interest from the issuers or certain
financial intermediaries or (2) auction rate features, remarketing provisions, or other maturity-shortening devices designed to enable
the issuer to refinance or redeem outstanding debt securities (market-dependent liquidity features). Variable or floating rate securities
that include market- dependent liquidity features may have greater liquidity risk than other securities, due to (for example) the failure
of a market-dependent liquidity feature to operate as intended (as a result of the issuer's declining creditworthiness, adverse market
conditions, or other factors) or the inability or unwillingness of a participating broker/dealer to make a Secondary Market for such securities.
As a result, variable or floating rate securities that include market-dependent liquidity features may lose value and the holders of such
securities may be required to retain them until the later of the repurchase date, the resale date, or maturity.
The interest
rate on a floating rate debt instrument (“floater”) is a variable rate that is tied to another interest rate, such as a money-market
index or Treasury bill rate. The interest rate on a floater may reset periodically, typically every three to six months, or whenever a
specified interest rate changes. While, because of the interest rate reset feature, floaters provide the Fund with a certain degree of
protection against rises in interest rates; the Fund will participate in any declines in interest rates as well.
Tracking Error Risk
The Fund’s
performance may not match its Underlying Index during any period of time. Although the Fund attempts to track the performance of its Underlying
Index, the Fund may not be able to duplicate its exact composition or return for any number of reasons, including but not limited to risk
that the strategies used by the Advisor to match the performance of the Underlying Index may fail to produce the intended results, liquidity
risk and new fund risk, as well as the incurring of Fund expenses, which the Underlying Index does not incur. For example, the Fund may
not be able to invest in certain securities included in its Underlying Index due to restrictions or limitations imposed, by or a lack
of liquidity in, certain countries and stock exchanges in which such securities trade, or may be delayed in purchasing or selling securities
included in the Underlying Index. To the extent the Fund intends to engage principally in cash transactions for the creation and redemption
of Shares, such practice will affect the Fund’s ability to match the return of its Underlying Index. In addition, tracking error
may be created by the use of underlying ETFs or derivative instruments to track Underlying Index Components. In addition, tracking error
may occur because of differences in timing of the accrual or the valuation of dividends or interest or tax gains or losses.
Lending of Portfolio Securities
The Fund may
lend portfolio securities constituting up to 331/3% of its total assets (as permitted by the 1940 Act). Under present regulatory policies,
such loans may be made to institutions, such as brokers or dealers, pursuant to agreements requiring the loans to be continuously secured
by collateral in cash, securities issued or guaranteed by the U.S. Government or one of its agencies or instrumentalities, irrevocable
bank letters of credit (upon consent of the Board) or any combination thereof, marked to market daily, at least equal to the market value
of the securities loaned. Cash received as collateral for securities lending transactions may be invested in liquid, short-term investments
approved by the Advisor.
Investing the
collateral subjects the Fund to risks, and the Fund will be responsible for any loss that may result from its investment of the borrowed
collateral. The Fund will have the right to terminate a loan at any time and recall the loaned securities within the normal and customary
settlement time for securities transactions. For the duration of a loan, the Fund will continue to receive the equivalent of the interest
or dividends paid by the issuer on the securities loaned and will also receive compensation from investment of the collateral. These events
could also trigger adverse tax consequences for the Fund.
The Fund will
generally not have the right to vote securities during the existence of the loan, but the Advisor may call the loan to exercise the Fund’s
voting or consent rights on material matters affecting the Fund’s investment in such loaned securities. As with
other extensions
of credit there are risks of delay in recovering, or even loss of rights in, the collateral and loaned securities should the borrower
of the securities fail financially.
Loans will be
made only to firms deemed creditworthy, and when the consideration which can be earned from securities loans is deemed to justify the
attendant risk. The creditworthiness of a borrower will be considered in determining whether to lend portfolio securities and will be
monitored during the period of the loan. It is intended that the value of securities loaned by the Fund will not exceed one-third of the
value of the Fund’s total assets (including the loan collateral). Loan collateral (including any investment of the collateral) is
not subject to the percentage limitations stated elsewhere in this SAI or the Prospectus regarding investing in fixed-income securities
and cash equivalents.
Money Market Instruments
The Fund may
invest a portion of its assets in high-quality money market instruments on an ongoing basis rather than in Underlying Index Components,
when it would be more efficient or less expensive for the Fund to do so, or as collateral for Financial Instruments, for liquidity purposes,
or to earn interest. The instruments in which the Fund may invest include: (1) short-term obligations issued by the U.S. government;
negotiable certificates of deposit (“CDs”), fixed time deposits and bankers’ acceptances of U.S. and foreign banks and
similar institutions; commercial paper; (4) repurchase agreements; and (5) money market mutual funds. CDs are short-term negotiable
obligations of commercial banks. Time deposits are non-negotiable deposits maintained in banking institutions for specified periods of
time at stated interest rates. Banker’s acceptances are time drafts drawn on commercial banks by borrowers, usually in connection
with international transactions.
Futures Contracts
The Fund may
enter into futures contracts. Futures contracts provide for the future sale by one party and purchase by another party of a specified
amount of a specific instrument or index at a specified future time and at a specified price. Assets committed to futures contracts will
be segregated by the custodian to the extent required by law.
Futures contracts
may be used by the Fund to replicate an Underlying Index Component’s performance. These futures contracts would reference the performance
of a security that is an Underlying Index Component or would reference the performance of an index on which such an Underlying Index Component
is based, would reference the performance of another index that produces similar returns to those of the Underlying Index Component’s
index, or would be used in combination to produce similar returns to those of the Underlying Index Component’s index. The Fund will
not use futures contracts for speculative purposes. All counterparties are subject to pre-approval by the Board. The Board’s pre-approval
is based on the creditworthiness of each potential futures contract counterparty. In addition, the Advisor will monitor and manage the
counterparty risk posed by the counterparties and take actions as necessary to decrease counterparty risk to the Fund by, among other
things, reducing futures contract exposures to certain counterparties and/or seeking alternate or additional counterparties.
The number of
counterparties may vary over time. During periods of credit market turmoil or when the aggregate futures contract notional amount needed
by the Fund is relatively small given the level of the Fund’s net assets, the Fund may have only one or a few counterparties. In
such circumstances, the Fund will be exposed to greater counterparty risk. Moreover, the Fund may be unable to enter into any futures
contract on terms that make economic sense (e.g., they may be too costly). To the extent that the Fund is unable to enter into any futures
contracts, it may not be able to meet its investment objective. If the Fund is unable to enter into futures contracts, it may engage in
other types of derivative transactions, although the added costs, higher asset segregation requirements and lower correlation to Underlying
Index Component performance of these other derivatives may adversely affect the Fund’s ability to meet its investment objective.
To the extent the
Fund makes investments that are regulated by the Commodities Futures Trading Commission, it intends to do so in accordance with Rule 4.5
under the Commodity Exchange Act (“CEA”). The Advisor has filed a notice of eligibility for exclusion from the definition
of the term “commodity pool operator” in accordance with Rule 4.5 and is therefore not subject to registration as a
commodity pool operator under the CEA.
Credit Default Swaps
The Fund may
invest in credit default swaps, including credit default swap index products (sometimes referred to as CDX index).
Credit default
swaps are contracts whereby one party, the protection “buyer,” makes periodic payments to a counterparty, the protection “seller,”
in exchange for the right to receive from the seller a payment equal to the par (or other agreed-upon value (the “value”)
of a particular debt obligation (the “referenced debt obligation”) in the event of a default by the issuer of that debt obligation.
A credit default swap may use one or more securities that are not currently held by the Fund as referenced debt obligations. The Fund
may be either the buyer or the seller in the transaction. The use of credit default swaps may be limited by the Fund’s limitations
on illiquid investments. When the Fund is the buyer of a credit default swap contract, the Fund would be
entitled to receive the value
of a referenced debt obligation from the seller in the event of a default by a third-party, such as a U.S. or non-U.S. issuer, on the
debt obligation. In return, the Fund would pay to the seller a periodic stream of payments over the term of the contract provided that
no event of default has occurred. If no default occurs, the Fund would have spent the stream of payments and received no benefit from
the contract. Credit default swaps involve the risk that, in the event that the Fund's Advisor or Subadvisor incorrectly evaluates the
creditworthiness of the issuer on which the swap is based, the investment may expire worthless and would generate income only in the event
of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial instability).
They also involve credit risk - that the seller may fail to satisfy its payment obligations to the Fund in the event of a default.
As the seller,
the Fund would effectively add leverage to its portfolio because, in addition to its total assets, the Fund would be subject to investment
exposure on the notional amount of the swap. In connection with credit default swaps in which the Fund is the seller, the Fund will maintain
appropriate liquid assets, or enter into offsetting positions.
In addition to
the risks applicable to derivatives generally, credit default swaps involve special risks because they are difficult to value, are highly
susceptible to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual
default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty).
The Fund may
also invest in a CDX index, which is an equally-weighted credit default swap index that is designed to track a representative segment
of the credit default swap market (e.g., investment grade, high volatility, below investment grade or emerging markets) and provides an
investor with exposure to specific “baskets” of issuers of certain debt instruments. CDX index products potentially allow
an investor to obtain the same investment exposure as an investor who invests in an individual credit default swap, with an increased
level of diversification. Generally, the value of the CDX index will fluctuate in response to changes in the perceived creditworthiness
or default experience of the basket of issuers of debt instruments to which the CDX index provides exposure. An investor’s investment
in a tranche of a CDX index provides customized exposure to certain segments of the CDX index’s potential loss distribution. The
lowest or riskiest tranche, known as the equity tranche, has exposure to the first losses experienced by the basket. The mezzanine and
senior tranches are higher in the capital structure but may also be exposed to losses in value. Investment in a CDX index is susceptible
to liquidity risk, along with credit risk, counterparty risk and others risks associated with an investment in a credit default swaps,
as discussed above.
Total Return Swaps
Total return
swaps give the Fund the right to receive the appreciation in the value of a specified security, index or other instrument in return for
a fee paid to the counterparty, which will typically be an agreed upon interest rate. Total return swaps can also be used to replicate
an exposure to a short position in an asset class where the Fund has the right to receive the depreciation in value of a specified security,
index or other instrument (“inverse swaps”). If the underlying asset in a total return swap declines in value (or increases
in value, if an inverse swap) over the term of the swap, the Fund may also be required to pay the dollar value of that decline (or increase,
if an inverse swap) to the counterparty.
The Fund may
use total return swaps to replicate an Underlying Index Component’s performance. These total return swaps would reference the performance
of a security that is an Underlying Index Component or an ETF, ETN or ETV (each an “exchange-traded issuer”) that is an Underlying
Index Component, an index on which such an exchange-traded issuer is based, or one or more of the portfolio constituents of such exchange-traded
issuer.
The Fund will
segregate liquid assets, which may include securities, cash or cash equivalents, to cover the Fund’s daily marked-to-market net
obligations under outstanding swap agreements. This segregation of assets may limit the Fund’s investment flexibility, as well as
its ability to meet redemption requests or other current obligations.
All counterparties
are subject to pre-approval by the Board. The Board’s pre-approval is based on the creditworthiness of each potential swap counterparty.
In addition, the Advisor will monitor and manage the counterparty risk posed by the counterparties and take actions as necessary to decrease
counterparty risk to the Fund by, among other things, reducing swap exposures to certain counterparties and/or seeking alternate or additional
counterparties.
The number of
counterparties may vary over time. During periods of credit market turmoil or when the aggregate swap notional amount needed by the Fund
is relatively small given the level of the Fund’s net assets, the Fund may have only one or a few counterparties. In such circumstances,
the Fund will be exposed to greater counterparty risk. Moreover, the Fund may be unable to enter into any total return swap on terms that
make economic sense (e.g., they may be too costly).
To the extent
that the Fund is unable to enter into any total return swaps, it may not be able to meet its investment objective. If the Fund is unable
to enter into total return swaps, it may engage in other types of derivative transactions, although the added costs,
higher asset segregation
requirements and lower correlation to Underlying Index Component performance of these other derivatives may adversely affect the Fund’s
ability to meet its investment objective.
Cyber Security and Disruptions
in Operations
With the increasing
use of the Internet and technology in connection with the Fund’s operations, the Funds have become more susceptible to greater operational
and information security risks resulting from breaches in cyber security. Cyber incidents can result from unintentional events (such as
an inadvertent release of confidential information) or deliberate attacks by insiders or third-parties, including cyber criminals, competitors,
nation-states and “hacktivists,” and can be perpetrated by a variety of complex means, including the use of stolen access
credentials, malware or other computer viruses, ransomware, phishing, structured query language injection attacks, and distributed denial
of service attacks, among other means. Cyber security breaches include, without limitation, infection by computer viruses and unauthorized
access to the Funds’ systems through “hacking” or other means for the purpose of misappropriating assets or sensitive
information, corrupting data, or causing operations to be disrupted. Cyber security breaches may also occur in a manner that does not
required gaining unauthorized access, such as denial-of-service attacks or situations where authorized individuals intentionally or unintentionally
release confidential information stored on the Funds’ system. A cyber security breach may cause disruptions and impact the Fund’s
business operations, which could potentially result in financial losses, inability to determine a Fund’s NAV impediments to trading,
the inability of shareholders to transact business, violation of applicable law, regulatory penalties and/or fines, compliance and other
costs. The Funds and their shareholders could be negatively impacted as a result. Further, substantial costs may be incurred in order
to prevent future cyber incidents.
The Funds and
their shareholders could be negatively impacted as a result. Further, substantial cost may be incurred in order to prevent future cyber
incidents. In addition, because the Funds work closely with third-party service providers (e.g., custodians), indirect cyber security
breaches at such third-party service providers may subject a Fund's shareholders to the same risks associated with direct cyber security
breaches. Further, indirect cyber security breaches at an issuer of securities in which the Funds invest may similarly negatively impact
a Fund's shareholders because of a decrease in the value of these securities.
While the Funds
have established risk management systems designed to reduce the risks associated with cyber security breaches, there can be no assurances
that such measures will be successful particularly since the Funds do not control the cyber security systems of issuers or third-party
service providers. The Funds and their respective shareholders could be negatively impacted as a result.
Liquidation of the Fund
The Board may determine
to close and liquidate the Fund at any time, which may have adverse consequences for shareholders. In the event of the liquidation of
the Fund, shareholders will receive a liquidating distribution in cash or in-kind. A liquidating distribution may be a taxable event
to shareholders, resulting in a gain or loss for tax purposes, depending upon a shareholder's basis in his or her Shares of the Fund.
A shareholder of a liquidating Fund may receive an amount in liquidation less than the shareholder’s original investment.
MANAGEMENT
Board
Responsibilities. The business of the Trust is managed under the direction of the Board. The Board has considered and approved
contracts, as described herein, under which certain companies provide essential management and administrative services to the Trust. The
day- to-day business of the Trust, including the day-to-day management of risk, is performed by the service providers of the Trust, such
as the Advisor, Subadvisor, Distributor and Administrator. The Board is responsible for overseeing the Trust’s service providers
and, thus, has oversight responsibility with respect to the risk management performed by those service providers. Risk management seeks
to identify and eliminate or mitigate the potential effects of risks such as events or circumstances that could have material adverse
effects on the business, operations, shareholder services, investment performance or reputation of the Trust or the Fund. The Board’s
role in risk management oversight begins before the inception of an investment portfolio, at which time the Advisor and Subadvisor present
the Board with information concerning the investment objectives, strategies and risks of the investment portfolio. Additionally, the Advisor
and Subadvisor provide the Board with an overview of, among other things, the firm’s investment philosophy, brokerage practices
and compliance infrastructure. Thereafter, the Board oversees the risk management of the investment portfolio’s operations, in part,
by requesting periodic reports from and otherwise communicating with various personnel of the service providers, including the Trust’s
Chief Compliance Officer and the independent registered public accounting firm of the Trust. The Board and, with respect to identified
risks that relate to its scope of expertise, the Audit Committee of the Board, oversee efforts by management and service providers to
manage risks to which the Fund may be exposed.
Under the overall
supervision of the Board and the Audit Committee (discussed in more detail below), the service providers to the Trust employ a variety
of processes, procedures and controls to identify risks relevant to the operations of the Trust and the Fund
to lessen the probability
of their occurrence and/or to mitigate the effects of such events or circumstances if they do occur. Each service provider is responsible
for one or more discrete aspects of the Trust’s business and, consequently, for managing the risks associated with that activity.
The Board is
responsible for overseeing the nature, extent and quality of the services provided to the Fund by the Advisor and Subadvisor and receives
information about those services at its regular meetings. In addition, on at least an annual basis, in connection with its consideration
of whether to renew the Advisory Agreement with the Advisor and the Subadvisory Agreement with the Subadvisor, the Board receives detailed
information from the Advisor and Subadvisor. Among other things, the Board regularly considers each of the Advisor’s and Subadvisor’s
adherence to the Fund’s investment restrictions and compliance with various policies and procedures of the Trust and with applicable
securities regulations. The Board also reviews information about the Fund’s performance and investments.
The Trust’s
Chief Compliance Officer meets regularly with the Board to review and discuss compliance and other issues. At least annually, the Trust’s
Chief Compliance Officer provides the Board with a report reviewing the adequacy and effectiveness of the Trust’s policies and procedures
and those of its service providers, including the Advisor and Subadvisor. The report addresses the operation of the policies and procedures
of the Trust and each service provider since the date of the last report, material changes to the policies and procedures since the date
of the last report, any recommendations for material changes to the policies and procedures, and material compliance matters since the
date of the last report.
The Board receives
reports from the Trust’s service providers regarding operational risks, portfolio valuation and other matters. Annually, the independent
registered public accounting firm reviews with the Audit Committee its audit of the financial statements of the Fund, focusing on major
areas of risk encountered by the Trust and noting any significant deficiencies or material weaknesses in the Trust’s internal controls.
The Board recognizes
that not all risks that may affect the Fund can be identified, that it may not be practical or cost-effective to eliminate or mitigate
certain risks, that it may be necessary to bear certain risks (such as investment-related risks) to achieve the Fund’s goals, and
that the processes, procedures and controls employed to address certain risks may be limited in their effectiveness. Moreover, despite
the periodic reports the Board receives and the Board’s discussions with the service providers to the Trust, it may not be made
aware of all of the relevant information of a particular risk. Most of the Trust’s investment management and business affairs are
carried out by or through the Advisor and other service providers, each of which has an independent interest in risk management but whose
policies and the methods by which one or more risk management functions are carried out may differ from the Trust’s and each other’s
in the setting of priorities, the resources available or the effectiveness of relevant controls. As a result of the foregoing and other
factors, the Board’s risk management oversight is subject to substantial limitations.
Additionally,
as required by Rule 22e-4 under the 1940 Act, the Trust has implemented a written liquidity risk management program and related procedures
(“Liquidity Program”) that is reasonably designed to assess and manage the Fund’s “liquidity risk” (defined
by the SEC 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). The Liquidity Program is reasonably designed to assess and manage the Fund’s liquidity
risk. The Board, including a majority of the Independent Trustees, approved the designation of IndexIQ Advisors as the Liquidity Program’s
Administrator. The Board will review, no less frequently than annually, a written report prepared by the Liquidity Program's Administrator
that addresses the operation of the Liquidity Program and assesses its adequacy and effectiveness of implementation.
The Board also
benefits from other risk management resources and functions within New York Life, such as its risk management personnel and internal auditor
department. The Board recognizes that it is not possible to identify all of the risks that may affect the Fund or to develop processes
and controls to mitigate or eliminate all risks and their possible effects, and that it may be necessary to bear certain risks (such as
investment risks) to achieve the Fund’s investment objectives. The Board may, at any time and in its discretion, change the manner
in which it conducts risk oversight.
Members
of the Board and Officers of the Trust. Set forth below are the names, years of birth, position with the Trust, term of office,
portfolios supervised and the principal occupations and other directorships for a minimum of the last five years of each of the persons
currently serving as members of the Board and as Executive Officers of the Trust. Also included below is the term of office for each of
the Executive Officers of the Trust. The members of the Board serve as Trustees for the life of the Trust or until retirement, removal,
or their office is terminated pursuant to the Trust’s Declaration of Trust.
Reena Aggarwal,
an Independent Trustee, is Chair of the Board of Trustees. Three of the Trustees, Reena Aggarwal, Michael Pignataro and Paul Schaeffer,
and their immediate family members have no affiliation or business connection with the Advisor or the Fund’s principal underwriter
or any of their affiliated persons and do not own any stock or other securities issued by the Advisor or the Fund’s principal underwriter.
These Trustees are not Interested Persons of the Trust and are referred to herein as
“Independent Trustees.” Kirk Lehneis
(the “Interested Trustee”) is an interested person of the Trust as that term is defined under Section 2 (a) (19)
of the 1940 Act because of his affiliation with the Advisor.
There is an Audit
Committee and Nominating Committee of the Board, each of which is chaired by an Independent Trustee and comprised solely of Independent
Trustees. The Committee chair for each is responsible for running the Committee meeting, formulating agendas for those meetings, and coordinating
with management to serve as a liaison between the Independent Trustees and management on matters within the scope of the responsibilities
of such Committee as set forth in its Board-approved charter. There is a Valuation Committee, which is comprised of the Independent Trustees
and representatives of the Advisor to take action in connection with the valuation of portfolio securities held by the Fund in accordance
with the Board-approved Valuation Procedures. The Board has determined that this leadership structure is appropriate given the specific
characteristics and circumstances of the series of the Trust. The Board made this determination in consideration of, among other things,
the fact that the Independent Trustees constitute a majority of the Board, the assets under management of the series of the Trust, the
number of portfolios overseen by the Board and the total number of trustees on the Board.
Independent
Trustees |
|
|
|
|
|
Name
and Year of
Birth(1) |
Position(s) Held
with
Trust |
Term
of Office and
Length of Time
Served(2) |
Principal
Occupation(s) During
Past 5 Years |
Number of
Portfolios in Fund
Complex Overseen by
Trustee(3) |
Other
Directorships Held by
Trustee During Past
5 Years |
Reena
Aggarwal, 1957 |
Trustee
Chair |
Since August 2008
Since January
2018 |
Vice
Provost of Faculty (2016 to present), Georgetown University, Robert E. McDonough Professor (2003 to present) and Professor of Finance,
McDonough School of Business, Georgetown University (2000 to present); Director, Georgetown Center for Financial Markets and Policy
(2010 to present); Co-Chair of Board, Social Innovations and Public Service Fund, Georgetown University (2012 to 2014). |
21 |
FBR &
Co. (investment banking) (2011 to 2017); Cohen & Steers (asset management) (2017 to present); Director, Brightwood Capital
Advisors, L.P. (private equity investment) (2013 to present); Nuveen Churchill BDC (2019 to present). |
Michael A.
Pignataro, 1959 |
Trustee |
Since
April 2015 |
Retired;
formerly, Director, Credit Suisse Asset Management (2001 to 2012); and Chief Financial Officer, Credit Suisse Funds (1996 to 2013). |
21 |
The
New Ireland Fund, Inc. (closed-end fund) (2015 to present). |
Paul
D. Schaeffer, 1951 |
Trustee |
Since
April 2015 |
President,
ASP (dba Aspiring Solution Partners) (financial services consulting) (2013 to present); Consultant and Executive Advisor, Aquiline
Capital Partners LLC (private equity investment) (2014 to present). |
21 |
Management
Board Member, RIA in a Box LLC (financial services consulting) (2018 to present); Context
Capital Funds (mutual fund trust) (2 Portfolios) (2014 to 2018); Management Board Member,
Altegris Investments, LLC (registered broker-dealer) (2016 to 2018); Management Board Member,
AssetMark Inc. (financial services consulting) (2016 to 2017); PopTech!
|
|
|
|
|
|
(conference
operator) (2012 to 2016); Board Member, Pathways Core Training (non-profit) (2019 to present); Board Member, Center for Collaborative
Investigative Journalism (non-profit) (2020-present). |
Interested
Trustee |
|
|
|
|
|
Kirk
C. Lehneis, 1974(4) |
Trustee, President and
Principal Executive
Officer |
Since
January 2018 |
Chief
Operating Officer and Senior Managing Director, New York Life Investment Management LLC (since 2016); Chief Executive Officer, IndexIQ
Advisors LLC (since 2018); Chairman of the Board, NYLIM Service Company LLC (since September 2017); President, MainStay DefinedTerm
Municipal Opportunities Fund, MainStay Funds, MainStay Funds Trust, and MainStay VP Funds Trust (since September 2017). |
21 |
None. |
Officers |
|
|
|
Name
and Year of Birth(1) |
Term
of Office and Position(s) Held with Trust |
Length
of Time Served(2) |
Principal
Occupation(s) During Past 5 Years |
Jonathan
Zimmerman, 1982 |
Executive
Vice President |
Since
April 2018 |
Chief
Operating Officer, IndexIQ Advisors (2018 to present); Managing Director, New York Life Investments LLC (2018 to present); Director,
New York Life Investment Management LLC (2015 to 2018); Vice President, Morgan Stanley (2007 to 2015). |
Adefolahan
Oyefeso, 1974 |
Treasurer,
Principal Financial Officer and Principal Accounting Officer |
Since
April 2018 |
Vice
President of Operations & Finance, IndexIQ Advisors (2015 to present); Director of the Fund Administration Client Service
Department at The Bank of New York Mellon (2007 to 2015). |
Matthew
V. Curtin, 1982 |
Secretary
and Chief Legal Officer |
Since
June 2015 |
Secretary
and Chief Legal Officer, IndexIQ Advisors (since 2015), Chief Compliance Officer, IndexIQ, IndexIQ ETF Trust and IndexIQ
Active ETF Trust (June 2015 to January 2017); Associate General Counsel, New York Life Insurance Company (since February 2015);
Associate, Dechert LLP (2007 to 2015). |
Kevin M. Bopp,
1969
|
Chief
Compliance
Officer
|
Since June 2021
|
Chief
Compliance Officer, IndexIQ ETF Trust and IndexIQ Active ETF Trust (since 2021); Head
of Investments Compliance, New York Life Investments (since 2019); Chief Compliance Officer, IndexIQ
Advisors (since 2017); Chief Compliance Officer, IndexIQ ETF Trust and IndexIQ Active
ETF Trust (2017 to 2019) Vice President and Chief Compliance Officer, The MainStay Funds,
MainStay Funds
|
|
|
|
Trust,
MainStay MacKay DefinedTerm Municipal Opportunities Fund and MainStay VP Funds Trust (2014 to 2019). |
|
|
|
|
| (1) | The address of each Trustee or officer is c/o IndexIQ Advisors, 51 Madison Avenue, New York, New York
10010. |
| (2) | Trustees and Officers serve until their successors are duly elected and qualified. |
| (3) | The
Fund is part of a “fund complex” as defined in the 1940 Act. The fund complex
includes all operational open-end funds (including all of their portfolios) advised by the
Advisor and any funds that have an investment advisor that is an affiliated person of the
Advisor. |
| (4) | Mr. Lehneis is an “interested person” of the Trust (as that term is defined in the 1940
Act) because of his affiliations with the Advisor. |
The Board
met 5 times during the fiscal year ended April 30, 2021.
Description of Standing Board Committees
Audit Committee.
The principal responsibilities of the Audit Committee are the appointment, compensation and oversight of the Trust’s independent
auditors, including the resolution of disagreements regarding financial reporting between Trust management and such independent auditors.
The Audit Committee’s responsibilities include, without limitation, to (i) oversee the accounting and financial reporting
processes of the Trust and its internal control over financial reporting and, as the Committee deems appropriate, to inquire into the
internal control over financial reporting of certain third-party service providers; (ii) oversee the quality and integrity of the
financial statements and the independent audits of the series of the Trust; (iii) oversee, or, as appropriate, assist Board oversight
of, the Trust’s compliance with legal and regulatory requirements that relate to the Trust’s accounting and financial reporting,
internal control over financial reporting and independent audits; (iv) approve prior to appointment the engagement of the Trust’s
independent auditors and, in connection therewith, to review and evaluate the qualifications, independence and performance of the Trust’s
independent auditors; and (v) act as a liaison between the Trust’s independent auditors and the full Board. The Board has
adopted a written charter for the Audit Committee. All of the Independent Trustees serve on the Trust’s Audit Committee. During
the fiscal year ended April 30, 2021, the Audit Committee met 4 times.
Nominating Committee.
The Nominating Committee has been established to: (i) assist the Board in matters involving mutual fund governance and industry
practices; (ii) select and nominate candidates for appointment or election to serve as Trustees who are not “interested persons”
of the Trust or its Advisor or distributor (as defined by the 1940 Act); and (iii) advise the Board of Trustees on ways to improve
its effectiveness. All of the Independent Trustees serve on the Nominating Committee. As stated above, each Trustee holds office for
an indefinite term until the occurrence of certain events. In filling Board vacancies, the Nominating Committee will consider nominees
recommended by shareholders. Nominee recommendations should be submitted to the Trust at its mailing address stated in the Fund’s
Prospectus and should be directed to the attention of the IndexIQ ETF Trust Nominating Committee. During the fiscal year ended April 30,
2021, the Nominating Committee met 1 time.
Valuation Committee.
The Valuation Committee shall oversee the implementation of the Trust’s Valuation Procedures. The Valuation Committee shall make
fair value determinations on behalf of the Board as specified in the Valuation Procedures. The Valuation Committee has appointed the
Advisor Fair Valuation Committee to deal in the first instance with questions that arise or cannot be resolved under the Valuation Procedures.
All of the Independent Trustees serve on the Trust’s Valuation Committee. During the fiscal year ended April 30, 2021, the
Valuation Committee met 4 times.
Individual Trustee Qualifications
The Trust has
concluded that each of the Trustees should serve on the Board because of their ability to review and understand information about the
Trust and its series provided to them by management, to identify and request other information they may deem relevant to the performance
of their duties, to question management and other service providers regarding material factors bearing on the management and administration
of the series of the Trust, and to exercise their business judgment in a manner that serves the best interests of the Fund’s shareholders.
The Trust has concluded that each of the Trustees should serve as a Trustee based on their own experience, qualifications, attributes
and skills as described below.
The Trust has
concluded that Ms. Aggarwal should serve as trustee of the Trust and as an audit committee financial expert because of the experience
she has gained as a professor of finance, deputy dean at Georgetown University’s McDonough School of Business and Director of the
Georgetown Center for Financial Markets and Policy, her service as trustee for another mutual fund family, the experience she has gained
serving as trustee of the Trust’s series since 2008 and her general expertise with respect to financial matters and accounting principles.
The Trust has
concluded that Mr. Pignataro should serve as trustee of the Trust and as an audit committee financial expert because of the experience
he has gained as a businessman and, in particular, his prior service in the financial services industry as a Director of Credit Suisse
Asset Management and Chief Financial Officer of the Credit Suisse Funds.
The Trust has
concluded that Mr. Schaeffer should serve as trustee of the Trust because of his experience in the financial services industry, including
his experience as a director of and service provider to investment companies.
The Trust has
concluded that Mr. Lehneis should serve as trustee of the Trust because of the experience he has gained as President of the MainStay
Funds, Chief Operating Officer of New York Life Investment Management LLC and President of IndexIQ Advisors, his knowledge of and experience
in the financial services industry and the experience he has gained serving as Chairman of the Board of New York Life Investment Management
LLC since 2017.
Trustee Ownership of Shares
Listed below for
each Trustee is a dollar range of securities beneficially owned in the Trust together with the aggregate dollar range of equity securities
in all registered investment companies overseen by each Trustee that are in the same family of investment companies as the Trust, as
of April 30, 2021.
Name
of Trustee | |
Dollar
Range of Equity Securities in the Fund | |
Aggregate
Dollar Range of Equity Securities in
All Registered Investment Companies
Overseen by Trustee in Family of Investment
Companies(1) |
Reena Aggarwal | |
None | |
None |
Michael A. Pignataro | |
None | |
None |
Paul D. Schaeffer | |
None | |
$50,001-$100,000 |
Kirk
C. Lehneis(2) | |
None | |
None |
| (1) | The fund complex includes all operational
open-end funds (including all of their portfolios) advised by the Advisor and any funds that
have an investment advisor that is an affiliated person of the Advisor. |
| (2) | Mr. Lehneis is an “interested person” of the Trust (as that term is defined in the 1940
Act) because of his affiliations with the Advisor. |
Board Compensation
Effective, October 1,
2020, each Independent Trustee receives from the Fund Complex, either directly or indirectly, an annual retained of $52,000. Prior to
October 1, 2020, each Independent Trustee receives from the Fund Complex, either directly or indirectly, an annual retainer of $46,000.
In addition, as the Chair of the Board, Ms. Aggarwal receives an annual stipend of $35,000; as Audit Committee chair, Mr. Pignataro
receives an annual stipend of $10,000; and as Valuation Committee chair, Mr. Schaeffer receives an annual stipend of $10,000. In
addition, the Independent Trustees are reimbursed for all reasonable travel expenses relating to their attendance at the Board Meetings.
The following table sets forth certain information with respect to the compensation of each Trustee for the fiscal year ended April 30,
2021:
Name and
Position | |
Pension
or
Retirement Benefits Accrued As
Part of
Trust Expenses | |
Estimated
Annual
Benefits Upon Retirement | |
Total
Compensation
From Trust and Fund
Complex Paid
to Trustees(1) | |
Reena Aggarwal,
Trustee | |
N/A | |
N/A | |
$ | 84,500 | |
Michael A. Pignataro, Trustee | |
N/A | |
N/A | |
$ | 59,500 | |
Paul D. Schaeffer, Trustee | |
N/A | |
N/A | |
$ | 59,500 | |
Kirk
C. Lehneis, Trustee, President and Principal Executive Officer(2) | |
None | |
None | |
$ | None | |
| (1) | The fund complex includes all operational
open-end funds (including all of their portfolios) advised by the Advisor and any funds that
have an investment advisor that is an affiliated person of the Advisor. |
| (2) | Mr. Lehneis is an “interested person” of the Trust (as that term is defined in the 1940
Act) because of his affiliations with the Advisor. |
Code of Ethics
The Trust, its
Advisor, Subadvisor and principal underwriter have each adopted a code of ethics under Rule 17j-1 of the 1940 Act that permit personnel
subject to their particular codes of ethics to invest in securities, including securities that may be purchased or held by the Fund.
PROXY VOTING POLICIES
The Board believes
that the voting of proxies on securities held by the Fund is an important element of the overall investment process. As such, the Board
has delegated responsibility for decisions regarding proxy voting for securities held by each series of the Trust to the Advisor. Where
the Fund has retained the services of a Subadvisor to provide day-to-day portfolio management for the Fund, the Advisor may delegate proxy
voting authority to the Subadvisor; provided that, as specified in the Advisor’s Proxy Voting Policies and Procedures, the Subadvisor
has demonstrated that its proxy voting policies and procedures are consistent with the Advisor’s Proxy Voting Policies and Procedures
or are otherwise implemented in the best interests of the Advisor’s clients and
appear to comply with governing regulations. The
Fund may revoke all or part of this delegation (to the Advisor and/or Subadvisor as applicable) at any time by a vote of the Board. The
Advisor has delegated proxy-voting authority to the Fund’s Subadvisor. A summary of the Subadvisor’s proxy voting policies
and procedures is included in Appendix A to this Statement of Additional Information. The Board will periodically review each series’
proxy voting record.
The Trust is
required to disclose annually the series complete proxy voting record on Form N-PX covering the period July 1 through June 30
and file it with the SEC no later than August 31 of each year. The Fund’s Form N-PX will be available at no charge upon
request by calling 1- 888-474-7725. It will also be available on the SEC’s website at www.sec.gov.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF
SECURITIES
Although the Trust
does not have information concerning the beneficial ownership of shares held in the names of Depository Trust Company (“DTC”)
participants (“DTC Participants”), as of July 31, 2021 the name and percentage ownership of each DTC Participant that
owned of record 5% or more of the outstanding shares of the Fund is set forth in the table below.
Fund Name | |
DTC Participants | |
Percentage
of Ownership (rounded
to the nearest whole
percentage) | |
IQ
S&P High Yield Low Volatility Bond ETF | |
National Financial Services
LLC 499 Washington Blvd. Jersey City, NJ 07310 | |
| 21.25 | % |
| |
Charles Schwab & Co., Inc.
2423 E Lincoln Drive Phoenix, AZ 85016-1215 | |
| 16.54 | % |
| |
Morgan Stanley Smith Barney LLC 1300
Thames St. 6th Floor Baltimore, MD 21231 | |
| 12.76 | % |
| |
TD Ameritrade 4700 Alliance Gateway
Freeway Fort Worth, TX 76177 | |
| 11.34 | % |
| |
Merrill Lynch, Pierce, Fenner &
Smith Inc. 4804 Deerlake Dr. E. Jacksonville, FL 32246 | |
| 9.44 | % |
| |
Goldman Sachs & Co. LLC 30
Hudson Street Proxy Department Jersey City, NJ 07302 | |
| 6.73 | % |
| |
Bank of America 200 North College
Street Charlotte, NC 28255 | |
| 5.07 | % |
The Advisor is an
affiliate and subsidiary of New York Life Investment Management LLC (“NYLIM”) and of New York Life Insurance & Annuity
Corporation (“NYLife”). As of July 31, 2021, NYLIM and NYLife did not own Shares of the Fund.
MANAGEMENT SERVICES
The following
information supplements and should be read in conjunction with the section in the Prospectus entitled “Management.”
Investment Advisor
IndexIQ Advisors
LLC, the Advisor, serves as investment advisor to the Fund, and has overall responsibility for the general management and administration
of the Trust, pursuant to the Investment Advisory Agreement between the Trust and the Advisor (the “Advisory Agreement”).
Under the Advisory Agreement, the Advisor, subject to the supervision of the Board provides an investment program for the Fund and is
responsible for the retention of subadvisors to manage the investment of the Fund’s assets in conformity with its stated investment
objective and principal investment policies of the Fund if the Advisor does not provide these services. The Advisor is responsible for
the supervision of the Subadvisor and its management of the investment portfolio
of the Fund. The Advisor also arranges for the provision
of distribution, subadvisory, transfer agency, custody, administration and all other services necessary for the Fund to operate.
Section 15(a) of
the 1940 Act requires that all contracts pursuant to which persons serve as investment advisors to investment companies be approved by
shareholders. As interpreted, this requirement also applies to the appointment of subadvisors to the Fund. The Advisor and the Fund have
obtained an exemptive order (the “Order”) from the SEC permitting the Advisor, on behalf of the Fund and subject to the approval
of the Board, including a majority of the Independent Trustees, to hire or terminate unaffiliated subadvisors and to modify any existing
or future subadvisory agreement with unaffiliated subadvisors without shareholder approval. This authority is subject to certain conditions.
The Fund will notify shareholders and provide them with certain information required by the Order within 90 days of hiring a new subadvisor.
The Fund’s sole shareholder has approved the use of the Order.
The Advisory
Agreement will remain in effect with respect to the Fund from year to year provided such continuance is specifically approved at least
annually by (i) the vote of a majority of the Fund’s outstanding voting securities or a majority of the Trustees of the Trust,
and (ii) the vote of a majority of the Independent Trustees of the Trust, cast in person at a meeting called for the purpose of voting
on such approval.
The Advisory
Agreement will terminate automatically if assigned (as defined in the 1940 Act). The Advisory Agreement is also terminable with respect
to the Fund at any time without penalty by the Board Trustees of the Trust or by vote of a majority of the outstanding voting securities
of the Fund on 60 days’ written notice to the Advisor or by the Advisor on 60 days’ written notice to the Trust.
Pursuant to the
Advisory Agreement, the Advisor is entitled to receive a fee, payable monthly in arrears, at the annual rate for the Fund of 0.40% based
on a percentage of its average daily net assets.
In consideration
of the fees paid with respect to the Fund, the Advisor has agreed to pay all expenses of the Trust, except (i) brokerage and other
transaction expenses, including taxes; (ii) extraordinary legal fees or expenses, such as those for litigation or arbitration; (iii) compensation
and expenses of the Independent Trustees, counsel to the Independent Trustees, and the Trust’s chief compliance officer; (iv) extraordinary
expenses; (v) distribution fees and expenses paid by the Trust under any distribution plan adopted pursuant to Rule 12b-1 under
the 1940 Act; and (vi) the advisory fee payable to the Advisor hereunder.
As described below,
the Advisor has agreed, through August 31, 2022, to waive fees and reimburse expenses of the Fund. For the last three fiscal years
ended April 30, advisory fees paid to the Advisor were as follows:
| |
| | |
Fees
Paid to the Advisor | |
Fund Name | |
Commencement
of Operations | | |
Fiscal
Year Ended
2019 | | |
Fiscal
Year Ended
2020 | | |
Fiscal
Year Ended
2021 | |
IQ S&P High
Yield Low Volatility Bond ETF | |
| 2/15/17 | | |
$ | 343,624 | | |
$ | 252,155 | | |
$ | 400,716 | |
In addition to
providing advisory services under the Advisory Agreement, the Advisor also: (i) supervises all non-advisory operations of the Fund;
(ii) provides personnel to perform such executive, administrative and clerical services as are reasonably necessary to provide effective
administration of the Fund; (iii) arranges for (a) the preparation of all required tax returns, (b) the preparation and
submission of reports to existing shareholders, (c) the periodic updating of prospectuses and statements of additional information
and (d) the preparation of reports to be filed with the SEC and other regulatory authorities; (iv) maintains the records of
the Fund; and (v) provides office space and all necessary office equipment and services.
Expense Limitation Agreement
The Advisor has
entered into an Expense Limitation Agreement (“Expense Limitation Agreement”) with the Fund under which it has agreed to
waive or reduce its fees and to assume other expenses of the Fund in an amount that limits “Total Annual Fund Operating Expenses”
(exclusive of interest, taxes, brokerage fees and commissions, dividends paid on short sales, acquired fund fees and expenses, and extraordinary
expenses, if any, and payments, if any, under the Rule 12b-1 Plan) to not more than 0.40% of the average daily net assets of the
Fund for the twelve months ending August 31, 2022.
The Advisor currently
expects that the contractual agreement will continue from fiscal year-to-fiscal year, provided such continuance is approved by the Board
on behalf of the Fund. The terms of the Expense Limitation Agreement may be revised upon renewal. The Board may terminate the Expense
Limitation Agreement at any time. The Advisor may also terminate the Expense Limitation Agreement at the end of the then-current term
upon not less than 90 days’ notice to the Trust.
For the last
three fiscal years ended April 30, the Advisor waived or reimbursed the following amounts:
| |
| | |
Fees
Waived and/or Expenses Reimbursed | |
Fund Name | |
Commencement
of
Operations | | |
Fiscal
Year Ended
2019 | | |
Fiscal
Year Ended
2020 | | |
Fiscal
Year Ended
2021 | |
IQ S&P High
Yield Low Volatility Bond ETF | |
| 2/15/17 | | |
$ | 8,720 | | |
$ | 7,260 | | |
$ | 10,600 | |
Subadvisor
MacKay Shields LLC,
located at 1345 Avenue of the Americas, New York, New York 10105, serves as investment subadvisor to the Fund pursuant to the Investment
Subadvisory Agreement between the Advisor and the Subadvisor (the “Subadvisory Agreement”). The Subadvisor is responsible
for placing purchase and sale orders and shall make investment decisions for the Fund, subject to the supervision by the Advisor and
the Board. For its services, the Subadvisor is compensated by the Advisor. As of June 30, 2021, the Subadvisor managed approximately
$161.85 billion in assets.
The Subadvisory
Agreement will continue in effect with respect to the Fund from year to year provided such continuance is specifically approved at least
annually by (i) the vote of a majority of the Fund’s outstanding voting securities or a majority of the Board, and (ii) the
vote of a majority of the Independent Trustees of the Trust, cast in person at a meeting called for the purpose of voting on such approval.
To the extent that the Advisor has agreed to waive its Advisory Fee or reimburse expenses, the Subadvisor has voluntarily agreed to waive
or reimburse its fee proportionately.
The Subadvisory
Agreement provides that the Subadvisor shall not be liable to the Fund for any error of judgment by the Subadvisor or for any loss sustained
by the Fund except in the case of the Subadvisor's willful misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Subadvisory Agreement will terminate automatically if assigned (as defined in the 1940 Act). The Subadvisory Agreement is also terminable
with respect to the Fund at any time without penalty by the Trustees of the Trust or by vote of a majority of the outstanding voting securities
of the Fund on 60 days’ written notice to the Subadvisor or by the Subadvisor on 60 days’ written notice to the Advisor.
Pursuant to the
Subadvisory Agreement, the Subadvisor is entitled to receive a fee from the Advisor, payable monthly, at the annual rate of 0.12% based
on a percentage of the Fund’s average daily net assets. To the extent the Advisor has agreed to waive or reimburse expenses, the
Subadvisor has agreed to waive or reimburse its fees proportionately.
For the last
three fiscal years ended April 30, the amount of Subadvisory fee paid by the Advisor from the management fee, and the amount of the
Subadvisory fee waived and/or expense reimbursed were as follows:
| |
| | |
Subadvisory
Fee Paid | | |
Subadvisory
Fee Waived and/or Expense
Reimbursed | |
Fund | |
Commencement
of Operations | | |
Fiscal
Year
Ended 2019 | | |
Fiscal
Year
Ended 2020 | | |
Fiscal
Year
Ended 2021 | | |
Fiscal
Year
Ended 2019 | | |
Fiscal
Year
Ended 2020 | | |
Fiscal
Year
Ended 2021 | |
IQ S&P High
Yield Low Volatility Bond ETF | |
| 2/15/17 | | |
$ | 103,087 | | |
$ | 75,646 | | |
$ | 120,215 | | |
$ | (2,616 | ) | |
$ | (2,178 | ) | |
$ | (3,180 | ) |
Portfolio Managers
The Subadvisor
acts as portfolio manager for the Fund. Subject to the supervision of the Advisor and the Board, the Subadvisor will supervise and manage
the investment portfolios of the Fund and will direct the purchase and sale of its investment securities. The Subadvisor utilizes a team
of investment professionals acting together to manage the assets of the Fund. The team meets regularly to review portfolio holdings and
to discuss purchase and sale activity. The team adjusts holdings in the portfolio as they deem appropriate in the pursuit of the Fund’s
investment objective.
The portfolio managers
who are currently jointly and primarily responsible for the day-to-day management of the Fund are Alexandra Wilson-Elizondo and Eric
Gold.
Other Accounts Managed
The following tables
provide additional information about other portfolios or accounts managed by the Fund’s portfolio managers as of June 30,
2021. Total number of other accounts managed by the portfolio managers within each category below and the total assets in the accounts
managed within each category below.
| |
NUMBER
OF OTHER ACCOUNTS
MANAGED AND ASSETS BY ACCOUNT
TYPE | |
NUMBER
OF ACCOUNTS AND ASSETS
FOR WHICH THE ADVISORY FEE
IS BASED ON PERFORMANCE |
PORTFOLIO
MANAGER | |
Registered
Investment
Company ($mm) | |
Other
Pooled
Investment
Vehicles ($mm) | |
Other
Accounts ($mm) | |
Registered
Investment
Company ($mm) | |
Other
Pooled
Investment
Vehicles ($mm) | |
Other
Accounts ($mm) |
Alexandra Wilson-Elizondo | |
1 / $20.0 | |
17 / $12,193 | |
19 / $2,838 | |
0 / $0 | |
6 / $1,602 | |
1 / $810.8 |
Eric Gold | |
0 / $0 | |
17 / $12,193 | |
19 / $2,838 | |
0 / $0 | |
6 / $1,602 | |
1 / $810.8 |
Material
Conflicts of Interest.
MacKay Shields does
not favor the interest of one client over another and it has adopted a Trade Allocation Policy designed so that all client accounts will
be treated fairly and no one client account will receive, over time, preferential treatment over another. MacKay Shields maintains independently
managed investment strategy teams, each of which conducts its own research and operates autonomously, with its own portfolio managers
and traders, and typically manages multiple client accounts, including separately managed accounts, registered and non-registered investment
companies, and other types of investment vehicles. Orders within an investment team will generally be aggregated or bunched to reduce
the costs of the transactions. However, orders are typically not aggregated across investment teams, even though there may be orders
by separate investment teams to execute the same instrument on the same trading day.
MacKay Shields’
investment teams may compete with each other for the same investment opportunities and/or take positions that are counter to one another.
As such, MacKay Shields may engage in transactions and investment strategies for certain clients that differ from the transactions and
strategies executed on behalf of other clients. MacKay Shields’ clients have held, and it is expected that in the future they will
at times hold, different segments of the capital structure of the same issuer that have different priorities. These investments create
conflicts of interest, particularly because MacKay Shields can take certain actions for clients that can have an adverse effect on other
clients. For example, certain MacKay Shields clients may hold instruments that are senior or subordinated rights relative to instruments
of the same issuer held by other clients, and any action that the portfolio managers were to take on behalf of the issuer’s senior
instrument, for instance, could have an adverse effect on the issuer’s junior instrument held by other clients, and vice versa,
particularly in distressed or default situations. To the extent MacKay Shields or any of its employees were to serve on a formal or informal
creditor or similar committee on behalf of a client, such conflicts of interest may be exacerbated. Additionally, MacKay Shields may
make investments for certain clients that they conclude are inappropriate for other clients. For instance, clients within one investment
strategy may take short positions in the debt or equity instruments of certain issuers, while at the same time those instruments or other
instruments of that issuer are acquired or held long by clients in another investment strategy, or within the same strategy, and vice
versa.
MacKay Shields offers
many of its investment strategies through a variety of investment products, including, without limitation, separately managed accounts,
private funds, CLOs, mutual funds, and ETFs. Given the different structures of these products, certain clients are subject to terms and
conditions that are materially different or more advantageous than available under different products. For example, mutual funds offer
investors the ability to redeem from the fund daily, while private funds offer less frequent liquidity. As a result of these differing
liquidity and other terms, MacKay Shields may acquire and/or dispose of investments for a client either prior to or subsequent to the
acquisition and/or disposition of the same or similar securities held by another client. In certain circumstances, purchases or sales
of securities by one client could adversely affect the value of the same securities held in another client’s portfolio. In addition,
MacKay Shields has caused, and expects in the future to cause, certain clients to invest in opportunities with different levels of concentration
or on different terms than that to which other clients invest in the same securities.
These differences
in terms and concentration could lead to different investment outcomes among clients investing in the same securities. MacKay Shields
seeks to tailor its investment advisory services to meet each client’s investment objective, constraints and investment guidelines,
and MacKay Shields’ judgments with respect to a particular client will at times differ from its judgments for other clients, even
when such clients pursue similar investment strategies.
MacKay Shields permits
its personnel, including portfolio managers and other investment personnel, to engage in personal securities transactions, including
buying or selling securities that it has recommended to, or purchased or sold on behalf of, clients. These transactions raise potential
conflicts of interests, including when they involve securities owned or considered for purchase or sale by or on behalf of a client account.
MacKay Shields has adopted NYLIM’s Code of Ethics to assist and guide the portfolio managers and other investment personnel when
faced with a conflict.
MacKay Shields’
services to each client are not exclusive. The nature of managing accounts for multiple clients creates a conflict of interest with regard
to time available to serve clients. MacKay Shields and its portfolio managers will devote as much of their time to the activities of
each client as they deem necessary and appropriate. Although MacKay Shields strives to identify and mitigate all conflicts of interest,
and seeks to treat its clients in a fair and reasonable manner consistent with its fiduciary duties, there may be times when conflicts
of interest are not resolved in a manner favorable to a specific client.
Additional
material conflicts of interests are presented within Part 2A of MacKay Shields’ Form ADV.
Compensation for the Portfolio
Managers
Salaries are set
by reference to a range of factors, taking account of seniority and responsibilities and the market rate of pay for the relevant position.
Annual salaries are set at competitive levels to attract and maintain the best professional talent. Variable or incentive compensation,
both cash bonus and deferred awards, are a significant component of total compensation for portfolio managers at MacKay Shields. Incentive
compensation received by portfolio managers is generally based on both quantitative and qualitative factors. The quantitative factors
may include: (i) investment performance; (ii) assets under management; (iii) revenues and profitability; and (iv) industry
benchmarks. The qualitative factors may include, among others, leadership, adherence to the firm’s policies and procedures, ESG
contributions, and contribution to the firm’s goals and objectives. Deferred awards are provided to attract, retain, motivate and
reward key personnel. As such, MacKay Shields maintains a phantom equity plan and awards vest and pay out after several years. Thus,
portfolio managers share in the results and success of the firm with the receipt of an award from the phantom equity plan. This approach
instills a strong sense of commitment towards the overall success of the firm.
MacKay Shields maintains
an employee benefit program, including health and non-health insurance, and a 401(k) defined contribution plan for all of its employees
regardless of their job title, responsibilities or seniority.
Ownership
of Securities
The portfolio
managers do not own Shares of the Fund.
OTHER SERVICE PROVIDERS
Fund Administrator, Custodian,
Transfer Agent and Securities Lending Agent
The Bank of New
York Mellon (“BNY Mellon”) serves as the Fund’s administrator, custodian, transfer agent and securities lending agent.
BNY Mellon’s principal address is 240 Greenwich Street, New York, New York 10286. Under the Fund Administration and Accounting Agreement
with the Trust, BNY Mellon provides necessary administrative, legal, tax, accounting services, and financial reporting for the maintenance
and operations of the Trust and the Fund. BNY Mellon is responsible for maintaining the books and records and calculating the daily NAV
of the Fund. In addition, BNY Mellon makes available the office space, equipment, personnel and facilities required to provide such services.
BNY Mellon also provides persons satisfactory to the Board to serve as officers of the Trust.
Under the Custody
Agreement with the Trust, BNY Mellon maintains in separate accounts cash, securities and other assets of the Trust and the Fund, keeps
all necessary accounts and records, and provides other services. BNY Mellon is required, upon order of the Trust, to deliver securities
held by BNY Mellon and to make payments for securities purchased by the Trust for the Fund. Under the Custody Agreement, BNY Mellon is
also authorized to appoint certain foreign custodians or foreign custody managers for Fund investments outside the U.S. Pursuant to a
Transfer Agency Services Agreement with the Trust, BNY Mellon acts as transfer agent to the Fund, dividend disbursing agent and shareholder
servicing agent to the Fund.
The Advisor compensates
BNY Mellon for the foregoing services out of the Advisor’s unified management fee. The Advisor paid BNY Mellon $108,934 for fund
administration, custody and transfer agency services for the fiscal year ended April 30, 2021; $97,591 for the fiscal year ended
April 30, 2020; and $98,678 for the fiscal year ended April 30, 2019.
BNY Mellon also
serves as the Trust’s securities lending agent pursuant to a Securities Lending Authorization Agreement. As compensation for providing
securities lending services, BNY Mellon receives a portion of the income earned by the Fund on collateral investments in connection with
the lending program. For the fiscal year ended April 30, 2021, the Fund did not participate in the securities lending program.
Securities Lending
BNY Mellon also
serves as the Trust’s securities lending agent pursuant to a Securities Lending Authorization Agreement. As compensation for providing
securities lending services, BNY Mellon receives a portion of the income earned by the Fund on collateral investments in connection with
the lending program.
The dollar amounts
of income and fees and compensation paid to all service providers related to those Funds that participated in securities lending activities
during the most recent fiscal year were as follows:
Fund | |
IQ S&P
High Yield Low Volatility Bond ETF | |
Gross
Income1 | |
| 1,517 | |
Revenue
Split2 | |
| 1,122 | |
Cash Collateral Management
Fees | |
| - | |
Administrative Fees | |
| - | |
Indemnification Fees | |
| - | |
Net Rebate Paid / Received | |
| 2,228 | |
Other Fees | |
| - | |
Aggregate Fees for Securities
Lending Activities | |
| (1,106 | ) |
Net Income from Securities
Lending Activities | |
| 2,623 | |
|
1 |
Gross income includes income from cash collateral reinvestment. |
|
2 |
Revenue split represents the share of revenue generated by the securities lending program and paid to BNYM. |
Index Provider
S&P Opco,
LLC (the “Index Provider”), located at 55 Water Street, New York, New York 10041, developed and sponsors the Underlying Index.
The Index Provider has entered into an index licensing agreement (the “Licensing Agreement”) with the Advisor to allow the
Advisor’s use of the Underlying Index for the operation of the Fund. The Advisor has, in turn, entered into a sub-licensing agreement
(the “Sub-Licensing Agreement”) with the Trust to allow the Fund to utilize the Underlying Index. The Fund pay no fees to
the Index Provider or the Advisor under the Sub-Licensing Agreement.
The “S&P
U.S. High Yield Low Volatility Corporate Bond Index” is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”)
and IndexIQ ETF Trust LLC, and has been licensed for use by IndexIQ Advisors LLC. Standard & Poor’s® and
S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and
Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). IndexIQ ETF Trust’s
Trademark is a trademark of IndexIQ ETF Trust. The trademarks have been licensed to SPDJI and have been sublicensed for use for certain
purposes by IndexIQ Advisors LLC. IQ S&P High Yield Low Volatility Bond ETF is not sponsored, endorsed, sold or promoted by SPDJI,
Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”) or IndexIQ ETF Trust. Neither
S&P Dow Jones Indices nor IndexIQ ETF Trust make any representation or warranty, express or implied, to the owners of the IQ S&P
High Yield Low Volatility Bond ETF or any member of the public regarding the advisability of investing in securities generally or in IQ
S&P High Yield Low Volatility Bond ETF particularly or the ability of the S&P U.S. High Yield Low Volatility Corporate Bond Index
to track general market performance.
S&P Dow Jones
Indices and IndexIQ ETF Trust only relationship to IndexIQ Advisors LLC with respect to the S&P U.S. High Yield Low Volatility Corporate
Bond Index is the licensing of the Index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or
its licensors. The S&P U.S. High Yield Low Volatility Corporate Bond Index is determined, composed and calculated by S&P Dow Jones
Indices or IndexIQ ETF Trust without regard to IndexIQ Advisors LLC or the IQ S&P High Yield Low Volatility Bond ETF. S&P Dow
Jones Indices and IndexIQ ETF Trust have no obligation to take the needs of IndexIQ Advisors LLC or the owners of IQ S&P High Yield
Low Volatility Bond ETF into consideration in determining, composing or calculating the S&P U.S. High Yield Low Volatility Corporate
Bond Index. Neither S&P Dow Jones Indices nor IndexIQ ETF Trust are responsible for and have not participated in the determination
of the prices, and amount of IQ S&P High Yield Low Volatility Bond ETF or the timing of the issuance or sale of IQ S&P High Yield
Low Volatility Bond ETF or in the determination or calculation of the equation by which IQ S&P High Yield Low Volatility Bond ETF
is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices and IndexIQ ETF Trust have no obligation
or liability in connection with the administration, marketing or trading of IQ S&P High Yield Low Volatility Bond ETF. There is no
assurance that investment products based on the S&P U.S. High Yield Low Volatility Corporate Bond Index will accurately track index
performance or provide positive investment returns. S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a security
within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment
advice.
NEITHER S&P
DOW JONES INDICES NOR INDEXIQ ETF TRUST GUARANTEES THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P U.S. HIGH
YIELD LOW VOLATILITY CORPORATE BOND INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR
WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES AND INDEXIQ ETF TRUST SHALL
NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES AND INDEXIQ ETF TRUST
MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE OR AS TO RESULTS TO BE OBTAINED BY INDEXIQ ADVISORS LLC, OWNERS OF THE IQ S&P HIGH YIELD LOW VOLATILITY BOND ETF, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE S&P U.S. HIGH YIELD LOW VOLATILITY CORPORATE BOND INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES OR INDEXIQ ETF TRUST BE LIABLE FOR
ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES,
LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY,
OR OTHERWISE. THERE ARE NO THIRD-PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND INDEXIQ ADVISORS
LLC, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
Distributor
ALPS Distributors, Inc.
(“ALPS” or the “Distributor”), is located at 1290 Broadway, Suite 1100, Denver, Colorado 80203. The Distributor
is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and a member of
the Financial Industry Regulatory Authority (“FINRA”). NYLIFE Distributors LLC has entered into a Services Agreement with
ALPS to market the Fund.
Shares will be
continuously offered for sale by the Trust through the Distributor only in whole Creation Units, as described in the section of this SAI
entitled “Purchase and Redemption of Creation Units.” The Distributor also acts as an agent for the Trust. The Distributor
will deliver a prospectus to authorized participants purchasing Shares in Creation Units and will maintain records of both orders placed
with it and confirmations of acceptance furnished by it. The Distributor has no role in determining the investment policies of the Fund
or which securities are to be purchased or sold by the Fund.
As compensation
for the foregoing services, the Distributor receives certain out of pocket costs and per Fund flat fees, which are accrued daily and paid
monthly by the Advisor.
The Board has
adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with its Distribution and Service
Plan, the Fund is authorized to pay an amount up to 0.10% of its average daily net assets each year to finance activities primarily intended
to result in the sale of Creation Units of the Fund or the provision of investor 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, they will
be paid out of the respective Fund’s assets, and over time these fees will increase the cost of your investment and they may cost
you more than certain other types of sales charges.
Under the Service
and Distribution Plan, and as required by Rule 12b-1, the Trustees will receive and review after the end of each calendar quarter
a written report provided by the Distributor of the amounts expended under the Plan, if any, and the purpose for which such expenditures
were made.
The Advisor and
its affiliates may, out of their own resources, pay amounts to third-parties for distribution or marketing services on behalf of the Fund.
The making of these payments could create a conflict of interest for a financial intermediary receiving such payments.
Independent Registered Public Accounting
Firm
PricewaterhouseCoopers
LLP, is located at 300 Madison Avenue, New York, NY 10017, serves as independent registered public accounting firm. PricewaterhouseCoopers
LLP will perform the annual audit of the Fund’s financial statements.
Ernst &
Young LLP, is located at 5 Times Square, New York, New York 10036, serves as tax advisor to the Trust and will prepare the Fund’s
federal, state and excise tax returns, and advise the Trust on matters of accounting and federal and state income taxation.
Legal Counsel
Chapman and Cutler
LLP, is located at 1717 Rhode Island Avenue, Washington, D.C. 20036, serves as legal counsel to the Trust and the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the
general supervision by the Board and the Advisor, the Subadvisor is responsible for decisions to buy and sell securities for the Fund,
the selection of brokers and dealers to effect the transactions, which may be affiliates of the Advisor or the Subadvisor, and the negotiation
of brokerage commissions. The Fund may execute brokerage or other agency transactions through registered broker-dealers who receive compensation
for their services in conformity with the 1940 Act, the Exchange Act of 1934, and the rules and regulations thereunder. Compensation
may also be paid in connection with riskless principal transactions (on Nasdaq or over-the-counter securities and securities listed on
an exchange) and agency Nasdaq or over-the-counter transactions executed with an electronic communications network or an alternative trading
system.
The Fund will
give primary consideration to obtaining the most favorable prices and efficient executions of transactions in implementing trading policy.
Consistent with this policy, when securities transactions are traded on an exchange, the Fund’s policy will be to pay commissions
that are considered fair and reasonable without necessarily determining that the lowest possible commissions are paid in all circumstances.
The Advisor and Subadvisor believe that a requirement always to seek the lowest possible commission cost could impede effective portfolio
management and preclude the Fund from obtaining a high quality of brokerage services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Advisor or Subadvisor will rely upon its experience and knowledge regarding commissions generally
charged by various brokers and on its judgment in evaluating the brokerage and research services received from the broker effecting the
transaction. Such determinations will be necessarily subjective and imprecise, as in most cases an exact dollar value for those services
is not ascertainable.
The Advisor and
Subadvisor do not consider sales of Shares by broker-dealers as a factor in the selection of broker-dealers to execute portfolio transactions.
The Advisor or
Subadvisor may receive research products and services from broker-dealers that effect securities transactions for the Fund and such research
products and services may be used by the Advisor or Subadvisor in servicing all of its accounts. Accordingly, not all of these products
or services may be used by the Advisor or Subadvisor in connection with the Fund. Some of these products and services are also available
to the Advisor or Subadvisor for cash, and some do not have an explicit cost or determinable value. The research received does not reduce
the advisory fees paid to the Advisor or Subadvisor for services provided to the Fund. The Advisor’s or Subadvisor’s expenses
would likely increase if the Advisor or Subadvisor had to generate these research products and services through its own efforts, or if
it paid for these products or services itself.
During the fiscal
year ended April 30, 2021, the Fund did not engage in any securities transactions with brokers that were affiliated with the Fund,
Advisor, Subadvisor or distributor or brokers which provided research services to the Fund.
The Fund is required
to identify any securities of the Fund’s regular broker-dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of the most recent fiscal year. As of June 30, 2021, the Fund did not hold securities of their regular
broker-dealers or their parents.
DISCLOSURE OF PORTFOLIO HOLDINGS
Portfolio Disclosure Policy
The Trust has
adopted a Portfolio Holdings Policy (the “Policy”) designed to govern the disclosure of Fund portfolio holdings and the use
of material non-public information about Fund holdings. The Policy applies to all officers, employees and agents of the Fund, including
the Advisor. The Policy is designed to ensure that the disclosure of information about the Fund’s portfolio holdings is consistent
with applicable legal requirements and otherwise in the best interest of the Fund.
As an ETF, information
about the Fund’s portfolio holdings is made available on a daily basis in accordance with the provisions of any Order of the SEC
applicable to the Fund, regulations of the Fund’s listing Exchange and other applicable SEC regulations, orders and no-action relief.
Such information typically reflects all or a portion of the Fund’s anticipated portfolio holdings as of the next Business Day (as
defined in the section entitled “Purchase of Creation Units”). This information is used in connection with the creation and
redemption process and is disseminated on a daily basis through the facilities of the Exchange, the National Securities Clearing Corporation
(the “NSCC”) and/or third-party service providers.
The Fund will disclose
on the Fund’s website (newyorklifeinvestments.com) at the start of each Business Day the identities and quantities of the securities
and other assets held by the Fund that will form the basis of the Fund’s calculation of its NAV on that Business Day. The portfolio
holdings so disclosed will be based on information as of the close of business on the prior Business Day and/or trades that have been
completed prior to the opening of business on that Business Day and that are expected to settle on the Business Day. Online disclosure
of such holdings is publicly available at no charge.
Daily access
to the Fund’s portfolio holdings is permitted to personnel of the Advisor, the Subadvisor, the Distributor and the Fund’s
administrator, custodian and accountant and other agents or service providers of the trust who have need of such information in connection
with the ordinary course of their respective duties to the Fund. The Fund’s Chief Compliance Officer may authorize disclosure of
portfolio holdings.
The Fund will
disclose its complete portfolio holdings schedule in public filings with the SEC on a quarterly basis, based on the Fund’s fiscal
year, within sixty (60) days of the end of the quarter, and will provide that information to shareholders, as required by federal securities
laws and regulations thereunder.
No person is
authorized to disclose the Fund’s portfolio holdings or other investment positions except in accordance with the Policy. The Trust’s
Board reviews the implementation of the Policy on a periodic basis.
INDICATIVE INTRA-DAY VALUE
The approximate
value of the Fund’s investments on a per-Share basis, the Indicative Intra-Day Value, or IIV, is disseminated every 15 seconds during
hours of trading on the NYSE Arca. The IIV should not be viewed as a “real-time” update of NAV because the IIV may not be
calculated in the same manner as NAV, which is computed once per day.
Solactive AG,
an independent third party calculator calculates the IIV for the Fund during hours of trading on the NYSE Arca by dividing the “Estimated
Fund Value” as of the time of the calculation by the total number of outstanding Shares of that Fund. “Estimated Fund Value”
is the sum of the estimated amount of cash held in the Fund’s portfolio, the estimated amount of accrued interest owed to the Fund
and the estimated value of the securities held in the Fund’s portfolio, minus the estimated amount of the Fund’s liabilities.
The IIV will be calculated based on the same portfolio holdings disclosed on the Trust’s website.
The Fund provides
the independent third party calculator with information to calculate the IIV, but the Fund is not involved in the actual calculation of
the IIV and is not responsible for the calculation or dissemination of the IIV. The Fund makes no warranty as to the accuracy of the IIV.
ADDITIONAL INFORMATION CONCERNING SHARES
Organization and Description of
Shares of Beneficial Interest
The Trust is
a Delaware statutory trust and registered investment company. The Trust was organized on July 1, 2008, and has authorized capital
of an unlimited number of shares of beneficial interest of no par value that may be issued in more than one class or series.
Under Delaware
law, the Trust is not required to hold an annual shareholders meeting if the 1940 Act does not require such a meeting. Generally, there
will not be annual meetings of Trust shareholders. If requested by shareholders of at least 10% of the outstanding Shares of the Trust,
the Trust will call a meeting of the Trust’s shareholders for the purpose of voting upon the question of removal of a Trustee and
will assist in communications with other Trust shareholders. Shareholders holding two-thirds of Shares outstanding may remove Trustees
from office by votes cast at a meeting of Trust shareholders or by written consent.
When issued,
Shares are fully-paid, non-assessable, redeemable and are freely transferable; provided, however, that Shares may not be redeemed individually,
but only in Creation Units. The Shares do not have preemptive rights or cumulative voting rights, and none of the Shares have any preference
to conversion, exchange, dividends, retirements, liquidation, redemption or any other feature. Shares have equal voting rights, except
that, if the Trust creates additional funds, only Shares of that fund may be entitled to vote on a matter affecting that particular fund.
Trust shareholders are entitled to require the Trust to redeem Creation Units if such shareholders are Authorized Participants. The Declaration
of Trust confers upon the Board the power, by resolution, to alter the number of Shares constituting a Creation Unit or to specify that
Shares of the Trust may be individually redeemable. The Trust reserves the right to adjust the stock prices of Shares to maintain convenient
trading ranges for investors. Any such adjustments would be accomplished through stock splits or reverse stock splits which would have
no effect on the net assets of the Fund.
The Trust’s
Declaration of Trust disclaims liability of the shareholders or the officers of the Trust for acts or obligations of the Trust which are
binding only on the assets and property of the Trust. The Declaration of Trust provides for indemnification by the Trust for all loss
and expense of the Fund’s shareholders held personally liable for the obligations of the Trust. The risk of a Trust’s shareholder
incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund itself would not be able to
meet the Trust’s obligations and this risk should be considered remote. If the Fund does not grow to a size to permit it to be economically
viable, the Fund may cease operations. In such an event, shareholders may be required to liquidate or transfer their Shares at an inopportune
time and shareholders may lose money on their investment.
Book Entry Only System
The Depository
Trust Company (“DTC”) will act as securities depositary for the Shares. The Shares of the Fund are represented by global securities
registered in the name of DTC or its nominee and deposited with, or on behalf of, DTC. Except as provided below, certificates will not
be issued for Shares.
DTC has advised
the Trust as follows: DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New
York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform
Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues
and money market instruments (from over 100 countries). DTC was created to hold securities of its participants (the “DTC Participants”)
and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic
computerized book-entry transfers and pledges in accounts of DTC Participants, thereby eliminating the need for physical movement of securities
certificates. DTC Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”).
DTCC is the holding company for DTC, the NSCC and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC
is owned by the users of its regulated subsidiaries. More specifically, DTCC is owned by a number of its DTC Participants and by the New
York Stock Exchange, Inc., the NYSE Alternext U.S. (formerly known as the American Stock Exchange LLC) (the “Alternext”)
and FINRA.
Access to DTC
system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing
corporations that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (“Indirect
Participants”). DTC agrees with and represents to DTC Participants that it will administer its book-entry system in accordance with
its rules and bylaws and requirements of law. Beneficial ownership of Shares will be limited to DTC Participants, Indirect Participants
and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in Shares (owners
of such beneficial interests are referred to herein as “Beneficial Owners”) will be shown on, and the transfer of ownership
will be effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with
respect to Indirect Participants and Beneficial Owners that are not DTC Participants). Beneficial Owners will receive from or through
DTC Participant a written confirmation relating to their purchase of Shares. The laws of some jurisdictions may require that certain purchasers
of securities take physical delivery of such securities in definitive form. Such laws may impair the ability of certain investors to acquire
beneficial interests in Shares.
Beneficial Owners
of Shares will not be entitled to have Shares registered in their names, will not receive or be entitled to receive physical delivery
of certificates in definitive form and are not considered the registered holders of the Shares. Accordingly, each Beneficial Owner must
rely on the procedures of DTC, DTC Participants and any Indirect Participants through which such Beneficial Owner holds its interests
in order to exercise any rights of a holder of Shares. The Trust understands that under existing industry practice, in the event the Trust
requests any action of holders of Shares, or a Beneficial Owner desires to take any action that DTC, as the record owner of all outstanding
Shares, is entitled to take, DTC would authorize the DTC Participants to take such action and that the DTC Participants would authorize
the Indirect Participants and Beneficial Owners acting through such DTC Participants to take such action and would otherwise act upon
the instructions of Beneficial Owners owning through them. DTC, through its nominee Cede & Co., is the record owner of all outstanding
Shares.
Conveyance of
all notices, statements and other communications to Beneficial Owners will be effected as follows. DTC will make available to the Trust
upon request and for a fee to be charged to the Trust a listing of Shares holdings of each DTC Participant. The Trust shall inquire of
each such DTC Participant as to the number of Beneficial Owners holding Shares, directly or indirectly, through such DTC Participant.
The Trust will provide each such DTC Participant with copies of such notice, statement or other communication, in such form, number and
at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted
by such DTC Participant, directly or indirectly, to such Beneficial Owners. In addition, the Trust shall pay to each such DTC Participant
a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and
regulatory requirements. Beneficial Owners may wish to take certain steps to augment the transmission to them of notices of significant
events with respect to Shares by providing their names and addresses to the DTC registrar and request that copies of notices be provided
directly to them.
Distributions
of Shares shall be made to DTC or its nominee, Cede & Co., as the registered holder of all Shares. DTC or its nominee, upon receipt
of any such distributions, shall immediately credit DTC Participants’ accounts with payments in amounts proportionate to their respective
beneficial interests in Shares as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and
Beneficial Owners of Shares held through such DTC Participants will be governed by standing instructions and customary practices, as is
now the case with securities held for the accounts of customers in bearer form or registered in a “street name,” and will
be the responsibility of such DTC Participants. The Trust has no responsibility or liability for any aspects of the records relating to
or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such Shares, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests
or for any other aspect of the relationship between DTC and the
DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through
such DTC Participants.
DTC may determine
to discontinue providing its service with respect to Shares at any time by giving reasonable notice to the Trust and discharging its responsibilities
with respect thereto under applicable law. Under such circumstances, the Trust shall take action either to find a replacement for DTC
to perform its functions at a comparable cost or, if such a replacement is unavailable, to issue and deliver printed certificates representing
ownership of Shares, unless the Trust makes other arrangements with respect thereto satisfactory to the Exchange.
DTC rules applicable
to DTC Participants are on file with the SEC. More information about DTC can be found at www.dtcc.com and www.dtc.org.
PURCHASE AND REDEMPTION OF CREATION UNITS
Creation
The Trust issues
and sells Shares of the Fund only in Creation Units on a continuous basis on any Business Day (as defined below) through the Distributor
at the Shares’ NAV next determined after receipt of an order in proper form. The Distributor processes purchase orders only on a
day that the Exchange is open for trading (a “Business Day”). The Exchange is open for trading Monday through Friday except
for the following holidays: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
Deposit of Securities and Deposit
or Delivery of Cash
The consideration
for purchase of a Creation Unit of Shares of the Fund generally consists of cash only (including the appropriate Transaction Fee). However,
the Fund also reserves the right to permit or require the in-kind deposit of Deposit Securities constituting a representation of the Underlying
Index, along with the Cash Component, computed as described below, and the appropriate Transaction Fee (collectively, the “Fund
Deposit”) as consideration for the purchase of a Creation Unit.
The Cash Component
of the Fund Deposit serves to compensate the Trust or the Authorized Participant, as applicable, for any differences between the NAV per
Creation Unit and the Deposit Amount (as defined below). The Cash Component of the Fund Deposit is an amount equal to the difference between
the NAV of the Shares (per Creation Unit) and the “Deposit Amount,” an amount equal to the market value of the Deposit Securities.
If the Cash Component of the Fund Deposit is a positive number (i.e., the NAV per Creation Unit exceeds the Deposit Amount), the
Authorized Participant will deliver the Cash Component. If the Cash Component of the Fund Deposit is a negative number (i.e., the
NAV per Creation Unit is less than the Deposit Amount), the Authorized Participant will receive the Cash Component.
The Custodian
through the NSCC (see the section of this SAI entitled “Purchase and Redemption of Creation Units—Creation—Procedures
for Creation of Creation Units”), makes available on each Business Day, prior to the opening of business on the Exchange (currently
9:30 a.m. Eastern time), the list of the name and the required number of shares of each Deposit Security to be included in the current
Fund Deposit (based on information at the end of the previous Business Day) for the Fund. This Fund Deposit is applicable, subject to
any adjustments as described below, to orders to effect creations of Creation Units of the Fund until such time as the next-announced
composition of the Deposit Securities is made available.
The identity
and number of shares of the Deposit Securities required for the Fund Deposit for the Fund changes from time to time. In addition, the
Trust reserves the right to permit or require the substitution of an amount of cash (that is a “cash in lieu” amount) to be
added to the Cash Component to replace any Deposit Security that may not be available in sufficient quantity for delivery or that may
not be eligible for transfer through the systems of DTC or the Clearing Process (discussed below) or for other similar reasons. The Trust
also reserves the right to permit or require a “cash in lieu” amount where the delivery of Deposit Securities by the Authorized
Participant (as described below) would be restricted under the securities laws or where delivery of Deposit Securities to the Authorized
Participant would result in the disposition of Deposit Securities by the Authorized Participant becoming restricted under the securities
laws, and in certain other situations.
In addition to
the list of names and number of securities constituting the current Deposit Securities of the Fund Deposit, the Custodian, through the
NSCC, also makes available on each Business Day the estimated Cash Component, effective through and including the previous Business Day,
per outstanding Creation Unit of the Fund.
Procedures for Creation of Creation
Units
All orders to
create Creation Units must be placed with the Distributor either (1) through Continuous Net Settlement System of the NSCC (the “Clearing
Process”), a clearing agency that is registered with the SEC, by a “Participating Party,” i.e., a broker-
dealer
or other participant in the Clearing Process; or (2) outside the Clearing Process by a DTC Participant (see the section of this SAI
entitled “Additional Information Concerning Shares — Book Entry Only System”).
In each case,
the Participating Party or the DTC Participant must have executed an agreement with the Distributor with respect to creations and redemptions
of Creation Units (a “Participant Agreement”); and accepted by the Transfer Agent; such parties are collectively referred
to as “APs” or “Authorized Participants.” Investors should contact the Distributor for the names of Authorized
Participants. All Shares, whether created through or outside the Clearing Process, will be entered on the records of DTC in the name of
Cede & Co. for the account of a DTC Participant.
Except as described
below, and in all cases subject to the terms of the applicable Participant Agreement, all orders to create Creation Units of the Fund
generally must be received by the Distributor by the time specified in the Participant Agreement and the applicable order form (“Order
Time”) in each case on the date such order is placed for creation of Creation Units to be effected based on the NAV of Shares as
next determined after receipt of an order in proper form. Orders consisting of cash only or requesting substitution of a “cash-in-lieu”
amount (collectively, “Custom Orders”), must be received by the Transfer Agent no later the time specified in the Participant
Agreement and the applicable order form. On days when the Exchange closes earlier than normal (such as the day before a holiday), the
Fund may require orders to create Creation Units to be placed earlier in the day. Notwithstanding the foregoing, the Trust may, but is
not required to, permit Custom Orders until 3:00 p.m., eastern time, or until one hour prior to the market close (in the event the Listing
Exchange closes early). The date on which an order to create Creation Units (or an order to redeem Creation Units, as discussed below)
is placed is referred to as the “Transmittal Date.” Orders must be transmitted by an Authorized Participant by telephone,
electronic order entry system, or other transmission method acceptable to the Transfer Agent pursuant to procedures set forth in the Participant
Agreement. Economic or market disruptions or changes, or telephone, electronic, or other communication failure may impede the ability
to reach the Transfer Agent or an Authorized Participant.
All orders to
create Creation Units from investors who are not Authorized Participants shall be placed with an Authorized Participant in the form required
by such Authorized Participant. In addition, the Authorized Participant may request the investor to make certain representations or enter
into agreements with respect to the order, e.g., to provide for payments of cash, when required. Investors should be aware that
their particular broker may not have executed a Participant Agreement and, therefore, orders to create Creation Units of the Fund have
to be placed by the investor’s broker through an Authorized Participant that has executed a Participant Agreement. In such cases
there may be additional charges to such investor. At any given time, there may be only a limited number of broker-dealers that have executed
a Participant Agreement.
Those placing
orders for Creation Units through the Clearing Process should afford sufficient time to permit proper submission of the order to the Distributor
prior to the Order Time on the Transmittal Date. Orders for Creation Units that are effected outside the Clearing Process are likely to
require transmittal by the DTC Participant earlier on the Transmittal Date than orders effected using the Clearing Process. Those persons
placing orders outside the Clearing Process should ascertain the deadlines applicable to DTC and the Federal Reserve Bank wire system
by contacting the operations department of the broker or depository institution effectuating such transfer of the Fund Deposit. For more
information about Clearing Process and DTC, see the sections of this SAI entitled “Purchase and Redemption of Creation Units—Creation—
Placement of Creation Orders Using the Clearing Process” and “Purchase and Redemption of Creation Units—Creation—Placement
of Creation Orders Outside the Clearing Process.”
Placement of Creation Orders Using the Clearing Process
The Clearing
Process is the process of creating or redeeming Creation Units through the Continuous Net Settlement System of the NSCC. Fund Deposits
made through the Clearing Process must be delivered through a Participating Party that has executed a Participant Agreement. The Participant
Agreement authorizes the Distributor to transmit through the Custodian to NSCC, on behalf of the Participating Party, such trade instructions
as are necessary to effect the Participating Party’s creation order. Pursuant to such trade instructions to NSCC, the Participating
Party agrees to deliver the Fund Deposit to the Trust, together with such additional information as may be required by the Distributor.
An order to create Creation Units through the Clearing Process is deemed received by the Distributor on the Transmittal Date if (1) such
order is received by the Distributor not later than the Order Time on such Transmittal Date and (2) all other procedures set forth
in the Participant Agreement are properly followed.
Placement of Creation Orders Outside
the Clearing Process
Fund Deposits
made outside the Clearing Process must be delivered through a DTC Participant that has executed a Participant Agreement. A DTC Participant
who wishes to place an order creating Creation Units to be effected outside the Clearing Process does not need to be a Participating Party,
but such orders must state that the DTC Participant is not using the Clearing Process and that the creation of Creation Units will instead
be effected through a transfer of securities and cash directly through DTC. The Fund Deposit transfer must be ordered by the DTC Participant
on the Transmittal Date in a timely fashion so as to ensure the delivery of the requisite number of Deposit Securities through DTC to
the account of the Fund by no later than 11:00 a.m. Eastern time on the next Business Day following the Transmittal Date (the “DTC
Cut- Off-Time”).
All questions
as to the number of Deposit Securities to be delivered, and the validity, form and eligibility (including time of receipt) for the deposit
of any tendered securities, will be determined by the Trust, whose determination shall be final and binding. The amount of cash equal
to the Cash Component must be transferred directly to the Custodian through the Federal Reserve Bank wire transfer system in a timely
manner so as to be received by the Custodian no later than 2:00 p.m. Eastern time on the next Business Day following the Transmittal
Date. An order to create Creation Units outside the Clearing Process is deemed received by the Distributor on the Transmittal Date if
(1) such order is received by the Distributor not later than the Order Time on such Transmittal Date and (2) all other procedures
set forth in the Participant Agreement are properly followed. However, if the Custodian does not receive both the required Deposit Securities
and the Cash Component by 11:00 a.m. and 2:00 p.m., Eastern time respectively, on the next Business Day following the Transmittal
Date, such order will be canceled. Upon written notice to the Distributor, such canceled order may be resubmitted the following Business
Day using the Fund Deposit as newly constituted to reflect the then-current Deposit Securities and Cash Component. The delivery of Creation
Units so created will occur no later than the second Business Day following the day on which the purchase order is deemed received by
the Distributor.
Additional transaction
fees may be imposed with respect to transactions effected through a DTC participant outside the Clearing Process and in the limited circumstances
in which any cash can be used in lieu of Deposit Securities to create Creation Units. See the section of this SAI entitled “Purchase
and Sale of Creation Units—Creation—Creation Transaction Fee.”
Creation Units
may be created in advance of receipt by the Trust of all or a portion of the applicable Deposit Securities. In these circumstances, the
initial deposit will have a value greater than the NAV of the Shares on the date the order is placed in proper form since, in addition
to available Deposit Securities, cash must be deposited in an amount equal to the sum of (1) the Cash Component plus (2) up
to 115% of the then- current market value of the undelivered Deposit Securities (the “Additional Cash Deposit”). The order
shall be deemed to be received on the Business Day on which the order is placed provided that the order is placed in proper form prior
to the Order Time and funds in the appropriate amount are deposited with the Custodian by 11:00 a.m. Eastern time the following Business
Day. If the order is not placed in proper form by the Order Time or funds in the appropriate amount are not received by 11:00 a.m. the
next Business Day, then the order may be deemed to be canceled and the Authorized Participant shall be liable to the Fund for losses,
if any, resulting therefrom. An additional amount of cash shall be required to be deposited with the Trust, pending receipt of the undelivered
Deposit Securities to the extent necessary to maintain the Additional Cash Deposit with the Trust in an amount at least equal up to 115%
of the daily marked-to-market value of the undelivered Deposit Securities. To the extent that undelivered Deposit Securities are not received
by 1:00 p.m. Eastern time on the second Business Day following the day on which the purchase order is deemed received by the Distributor,
or in the event a marked-to-market payment is not made within one Business Day following notification by the Distributor that such a payment
is required, the Trust may use the cash on deposit to purchase the undelivered Deposit Securities. Authorized Participants will be liable
to the Trust and the Fund for the costs incurred by the Trust in connection with any such purchases. These costs will be deemed to include
the amount by which the actual purchase price of the Deposit Securities exceeds the market value of such Deposit Securities on the day
the purchase order was deemed received by the Distributor plus the brokerage and related transaction costs associated with such purchases.
The Trust will return any unused portion of the Additional Cash Deposit once all of the undelivered Deposit Securities have been properly
received by the Custodian or purchased by the Trust and deposited into the Trust. In addition, a transaction fee will be charged in all
cases. See the section of this SAI entitled “Purchase and Redemption of Creation Units— Creation—Creation Transaction
Fee.” The delivery of Creation Units so created will occur no later than the second Business Day following the day on which the
purchase order is deemed received by the Distributor.
Acceptance of Orders for Creation
Units
The Trust reserves
the absolute right to reject a creation order transmitted to it by the Distributor if: (1) the order is not in proper form; (2) the
investor(s), upon obtaining the Shares ordered, would own 80% or more of the currently outstanding Shares of any Fund; (3) the Deposit
Securities delivered are not as disseminated for that date by the Custodian, as described above; (4) acceptance of the Deposit Securities
would have certain adverse tax consequences to the Fund; (5) acceptance of the Fund Deposit would, in the opinion of counsel, be
unlawful; (6) acceptance of the Fund Deposit would otherwise, in the discretion of the Trust, the Advisor, or the Subadvisor, have
an adverse effect on the Trust or the rights of beneficial owners; or (7) there exist circumstances outside the control of the Trust,
the Custodian, the Distributor and the Advisor that make it for all practical purposes impossible to process creation orders. Examples
of such circumstances include acts of God; public service or utility problems such as fires, floods, extreme weather conditions and power
outages resulting in telephone, telecopy and computer failures; market conditions or activities causing trading halts; systems failures
involving computer or other information systems affecting the Trust, the Advisor, the Subadvisor, the Distributor, DTC, NSCC, the Custodian
or sub-custodian or any other participant in the creation process and similar extraordinary events. The Distributor shall notify the Authorized
Participant of its rejection of the order. The Trust, the Custodian, any sub-custodian and the Distributor are under no duty, however,
to give notification of any defects or irregularities in the delivery of Fund Deposits nor shall any of them incur any liability for the
failure to give any such notification. All questions as to the number of shares of each security in the Deposit Securities and the validity,
form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Trust and the Trust’s
determination shall be final and binding.
Creation Units
typically are issued on a “T+2 basis” (that is two Business Days after trade date). However, the Fund reserves the right to
settle Creation Unit transactions on a basis other than T+2 in order to accommodate foreign market holiday schedules, to account for different
treatment among foreign and U.S. markets of dividend record dates and ex-dividend dates (that is the last day the holder of a security
can sell the security and still receive dividends payable on the security), and in certain other circumstances.
To the extent
contemplated by a Participant Agreement with the Distributor, the Trust will issue Creation Units to such Authorized Participant notwithstanding
the fact that the corresponding Portfolio Deposits have not been received in part or in whole, in reliance on the undertaking of the Authorized
Participant to deliver the missing Deposit Securities as soon as possible, which undertaking shall be secured by such Authorized Participant’s
delivery and maintenance of collateral having a value equal to 115%, which the Advisor may change from time to time, of the value of the
missing Deposit Securities in accordance with the Trust’s then-effective procedures. Such collateral must be delivered no later
than 2:00 p.m., Eastern time, on the contractual settlement date. The only collateral that is acceptable to the Trust is cash in U.S.
Dollars or an irrevocable letter of credit in form, and drawn on a bank, that is satisfactory to the Trust. The cash collateral posted
by the Authorized Participant may be invested at the risk of the Authorized Participant, and income, if any, on invested cash collateral
will be paid to that Authorized Participant. Information concerning the Trust’s current procedures for collateralization of missing
Deposit Securities is available from the Transfer Agent. The Authorized Participant Agreement will permit the Trust to buy the missing
Deposit Securities at any time and will subject the Authorized Participant to liability for any shortfall between the cost to the Trust
of purchasing such securities and the cash collateral or the amount that may be drawn under any letter of credit.
In certain cases,
Authorized Participants will create and redeem Creation Units on the same trade date. In these instances, the Trust reserves the right
to settle these transactions on a net basis. All questions as to the number of shares of each security in the Deposit Securities and the
validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Trust, and the Trust’s
determination shall be final and binding.
Creation Transaction Fee
Authorized Participants
placing a creation order will be required to pay to the Custodian a fixed transaction fee (the “Creation Transaction Fee”)
to offset the transfer and other transaction costs associated with the issuance of Creation Units. The standard creation transaction fee
will be the same regardless of the number of Creation Units purchased by an investor on the applicable Business Day. The Creation Transaction
Fee for each creation order is $500. The Creation Transaction Fee may be waived for the Fund when the Advisor believes that waiver of
the Creation Transaction Fee is in the best interest of the Fund. When determining whether to waive the Creation Transaction Fee, the
Advisor considers a number of factors including, but not limited to, whether waiving the Creation Transaction Fee will: facilitate the
initial launch of the Fund; reduce the cost of portfolio rebalancings; improve the quality of the secondary trading market for the Fund’s
shares and not result in the Fund’s bearing additional costs or expenses as a result of the waiver.
An additional
variable fee of up to 3.00% of the NAV per Creation Unit may be imposed for (1) creations effected outside the Clearing Process and
(2) cash creations (to offset the Trust’s brokerage and other transaction costs associated with using cash to purchase the
requisite Deposit Securities). Actual transaction costs may vary depending on the time of day a purchase order is received or the nature
of the securities to be purchased. The Advisor or Subadvisor may adjust the variable fee to ensure that the Fund collects the extra expenses
associated with brokerage commissions and other expenses incurred by the Fund to acquire a Deposit Security not part of the Fund Deposit
from the Authorized Participant. Authorized Participants placing a creation order are responsible for the costs of transferring the securities
constituting the Deposit Securities to the account of the Trust.
Redemption
To redeem Shares
directly from the Fund, an investor must be an Authorized Participant or must redeem through an Authorized Participant. The Trust redeems
Creation Units on a continuous basis on any Business Day through the Distributor at the Shares’ NAV next determined after receipt
of an order in proper form. The Fund will not redeem Shares in amounts less than Creation Units. Authorized Participants must accumulate
enough Shares in the Secondary Market to constitute a Creation Unit in order to have such Shares redeemed by the Trust. There can be no
assurance, however, that there will be sufficient liquidity in the public trading market at any time to permit assembly of a Creation
Unit. With respect to the Fund, the Custodian, through the NSCC, makes available prior to the opening of business on the Exchange (currently
9:30 a.m. Eastern time) on each Business Day, the identity of the Fund Securities that will be applicable (subject to possible amendment
or correction) to redemption requests received in proper form (as described below) on that day. Fund Securities received on redemption
may not be identical to Deposit Securities that are applicable to creations of Creation Units. Unless cash redemptions are available or
specified for the Fund, the redemption proceeds for a Creation Unit generally consist of Fund Securities - as announced on the Business
Day the request for redemption is received in proper form - plus or minus cash in an amount equal to the difference between the NAV of
the Shares being redeemed, as next determined after a receipt of a redemption request in proper form, and the value of the Fund Securities
(the “Cash Redemption Amount”), less a redemption transaction fee (see the section of this SAI entitled “Purchase and
Redemption of Creation Units-Redemption-Redemption Transaction Fee”).
The right of
redemption may be suspended or the date of payment postponed (1) for any period during which the Exchange is closed (other than customary
weekend and holiday closings); (2) for any period during which trading on the Exchange is suspended or restricted; (3) for any
period during which an emergency exists as a result of which disposal of the Shares of the Fund or determination of the Fund’s NAV
is not reasonably practicable; or (4) in such other circumstances as is permitted by the SEC.
Deliveries of
redemption proceeds by the Fund generally will be made within two Business Days (that is “T+2”). However, the Fund reserves
the right to settle redemption transactions and deliver redemption proceeds on a basis other than T+2 to accommodate foreign market holiday
schedules, to account for different treatment among foreign and U.S. markets of dividend record dates and dividend ex-dates (that is the
last date the holder of a security can sell the security and still receive dividends payable on the security sold), and in certain other
circumstances.
In the event
that cash redemptions are permitted or required by the Trust, proceeds will be paid to the Authorized Participant redeeming shares on
behalf of the redeeming investor as soon as practicable after the date of redemption.
Placement
of Redemption Orders Using the Clearing Process
Orders to redeem
Creation Units through the Clearing Process must be delivered through an Authorized Participant that has executed a Participant Agreement.
Investors other than Authorized Participants are responsible for making arrangements with an Authorized Participant for an order to redeem.
An order to redeem Creation Units is deemed received by the Trust on the Transmittal Date if: (1) such order is received by the Distributor
not later than the Order Time on such Transmittal Date; and (2) all other procedures set forth in the Participant Agreement are properly
followed. Such order will be effected based on the NAV of the relevant Fund as next determined. An order to redeem Creation Units using
the Clearing Process made in proper form but received by the Distributor after the Order Time will be deemed received on the next Business
Day immediately following the Transmittal Date and will be effected at the NAV determined on such next Business Day. The requisite Fund
Securities and the Cash Redemption Amount will be transferred by the second NSCC business day following the date on which such request
for redemption is deemed received.
Placement of Redemption Orders
Outside the Clearing Process
Orders to redeem
Creation Units outside the Clearing Process must be delivered through a DTC Participant that has executed the Participant Agreement. A
DTC Participant who wishes to place an order for redemption of Creation Units to be effected outside the Clearing Process does not need
to be a Participating Party, but such orders must state that the DTC Participant is not using the Clearing Process and that redemption
of Creation Units will instead be effected through transfer of Shares directly through DTC. An order to redeem Creation Units outside
the Clearing Process is deemed received by the Transfer Agent on the Transmittal Date if (1) such order is received by the Transfer
Agent not later than the Order Time on such Transmittal Date; (2) such order is accompanied or followed by the requisite number of
Shares, which delivery must be made through DTC to the Custodian no later than the DTC Cut-Off-Time, and the Cash Redemption Amount, if
owed to the Fund, which delivery must be made by 2:00 p.m. Eastern time; and (3) all other procedures set forth in the Participant
Agreement are properly followed. After the Transfer Agent receives an order for redemption outside the Clearing Process, the Transfer
Agent will initiate procedures to transfer the requisite Fund Securities which are expected to be delivered and the Cash Redemption Amount,
if any, by the second Business Day following the Transmittal Date.
The calculation
of the value of the Fund Securities and the Cash Redemption Amount to be delivered or received upon redemption (by the Authorized Participant
or the Trust, as applicable) will be made by the Custodian according to the procedures set forth the section of this SAI entitled “Determination
of Net Asset Value” computed on the Business Day on which a redemption order is deemed received by the Transfer Agent.
Therefore, if
a redemption order in proper form is submitted to the Distributor by a DTC Participant not later than the Order Time on the Transmittal
Date, and the requisite number of Shares of the Fund are delivered to the Custodian prior to the DTC Cut-Off-Time, then the value of the
Fund Securities and the Cash Redemption Amount to be delivered or received (by the Authorized Participant or the Trust, as applicable)
will be determined by the Custodian on such Transmittal Date. If, however, either (1) the requisite number of Shares of the relevant
Fund are not delivered by the DTC Cut-Off-Time, as described above, or (2) the redemption order is not submitted in proper form,
then the redemption order will not be deemed received as of the Transmittal Date. In such case, the value of the Fund Securities and the
Cash Redemption Amount to be delivered or received will be computed on the Business Day following the Transmittal Date provided that the
Shares of the relevant Fund are delivered through DTC to the Custodian by 11:00 a.m. Eastern time the following Business Day pursuant
to a properly submitted redemption order.
If it is not
possible to effect deliveries of the Fund Securities, the Trust may in its discretion exercise its option to redeem Shares in cash, and
the redeeming Authorized Participant will be required to receive its redemption proceeds in cash. In addition, an investor may request
a redemption in cash that the Trust may, in its sole discretion, permit. In either case, the investor will receive
a cash payment equal
to the NAV of its Shares based on the NAV of Shares of the relevant Fund next determined after the redemption request is received in proper
form (minus a transaction fee which will include an additional charge for cash redemptions to offset the Fund’s brokerage and other
transaction costs associated with the disposition of Fund Securities). The Fund may also, in its sole discretion, upon request of a shareholder,
provide such redeemer a portfolio of securities that differs from the exact composition of the Fund Securities, or cash in lieu of some
securities added to the Cash Redemption Amount, but in no event will the total value of the securities delivered and the cash transmitted
differ from the NAV. Redemptions of Shares for Fund Securities will be subject to compliance with applicable federal and state securities
laws and the Fund (whether or not it otherwise permits cash redemptions) reserves the right to redeem Creation Units for cash to the extent
that the Trust could not lawfully deliver specific Fund Securities upon redemptions or could not do so without first registering the Fund
Securities under such laws. An Authorized Participant or an investor for which it is acting that is subject to a legal restriction with
respect to a particular security included in the Fund Securities applicable to the redemption of a Creation Unit may be paid an equivalent
amount of cash. The Authorized Participant may request the redeeming Beneficial Owner of the Shares to complete an order form or to enter
into agreements with respect to such matters as compensating cash payment, beneficial ownership of shares or delivery instructions.
Redemption Transaction Fee
Authorized Participants
placing a redemption order will be required to pay to the Custodian a fixed transaction fee (the “Redemption Transaction Fee”)
to offset the transfer and other transaction costs associated with the redemption of Creation Units. The standard redemption transaction
fee will be the same regardless of the number of Creation Units redeemed by an investor on the applicable Business Day. The Redemption
Transaction Fee for each redemption order is $500. The Redemption Transaction Fee may be waived for the Fund when the Advisor or Subadvisor
believes that waiver of the Redemption Transaction Fee is in the best interest of the Fund. When determining whether to waive the Redemption
Transaction Fee, the Advisor considers a number of factors including, but not limited to, whether waiving the Redemption Transaction Fee
will: reduce the cost of portfolio rebalancings; improve the quality of the secondary trading market for the Fund’s shares and not
result in the Fund’s bearing additional costs or expenses as a result of the waiver.
An additional
variable fee of up to 2.00% of the NAV per Creation Unit may be imposed for (1) redemptions effected outside the Clearing Process
and (2) cash redemptions (to offset the Trust’s brokerage and other transaction costs associate with the sale of Fund Securities).
Actual transaction costs may vary depending on the time of day a purchase order is received or the nature of the securities to be sold.
The Advisor or Subadvisor may adjust the variable fee to ensure that the Fund collects the extra expenses associated with brokerage commissions
and other expenses incurred by the Fund to acquire a Deposit Security not part of the Fund Deposit from the Authorized Participant. Authorized
Participants placing a redemption order will also bear the costs of transferring the Fund Securities from the Trust to their account or
on their order.
In order to seek
to replicate the in-kind redemption order process for creation orders executed in whole or in part with cash, the Trust expects to sell,
in the Secondary Market, the portfolio securities or settle any financial instruments that may not be permitted to be re-registered in
the name of the Participating Party as a result of an in-kind redemption order pursuant to local law or market convention, or for other
reasons (“Market Sales”). In such cases where the Trust makes Market Sales, the Authorized Participant will reimburse the
Trust for, among other things, any difference between the market value at which the securities and/or financial instruments were sold
or settled by the Trust and the cash-in-lieu amount, applicable registration fees, brokerage commissions and certain taxes.
CONTINUOUS OFFERING
The method by
which Creation Units are created and traded may raise certain issues under applicable securities laws. Because new Creation Units are
issued and sold by the Trust on an ongoing basis, at any point a “distribution,” as such term is used in the Securities Act,
may occur. Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result
in their being deemed participants in a distribution in a manner which could render them statutory underwriters and subject them to the
prospectus delivery and liability provisions of the Securities Act.
For example,
a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the Distributor,
breaks them down into constituent Shares, and sells such Shares directly to customers, or if it chooses to couple the creation of a supply
of new Shares with an active selling effort involving solicitation of Secondary Market demand for Shares. A determination of whether one
is an underwriter for purposes of the Securities Act must take into account all the facts and circumstances pertaining to the activities
of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered a complete description
of all the activities that could lead to a categorization as an underwriter.
Broker-dealers
who are not “underwriters” but are participating in a distribution (as contrasted to ordinary secondary trading transactions),
and thus dealing with Shares that are part of an “unsold allotment” within the meaning of Section 4(3)(C) of the
Securities Act, would be unable to take advantage of the prospectus delivery exemption provided by Section 4(3) of the Securities
Act. This is because the prospectus delivery exemption in Section 4(3) of the Securities Act is not available in respect of
such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who
are not underwriters but are participating in a distribution (as contrasted with ordinary Secondary Market transactions) and thus dealing
with the Shares that are part of an over-allotment within the meaning of Section 4(3)(A) of the Securities Act would be unable
to take advantage of the prospectus delivery exemption provided by Section 4(3) of the Securities Act. Firms that incur a prospectus
delivery obligation with respect to Shares are reminded that, under Rule 153 of the Securities Act, a prospectus delivery obligation
under Section 5(b)(2) of the Securities Act owed to an exchange member in connection with a sale on the Exchange is satisfied
by the fact that the prospectus is available at the Exchange upon request. The prospectus delivery mechanism provided in Rule 153
is only available with respect to transactions on an exchange.
DETERMINATION OF NET ASSET VALUE
The following
information supplements and should be read in conjunction with the section in the Prospectus entitled “Determination of Net Asset
Value (NAV).” The NAV per Share for the Fund is computed by dividing the value of the net assets of the Fund (i.e., the value
of its total assets less total liabilities) by the total number of Shares outstanding, rounded to the nearest cent. Expenses and fees,
including the management fee, are accrued daily and taken into account for purposes of determining NAV. The NAV of the Fund is determined
as of the close of the regular trading session on the Exchange (ordinarily 4:00 p.m., Eastern time) on each day that the Exchange is open.
Any assets or liabilities denominated in currencies other than the U.S. dollar are converted into U.S. dollars at the current market rates
on the date of valuation as quoted by one or more sources.
In computing
the Fund’s NAV, the Fund’s portfolio securities are valued based on market quotations. When market quotations are not readily
available for a portfolio security the Fund must use such security’s fair value as determined in good faith in accordance with the
Fund’s Fair Value Pricing Procedures which are approved by the Board.
The Fund typically
values fixed-income portfolio securities using last available bid prices or current market quotations provided by dealers or prices (including
evaluated prices) supplied by the Fund’s approved independent third-party pricing services. Pricing services may use matrix pricing
or valuation models that utilize certain inputs and assumptions to derive values. Pricing services generally value fixed-income securities
assuming orderly transactions of an institutional round lot size, but the Fund may hold or transact in such securities in smaller odd
lot sizes. Odd lots often trade at different prices that may be above or below the price at which the pricing service has valued the security.
An amortized cost method of valuation may be used with respect to debt obligations with sixty days or less remaining to maturity unless
the Advisor determines in good faith that such method does not represent fair value.
The value of
any equity securities held by the Fund is based on such securities’ closing price on local markets, when available. If a portfolio
security’s market price is not readily available or does not otherwise accurately reflect the fair value of such security, the portfolio
security will be valued by another method that the Advisor believes will better reflect fair value in accordance with the Trust’s
valuation policies and procedures approved by the Board.
The Fund may
use fair value pricing in a variety of circumstances, including but not limited to, situations when the value of the Fund’s portfolio
security has been materially affected by events occurring after the close of the market on which such security is principally traded (such
as a corporate action or other news that may materially affect the price of such security) or trading in such security has been suspended
or halted. In addition, the Fund may fair value foreign fixed income portfolio securities each day the Fund calculates its NAV. Accordingly,
the Fund’s NAV may reflect certain portfolio securities’ fair values rather than their market prices. Fair value pricing involves
subjective judgments and it is possible that a fair value determination for a portfolio security is materially different than the value
that could be realized upon the sale of such security. In addition, fair value pricing could result in a difference between the prices
used to calculate the Fund’s NAV and the prices used by the Fund’s Underlying Index. This may adversely affect the Fund’s
ability to track its Underlying Indices. With respect to securities that are primarily listed on foreign exchanges, the value of the Fund’s
portfolio securities may change on days when you will not be able to purchase or sell your Shares.
DIVIDENDS AND DISTRIBUTIONS
General Policies
The following
information supplements and should be read in conjunction with the section in the Prospectus entitled “Dividends, Distributions
and Taxes.”
Dividends from
net investment income are declared and paid at least annually by the Fund. Distributions of net realized capital gains, if any, generally
are declared and paid once a year, but the Trust may make distributions on a more frequent basis for the Fund to improve its Underlying
Index tracking or to comply with the distribution requirements of the Code, in all events in a manner consistent with the provisions of
the 1940 Act. In addition, the Trust may distribute at least annually amounts representing
the full dividend yield on the underlying Portfolio
Securities of the Fund, net of expenses of the Fund, as if the Fund owned such underlying Portfolio Securities for the entire dividend
period in which case some portion of each distribution may result in a return of capital for tax purposes for certain shareholders.
Dividends and
other distributions on Shares are distributed, as described below, on a pro rata basis to Beneficial Owners of such Shares. Dividend payments
are made through DTC Participants and Indirect Participants to Beneficial Owners then of record with proceeds received from the Trust.
The Trust may make additional distributions to the extent necessary (i) to distribute the entire annual “investment company
taxable income” of the Trust, plus any net capital gains and (ii) to avoid imposition of the excise tax imposed by Section 4982
of the Code. Management of the Trust reserves the right to declare special dividends if, in its reasonable discretion, such action is
necessary or advisable to preserve the status of the Fund as a “regulated investment company” under the Code or to avoid imposition
of income or excise taxes on undistributed income.
Dividend Reinvestment Service
No reinvestment
service is provided by the Trust. Broker-dealers may make available the DTC book-entry Dividend Reinvestment Service for use by Beneficial
Owners of the Fund through DTC Participants for reinvestment of their dividend distributions. If this service is used, dividend distributions
of both income and realized gains will be automatically reinvested in additional whole Shares of the Fund. Beneficial Owners should contact
their broker to determine the availability and costs of the service and the details of participation therein. Brokers may require Beneficial
Owners to adhere to specific procedures and timetables.
U.S. FEDERAL INCOME TAXATION
Set forth below
is a discussion of certain U.S. federal income tax considerations affecting the Fund and the purchase, ownership and disposition of Shares.
It is based upon the U.S. Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury Department regulations promulgated
thereunder, judicial authorities, and administrative rulings and practices, all as in effect as of the date of this SAI and all of which
are subject to change, possibly with retroactive effect. The following information supplements and should be read in conjunction with
the section in the Prospectus entitled “Dividends, Distributions and Taxes.”
Except to the
extent discussed below, this summary assumes that a Fund shareholder holds Shares as capital assets within the meaning of the Code, and
does not hold Shares in connection with a trade or business. This summary does not address all potential U.S. federal income tax considerations
possibly applicable to an investment in Shares, and does not address the tax consequences to Fund shareholders subject to special tax
rules, including, but not limited to, partnerships and the partners therein, those who hold Shares through an IRA, 401(k) plan or
other tax-advantaged account, and, except to the extent discussed below, tax-exempt shareholders. This discussion does not discuss any
aspect of U.S. state, local, estate and gift, or non-U.S., tax law. Furthermore, this discussion is not intended or written to be legal
or tax advice to any shareholder in the Fund or other person and is not intended or written to be used or relied on, and cannot be used
or relied on, by any such person for the purpose of avoiding any U.S. federal tax penalties that may be imposed on such person. Prospective
Fund shareholders are urged to consult their own tax advisers with respect to the specific U.S. federal, state and local, and non- U.S.,
tax consequences of investing in Shares based on their particular circumstances.
The Fund has
not requested and will not request an advance ruling from the U.S. Internal Revenue Service (“IRS”) as to the U.S. federal
income tax matters described below. The IRS could adopt positions contrary to those discussed below and such positions could be sustained.
Prospective investors should consult their own tax advisors with regard to the U.S. federal tax consequences of the purchase, ownership
or disposition of Shares, as well as the tax consequences arising under the laws of any state, non-U.S. country or other taxing jurisdiction.
Tax Treatment of the Fund
In
General. The Fund intends to qualify and elect to be treated as a separate regulated investment company under the Code. As
a RIC, the Fund generally will not be required to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains
that it distributes to its shareholders.
To qualify and
remain eligible for the special tax treatment accorded to RICs, the Fund must meet certain income, asset and distribution requirements,
described in more detail below. Specifically, the Fund must (i) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock, securities or foreign
currencies, other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies and net income derived from interests in qualified publicly traded partnerships
(“QPTPs”) (i.e., partnerships that are traded on an established securities market or readily tradable on a secondary
market, other than partnerships that derive at least 90% of their income from interest, dividends, and other qualifying RIC income described
above), and (ii) diversify its holdings so that, at the end of each quarter of the Fund’s taxable year, (a) at least 50%
of the value of the Fund’s assets is represented by cash, securities of other RICs, U.S. government securities
and other securities,
with such other securities limited, in respect of any one issuer, to an amount not greater in value than 5% of the Fund’s total
assets and not greater than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of its
assets is invested in the securities (other than U.S. government securities or securities of other RICs) of any one issuer, any two or
more issuers of which 20% or more of the voting stock of each such issuer is held by the Fund and that are determined to be engaged in
the same or similar trades or businesses or related trades or businesses or in the securities of one or more QPTPs. Furthermore, the Fund
must distribute annually at least 90% of the sum of (i) its “investment company taxable income” (which includes dividends,
interest and net short-term capital gains) and (ii) certain net tax-exempt income, if any.
Failure
to Maintain RIC Status. If the Fund fails to qualify as a RIC for any year (subject to certain curative measures allowed by
the Code), the Fund will be subject to regular corporate-level U.S. federal income tax in that year on all of its taxable income, regardless
of whether the Fund makes any distributions to its shareholders. In addition, in such case, distributions will be taxable to the Fund’s
shareholders generally as ordinary dividends to the extent of the Fund’s current and accumulated earnings and profits, possibly
eligible for (i) in the case of an individual Fund shareholder, treatment as a qualified dividend (as discussed below) subject to
tax at preferential long-term capital gains rates or (ii) in the case of a corporate Fund shareholder, a dividends-received deduction.
The remainder of this discussion assumes that the Fund will qualify for the special tax treatment accorded to RICs.
Excise
Tax. The Fund will be subject to a 4% excise tax on certain undistributed income generally if the Fund does not distribute
to its shareholders in each calendar year an amount at least equal to the sum of 98% of its ordinary income for the calendar year 98.2%
of its capital gain net income for the twelve months ended October 31 of such year plus 100% of any undistributed amounts from prior
years. For these purposes, the Fund will be treated as having distributed any amount on which it has been subject to U.S. corporate income
tax for the taxable year ending within such calendar year. The Fund intends to make distributions necessary to avoid this 4% excise tax,
although there can be no assurance that it will be able to do so.
Phantom
Income. With respect to some or all of its investments, the Fund may be required to recognize taxable income in advance of
receiving the related cash payment. For example, under the “wash sale” rules, the Fund may not be able to deduct currently
a loss on a disposition of a portfolio security. As a result, the Fund may be required to make an annual income distribution greater than
the total cash actually received during the year. Such distribution may be made from the existing cash assets of the Fund or cash generated
from selling portfolio securities. The Fund may realize gains or losses from such sales, in which event the Fund’s shareholders
may receive a larger capital gain distribution than they would in the absence of such transactions. (See also —“Certain Debt
Instruments” below.)
Certain
Debt Instruments. Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance)
that may be acquired by the Fund (such as zero coupon debt instruments or debt instruments with payment in-kind interest) may be treated
as debt securities that are issued originally at a discount. Generally, the amount of original issue discount is treated as interest income
and is included in income over the term of the debt security, even though payment of that amount is not received until a later time, usually
when the debt security matures.
If the Fund acquires
debt securities (with a fixed maturity date of more than one year from the date of issuance) in the secondary market, such debt securities
may be treated as having market discount. Generally, any gain recognized on the disposition of, and any partial payment of principal on,
a debt security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the
“accrued market discount” on such debt security. Market discount generally accrues in equal daily installments. The Fund may
make one or more of the elections applicable to debt securities having market discount, which could affect the character and timing of
recognition of income.
Some debt securities
(with a fixed maturity date of one year or less from the date of issuance) that may be acquired by the Funds may be treated as having
acquisition discount, or original issue, discount in the case of certain types of debt securities. Generally, the Fund will be required
to include the acquisition discount, or original issue discount, in income over the term of the debt security, even though payment of
that amount is not received until a later time, usually when the debt security matures. A Fund may make one or more of the elections applicable
to debt securities having acquisition discount, or original issue discount, which could affect the character and timing of recognition
of income.
The Fund may
invest a portion of its net assets in below investment grade instruments. Investments in these types of instruments may present special
tax issues for the Fund. U.S. federal income tax rules are not entirely clear about issues such as when the Fund may cease to accrue
interest, OID or market discount, when and to what extent deductions may be taken for bad debts or worthless instruments, how payments
received on obligations in default should be allocated between principal and income and whether exchanges of debt obligations in a bankruptcy
or workout context are taxable.
PFIC
Investments. The Fund may purchase shares in a non-U.S. corporation treated as a “passive foreign investment company”
(“PFIC”) for U.S. federal income tax purposes. As a result, the Fund may be subject to increased U.S. federal income tax (plus
charges in the nature of interest on previously-deferred income taxes on the PFIC’s income) on any “excess distributions”
made on, or gain from a sale (or other disposition) of, the PFIC shares even if the Fund distributes such income to its shareholders.
In lieu of the
increased income tax and deferred tax interest charges on excess distributions on, and dispositions of, a PFIC’s shares, the Fund
can elect to treat the underlying PFIC as a “qualified electing fund,” provided that the PFIC agrees to provide the Fund with
certain information on an annual basis. With a “qualified electing fund” election in place, the Fund must include in its income
each year its share (whether distributed or not) of the ordinary earnings and net capital gain of the PFIC.
In the alternative,
the Fund can elect, under certain conditions, to mark-to-market at the end of each taxable year its PFIC shares. The Fund would recognize
as ordinary income any increase in the value of the PFIC shares and as an ordinary loss (up to any prior net income resulting from the
mark-to-market election) any decrease in the value of the PFIC shares.
With a “mark-to-market”
or “qualified election fund” election in place on a PFIC, the Fund might be required to recognize in a year income in excess
of the sum of the actual distributions received by it on the PFIC shares and the proceeds from its dispositions of the PFIC’s shares.
Any such income generally would be subject to the RIC distribution requirements and would be taken into account for purposes of the 4%
excise tax (described above).
Section 1256
Contracts. The Fund’s investments in so-called “Section 1256 contracts,” such as certain futures contracts,
most non-U.S. currency forward contracts traded in the interbank market and options on most stock indices, are subject to special tax
rules. Section 1256 contracts held by the Fund at the end of its taxable year are required to be marked to their market value, and
any unrealized gain or loss on those positions will be included in the Fund’s income as if each position had been sold for its fair
market value at the end of the taxable year. The resulting gain or loss will be combined with any gain or loss realized by the Fund from
positions in Section 1256 contracts closed during the taxable year. Provided such positions were held as capital assets and were
not part of a “hedging transaction” or a “straddle,” 60% of the resulting net gain or loss will be treated as
long-term gain or loss, and 40% of such net gain or loss will be treated as short-term capital gain or loss, regardless of the period
of time the positions were actually held by the Fund. In addition, the Fund may be required to defer the recognition of losses on certain
Section 1256 contracts to the extent of any unrecognized gains on related positions held by the Fund. Income from Section 1256
contracts generally would be subject to the RIC distribution requirements and would be taken into account for purposes of the 4% excise
tax (described above).
Swaps.
As a result of entering into swap contracts, the Fund may make or receive periodic net payments. The Fund also may make or receive a payment
when a swap is terminated prior to maturity through an assignment of the swap or other closing transaction. Periodic net payments generally
will constitute ordinary income or deductions, while termination of a swap generally will result in capital gain or loss (which will be
a long-term capital gain or loss if the Fund has been a party to the swap for more than one year). With respect to certain types of swaps,
the Fund may be required to currently recognize income or loss with respect to future payments on such swaps or may elect under certain
circumstances to mark such swaps to market annually for tax purposes as ordinary income or loss. The tax treatment of many types of credit
default swaps is uncertain.
Short
Sales. In general, gain or loss on a short sale is recognized when the Fund closes the sale by delivering the borrowed property
to the lender, not when the borrowed property is sold. If, however, the Fund already owns property that is identical to the kind it borrows
and sells pursuant to a short sale “against the box,” and such pre-existing ownership position has appreciated (i.e.,
the fair market value exceeds the Fund’s tax basis), the Fund may be required to recognize such gain at the time the borrowed stock
is sold. Any gain or loss realized upon closing out a short sale generally is considered as capital gain or loss to the extent that the
property used to close the short sale constitutes a capital asset in the Fund’s hands. Except with respect to certain situations
where the property used by the Fund to close a short sale has a long- term holding period on the date of the short sale, special rules generally
would treat the gains on short sales as short-term capital gains. These rules also may terminate the running of the holding period
of “substantially identical property” held by the Fund. Moreover, a loss on a short sale will be treated as long-term capital
loss if, on the date of the short sale, “substantially identical property” has been held by the Fund for more than one year.
In general, the Fund will not be permitted to deduct payments made to reimburse the lender of securities for dividends paid on borrowed
stock if the short sale is closed on or before the 45th day after the short sale is entered into.
Foreign
Currency Transactions. Gains or losses attributable to fluctuations in exchange rates between the time the Fund accrues income,
expenses or other items denominated in a foreign currency and the time the Fund actually collects or pays such items are generally treated
as ordinary income or loss. Similarly, gains or losses on foreign currency forward contracts, certain foreign currency options and futures
contracts and the disposition of debt securities denominated in a foreign currency, to the extent attributable to fluctuations in exchange
rates between the acquisition and disposition dates, generally are also treated as ordinary income or loss, unless the Fund were to elect
otherwise where such an election is permitted.
Non-U.S.
Investments. Dividends, interest and proceeds from the direct or indirect sale of non-U.S. securities may be subject to non-U.S.
withholding tax and other taxes, including financial transaction taxes. Even if the Fund is entitled to seek a refund in respect of such
taxes, it may not have sufficient information to do so or may choose not to do so. Tax treaties between certain countries and the U.S.
may reduce or eliminate such taxes in some cases. Non-U.S. taxes paid by the Fund will reduce the return from the Fund’s investments.
Special
or Uncertain Tax Consequences. The Fund’s investment or other activities could be subject to special and complex tax
rules that may produce differing tax consequences, such as disallowing or limiting the use of losses or deductions, causing the recognition
of income or gain without a corresponding receipt of cash, affecting the time as to when a purchase or sale of stock or securities is
deemed to occur or altering the characterization of certain complex financial transactions. The Fund may engage in investment or other
activities the treatment of which may not be clear or may be subject to recharacterization by the IRS. In particular, the tax treatment
of certain swaps and other derivatives and income from foreign currency transactions is unclear for purposes of determining the Fund’s
status as a RIC. If a final determination on the tax treatment of the Fund’s investment or other activities differs from the Fund’s
original expectations, the final determination could adversely affect the Fund’s status as a RIC or the timing or character of income
recognized by the Fund, requiring the Fund to purchase or sell assets, alter its portfolio or take other action in order to comply with
the final determination.
Tax Treatment of Fund Shareholders
Taxation of U.S. Shareholders
The following
is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Shares applicable to “U.S.
shareholders.” For purposes of this discussion, a “U.S. shareholder” is a beneficial owner of Shares who, for U.S. federal
income tax purposes, is (i) an individual who is a citizen or resident of the U.S.; (ii) a corporation (or an entity treated
as a corporation for U.S. federal income tax purposes) created or organized in the U.S. or under the laws of the U.S., or of any state
thereof, or the District of Columbia; (iii) an estate, the income of which is includable in gross income for U.S. federal income
tax purposes regardless of its source; or (iv) a trust, if (a) a U.S. court is able to exercise primary supervision over the
administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the
trust has a valid election in place to be treated as a U.S. person.
Fund
Distributions. In general, Fund distributions are subject to U.S. federal income tax when paid, regardless of whether they
consist of cash or property and regardless of whether they are re-invested in Shares. However, any Fund distribution declared in October,
November or December of any calendar year and payable to shareholders of record on a specified date during such month will be
deemed to have been received by each Fund shareholder on December 31 of such calendar year, provided such dividend is actually paid
during January of the following calendar year.
Distributions
of the Fund’s net investment income and the Fund’s net short-term capital gains in excess of net long-term capital losses
(collectively referred to as “ordinary income dividends”) are taxable as ordinary income to the extent of the Fund’s
current and accumulated earnings and profits (subject to an exception for distributions of “qualified dividend income, as discussed
below). Corporate shareholders of the Fund may be eligible to take a dividends-received deduction with respect to some of such distributions,
provided the distributions are attributable to dividends received by the Fund on stock of U.S. corporations with respect to which the
Fund meets certain holding period and other requirements. Given its investment strategy, the Fund does not anticipate that a significant
portion of its distributions will be eligible for the dividends-received deduction. To the extent designated as “capital gain dividends”
by the Fund, distributions of the Fund’s net long-term capital gains in excess of net short-term capital losses (“net capital
gain”) are taxable at long-term capital gain tax rates to the extent of the Fund’s current and accumulated earnings and profits,
regardless of the Fund shareholder’s holding period in the Fund’s Shares. Such dividends will not be eligible for a dividends
received deduction by corporate shareholders.
The Fund’s
net capital gain is computed by taking into account the Fund’s capital loss carryforwards, if any. Under the Regulated Investment
Company Modernization Act of 2010, capital losses incurred in tax years beginning after December 22, 2010 can be carried forward
indefinitely and retain the character of the original loss. To the extent that these carryforwards are available to offset future capital
gains, it is probable that the amount offset will not be distributed to shareholders. In the event that the Fund were to experience an
ownership change as defined under the Code, the Fund’s loss carryforwards, if any, may be subject to limitation.
Distributions
of “qualified dividend income” (defined below) are taxed to certain non-corporate shareholders at the reduced rates applicable
to long-term capital gain to the extent of the Fund’s current and accumulated earnings and profits, provided that the Fund shareholder
meets certain holding period and other requirements with respect to the distributing Fund’s Shares and the distributing Fund meets
certain holding period and other requirements with respect to the dividend-paying stocks. Dividends subject to these special rules, however,
are not actually treated as capital gains and, thus, are not included in the computation of a non-corporate shareholder’s net capital
gain and generally cannot be used to offset capital losses. The portion of distributions that the Fund may report as qualified dividend
income generally is limited to the amount of qualified dividend income received by the Fund, but if for any Fund taxable year 95% or more
of the Fund’s gross income (exclusive of net capital gain from sales of stock and securities) consists of qualified dividend income,
all distributions of such income for that taxable year may be reported as qualified dividend income. For this purpose, “qualified
dividend income” generally means income from dividends received by the Fund from a real estate investment trust (“REIT”)
or another RIC generally is qualified dividend income only to the extent that the
dividend distributions are made out of qualified dividend
income received by such REIT or other RIC. Given its investment strategy, the Fund does not anticipate that a significant portion of its
distributions will be eligible for qualifying dividend treatment.
To the extent
that the Fund makes a distribution of income received by the Fund in lieu of dividends with respect to securities on loan pursuant to
a securities lending transaction, such income will not constitute qualified dividend income to individual shareholders and will not be
eligible for the dividends-received deduction for corporate shareholders.
Distributions
in excess of the Fund’s current and accumulated earnings and profits will, as to each shareholder, be treated as a tax-free return
of capital to the extent of the shareholder’s tax basis in its Shares of the Fund, and as a capital gain thereafter (assuming the
shareholder holds its Shares of the Fund as capital assets).
The Fund intends
to distribute its net capital gain at least annually. However, by providing written notice to its shareholders no later than 60 days after
its year-end, the Fund may elect to retain some or all of its net capital gain and designate the retained amount as a “deemed distribution.”
In that event, the Fund pays U.S. federal income tax on the retained net capital gain, and each Fund shareholder recognizes a proportionate
share of the Fund’s undistributed net capital gain. In addition, each Fund shareholder can claim a tax credit or refund for the
shareholder’s proportionate share of the Fund’s U.S. federal income taxes paid on the undistributed net capital gain and increase
the shareholder’s tax basis in the Shares by an amount equal to the shareholder’s proportionate share of the Fund’s
undistributed net capital gain, reduced by the amount of the shareholder’s tax credit or refund. Organizations or persons not subject
to U.S. federal income tax on such net capital gain will be entitled to a refund, if any, of their pro rata share of such taxes paid by
the Fund upon timely filing appropriate returns or claims for refund with the IRS.
With respect
to non-corporate Fund shareholders (i.e., individuals, trusts and estates), ordinary income and short-term capital gain are taxed
at a current maximum rate of 37% and long-term capital gain is taxed at a current maximum rate of 20%. Corporate shareholders are taxed
at a current maximum rate of 21% on their income and gain.
In addition,
high-income individuals (and certain trusts and estates) generally will be subject to a 3.8% Medicare tax on “net investment income,”
in addition to otherwise applicable U.S. federal income tax. “Net investment income” generally will include dividends (including
capital gain dividends) received from the Fund and net gains from the redemption or other disposition of Shares. Please consult your tax
advisor regarding this tax.
If the Fund is
a “qualified fund of funds” (i.e., a RIC at least 50% of the Fund’s total assets at the end of the taxable year
consist of non-U.S. stock or securities, the Fund may elect to “pass through” to its shareholders certain non-U.S. income
taxes paid by the Fund. This means that each shareholder will be required to (i) include in gross income, even though not actually
received, the shareholder’s pro rata share of the Fund’s non-U.S. income taxes, and (ii) either take a corresponding
deduction (in calculating U.S. federal taxable income) or credit (in calculating U.S. federal income tax), subject to certain limitations.
Investors considering
buying Shares just prior to a distribution should be aware that, although the price of the Shares purchased at such time may reflect the
forthcoming distribution, such distribution nevertheless may be taxable (as opposed to a non-taxable return of capital).
REIT/REMEC
Investments. The Fund may invest in REITs owning residual interests in REMICs. Certain income from a REIT that is attributable
to a REMIC residual interest (known as “excess inclusion” income) is allocated to the Fund’s shareholders in proportion
to the dividends received from the Fund, producing the same income tax consequences as if the Fund shareholders directly received the
excess inclusion income. In general, the taxable income of any holder of a residual interest cannot be less than the excess interest inclusion.
For example, excess inclusion income (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift
institutions), (ii) constitutes “unrelated business taxable income” to certain entities (such as a qualified pension
plan, an individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt entity), and (iii) in the case of a
non-U.S. shareholder, does not qualify for any withholding tax reduction or exemption. In addition, if at any time during any taxable
year certain types of entities own Shares, the Fund will be subject to a tax equal to the product of (i) the excess inclusion income
allocable to such entities and (ii) the highest U.S. federal income tax rate imposed on corporations (currently 21%). The Fund also
is subject to information reporting with respect to any excess inclusion income.
Sales
of Shares. Any capital gain or loss realized upon a sale or exchange of Shares (including an exchange of Shares of one Fund
for Shares of another Fund) generally is treated as a long-term gain or loss if the Shares have been held for more than one year. Any
capital gain or loss realized upon a sale of Shares held for one year or less generally is treated as a short-term gain or loss, except
that any capital loss on the sale of Shares held for six months or less is treated as long-term capital loss to the extent that capital
gain dividends were paid (or deemed to be paid) with respect to such Shares. All or a portion of any loss realized upon a sale of Shares
will be disallowed if substantially identical shares are purchased (through reinvestment of dividends or otherwise) within a 61-day period
beginning 30 days before and ending 30 days after the date of disposition of the Shares. In such a case, the basis of the newly purchased
shares will be adjusted to reflect the disallowed loss.
Legislation passed
by Congress requires reporting to the IRS and to taxpayers of adjusted cost basis information for “covered securities,” which
generally include shares of a RIC acquired on or after January 1, 2012. Shareholders should contact their brokers to obtain information
with respect to the available cost basis reporting methods and available elections for their accounts.
Creation
Unit Issues and Redemptions. On an issue of Shares as part of a Creation Unit, made by means of an in-kind deposit, an Authorized
Participant recognizes capital gain or loss (assuming the Authorized Participant does not hold the securities as inventory) equal to the
difference between (i) the fair market value (at issue) of the issued Shares (plus any cash received by the Authorized Participant
as part of the issue) and (ii) the Authorized Participant’s aggregate basis in the exchanged securities (plus any cash paid
by the Authorized Participant as part of the issue). On a redemption of Shares as part of a Creation Unit where the redemption is conducted
in-kind by a payment of Fund Securities, an Authorized Participant recognizes capital gain or loss (assuming the Authorized Participant
does not hold the securities as inventory) equal to the difference between (i) the fair market value (at redemption) of the securities
received (plus any cash received by the Authorized Participant as part of the redemption) and (ii) the Authorized Participant’s
basis in the redeemed Shares (plus any cash paid by the Authorized Participant as part of the redemption). However, the IRS may assert,
under the “wash sale” rules or on the basis that there has been no significant change in the Authorized Participant’s
economic position, that any loss on an issue or redemption of Creation Units cannot be deducted currently.
In general, any
capital gain or loss recognized upon the issue or redemption of Shares (as components of a Creation Unit) is treated either as long-term
capital gain or loss, if the deposited securities (in the case of an issue) or the Shares (in the case of a redemption) have been held
for more than one year, or otherwise as short-term capital gain or loss. However, any capital loss on a redemption of Shares held for
six months or less is treated as long-term capital loss to the extent that capital gain dividends were paid (or deemed to be paid) with
respect to such Shares.
Reportable
Transactions. If a Fund shareholder recognizes a loss with respect to Shares of $2 million or more (for an individual Fund
shareholder) or $10 million or more (for a corporate shareholder) in any single taxable year (or a greater loss over a combination of
years), the Fund shareholder may be required file a disclosure statement with the IRS. Significant penalties may be imposed upon the failure
to comply with these reporting rules. Shareholders should consult their tax advisors to determine the applicability of these rules in
light of their individual circumstances.
Taxation
of Non-U.S. Shareholders
The following
is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Shares applicable to “non-U.S.
shareholders.” For purposes of this discussion, a “non-U.S. shareholder” is a beneficial owner of Shares that is not
a U.S. shareholder (as defined above) and is not an entity or arrangement treated as a partnership for U.S. federal income tax purposes.
The following discussion is based on current law, and is for general information only. It addresses only selected, and not all, aspects
of U.S. federal income taxation.
Dividends.
With respect to non-U.S. shareholders of the Fund, the Fund’s ordinary income dividends generally will be subject to U.S. federal
withholding tax at a rate of 30% (or at a lower rate established under an applicable tax treaty). However, ordinary income dividends that
are “interest-related dividends” or “short-term capital gain dividends” (each as defined below) and capital gain
dividends generally will not be subject to U.S. federal withholding (or income) tax, provided that, the non-U.S. shareholder furnishes
the Fund with a completed IRS Form W- 8BEN or W-8BEN-E, as applicable, (or acceptable substitute documentation) establishing the
non-U.S. shareholder’s non-U.S. status and the Fund does not have actual knowledge or reason to know that the non-U.S. shareholder
would be subject to such withholding tax if the non-U.S. shareholder were to receive the related amounts directly rather than as dividends
from the Fund. “Interest-related dividends” generally means dividends designated by the Fund as attributable to the Fund’s
U.S.-source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which
the Fund is at least a 10% shareholder, reduced by expenses that are allocable to such income.
“Short-term capital gain dividends”
generally means dividends designated by the Fund as attributable to the excess of the Fund’s net short-term capital gain over its
net long-term capital loss. Depending on its circumstances, the Fund may treat such dividends, in whole or in part, as ineligible for
these exemptions from withholding.
Notwithstanding
the foregoing, special rules apply in certain cases, including as described below. For example, in cases where dividend income from
a non-U.S. shareholder’s investment in the Fund is effectively connected with a trade or business of the non-U.S. shareholder conducted
in the U.S, the non-U.S. shareholder generally will be exempt from withholding tax, but will be subject to U.S. federal income tax at
the graduated rates applicable to U.S. shareholders. Such income generally must be reported on a U.S. federal income tax return. Furthermore,
such income also may be subject to the 30% branch profits tax in the case of a non-U.S. shareholder that is a corporation. In addition,
if a non-U.S. shareholder is an individual who is present in the U.S. for 183 days or more during the taxable year and has “tax
home” in U.S., any gain incurred by such shareholder with respect to his or her capital gain dividends and short-term capital gain
dividends would be subject to a 30% U.S. federal income tax (which, in the case of short-term capital gain dividends, may, in certain
instances, be withheld at source by the Fund). Lastly, special rules apply with
respect to dividends that are subject to the Foreign
Investment in Real Property Act, discussed below (“FIRPTA”) (see —“Investments in U.S. Real Property”).
Sales
of Fund Shares. Under current law, gain on a sale or exchange of Shares generally will be exempt from U.S. federal income tax
(including withholding at the source) unless (i) the non-U.S. shareholder is an individual who was physically present in the U.S.
for 183 days or more during the taxable year and has a “tax home” in the U.S., in which case the non-U.S. shareholder would
incur a 30% U.S. federal income tax on his capital gain, (ii) the gain is effectively connected with a U.S. trade or business conducted
by the non-U.S. shareholder (in which case the non-U.S. shareholder generally would be taxable on such gain at the same graduated rates
applicable to U.S. shareholders, would be required to file a U.S. federal income tax return and, in the case of a corporate non-U.S. shareholder,
may also be subject to the 30% branch profits tax), or (iii) the gain is subject to FIRPTA, as discussed below (see—“Investments
in U.S. Real Property”).
Credits
or Refunds. To claim a credit or refund for any Fund-level taxes on any undistributed long-term capital gains (as discussed
above) or any taxes collected through withholding, a non-U.S. Fund shareholder must obtain a U.S. taxpayer identification number and file
a U.S. federal income tax return even if the non-U.S. Fund shareholder would not otherwise be required to do so.
Investments
in U.S. Real Property. Subject to the exemptions described below, a non-U.S. shareholder generally will be subject to U.S.
federal income tax under FIRPTA on any gain from the sale or exchange of Shares if the Fund is a “U.S. real property holding corporation”
(as defined below) at any time during the shorter of the period during which the non-U.S. shareholder held such Shares and the five-year
period ending on the date of the disposition of those Shares. Any such gain will be taxed in the same manner income that is effectively
connected with a trade or business of the non-U.S. shareholder conducted in the U.S. and in certain cases will be collected through withholding
at the source in an amount equal to 15% of the sales proceeds. The Fund will be a “U.S. real property holding corporation”
if the fair market value of its “U.S. real property interests” (“USRPIs”) (which includes shares of U.S. real
property holding corporations and certain participating debt securities) equals or exceeds 50% of the fair market value of such interests
plus its interests in real property located outside the U.S plus any other assets used or held for use in a business.
An exemption
from FIRPTA applies if either (i) the class of Shares disposed of by the non-U.S. shareholder is regularly traded on an established
securities market (as determined for U.S. federal income tax purposes) and the non-U.S. shareholder did not actually or constructively
hold more than 5% of such class of Shares at any time during the five-year period prior to the disposition, or (ii) the Fund is a
“domestically-controlled RIC.” A “domestically-controlled RIC” is any RIC in which at all times during the relevant
testing period 50% or more in value of the RIC’s stock is owned by U.S. persons.
Furthermore,
special rules apply under FIRPTA in respect of distributions attributable to gains from USRPIs. In general, if the Fund is a U.S.
real property holding corporation (taking certain special rules into account), distributions by the Fund attributable to gains from
USRPIs will be treated as income effectively connected with a trade or business within the U.S., subject generally to tax at the same
graduated rates applicable to U.S. shareholders and, in the case of a corporation that is a non-U.S. shareholder, a “branch profits”
tax at a rate of 30% (or other applicable lower treaty rate). Such distributions will be subject to U.S. federal withholding tax and generally
will give rise to an obligation on the part of the non-U.S. shareholder to file a U.S. federal income tax return.
Even if the Fund is treated as a U.S. real property
holding corporation, distributions on the Fund’s Shares will not be treated, under the rule described above, as income effectively
connected with a U.S. trade or business in the case of a non-U.S. shareholder that owns (for the applicable period) 5% or less (by class)
of Shares and such class is regularly traded on an established securities market for U.S. federal income tax purposes (but such distribution
will be treated as ordinary dividends subject to a 30% withholding tax or lower applicable treaty rate).
Non-U.S. shareholders
that engage in certain “wash sale” and/or substitute dividend payment transactions the effect of which is to avoid the receipt
of distributions from the Fund that would be treated as gain effectively connected with a U.S. trade or business will be treated as having
received such distributions.
All shareholders
of the Fund should consult their tax advisers regarding the application of the rules described above.
Back-Up
Withholding
The Fund (or
a financial intermediary such as a broker through which a shareholder holds Shares in the Fund) may be required to report certain information
on a Fund shareholder to the IRS and withhold U.S. federal income tax (“backup withholding”) at a 24% rate from taxable distributions
and redemption or sale proceeds payable to the Fund shareholder if (i) the Fund shareholder fails to provide the Fund with a correct
taxpayer identification number or make required certifications, or if the IRS notifies the Fund that the Fund shareholder is otherwise
subject to backup withholding, and (ii) the Fund shareholder is not otherwise exempt from backup withholding. Non-U.S. shareholders
can qualify for exemption from backup withholding by submitting a properly
completed IRS Form W8BEN or W-8BEN-E. Backup withholding
is not an additional tax and any amount withheld may be credited against a Fund shareholder’s U.S. federal income tax liability.
Foreign
Account Tax Compliance Act
The U.S. Foreign
Account Tax Compliance Act (“FATCA”) generally imposes a 30% withholding tax on “withholdable payments” (defined
below) made to (i) a “foreign financial institution” (“FFI”), unless the FFI enters into an agreement with
the IRS to provide information regarding certain of its direct and indirect U.S. account holders and satisfy certain due diligence and
other specified requirements, and (ii) a “non-financial foreign entity” (“NFFE”) unless such NFFE provides
certain information to the withholding agent about certain of its direct and indirect “substantial U.S. owners” or certifies
that it has no such U.S. owners. The beneficial owner of a “withholdable payment” may be eligible for a refund or credit of
the withheld tax. The U.S. government also has entered into several intergovernmental agreements with other jurisdictions to provide an
alternative, and generally easier, approach for FFIs to comply with FATCA.
“Withholdable
payments” generally include, among other items, (i) U.S.-source interest and dividends, and (ii) gross proceeds from the
sale or disposition, occurring on or after January 1, 2019, of property of a type that can produce U.S.-source interest or dividends.
Proposed regulations may eliminate the requirements to withhold on gross proceeds.
The Fund may
be required to impose a 30% withholding tax on withholdable payments to a shareholder if the shareholder fails to provide the Fund with
the information, certifications or documentation required under FATCA, including information, certification or documentation necessary
for the Fund to determine if the shareholder is a non-U.S. shareholder or a U.S. shareholder and, if it is a non-U.S. shareholder, if
the non-U.S. shareholder has “substantial U.S. owners” and/or is in compliance with (or meets an exception from) FATCA requirements.
The Fund will not pay any additional amounts to shareholders in respect of any amounts withheld. The Fund may disclose any shareholder
information, certifications or documentation to the IRS or other parties as necessary to comply with FATCA.
The requirements
of, and exceptions from, FATCA are complex. All prospective shareholders are urged to consult their own tax advisors regarding the potential
application of FATCA with respect to their own situation.
Section 351
The Trust, on
behalf of the Fund, has the right to reject an order for a purchase of Shares if the purchaser (or any group of purchasers) would, upon
obtaining the shares so ordered, own 80% or more of the outstanding Shares of a given Fund and if, pursuant to Section 351 of the
Code, that Fund would have a basis in the Deposit Securities different from the market value of such securities on the date of deposit.
The Trust also has the right to require information necessary to determine beneficial share ownership for purposes of the 80% determination.
OTHER INFORMATION
The Fund is not
sponsored, endorsed, sold or promoted by the Exchange. The Exchange makes 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 or the
ability of the Fund to achieve their objective.
The Exchange
has no obligation or liability in connection with the administration, marketing or trading of the Fund.
For purposes
of the 1940 Act, the Fund is a registered investment company, and the acquisition of Shares by other registered investment companies and
companies relying on exemption from registration as investment companies under Section 3(c)(1) or 3(c)(7) of the 1940 Act
is subject to the restrictions of Section 12(d)(1) of the 1940 Act, except as permitted by an exemptive order that permits registered
investment companies to invest in the Fund beyond those limitations. Shareholder inquiries may be made by writing to the Trust, c/o IndexIQ
Advisors LLC, 51 Madison Avenue, New York, New York 10010.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Fund’s Annual Report to Shareholders for the fiscal year ended April 30, 2021 (the “Annual Report”) are incorporated by reference into this SAI. No other parts of the Annual Report are incorporated by reference herein. The financial
statements included in the Annual Report have been audited by PricewaterhouseCoopers LLP,
the Fund's independent registered public accounting firm, whose report thereon also appears in the Annual
Report and is incorporated by reference into this SAI. Such financial statements have been incorporated by reference herein
in reliance upon such report given upon their authority as experts in accounting and auditing.
A copy of the Annual
Report for the fiscal period ended April 30, 2021, may be obtained upon request and without charge by calling the Advisor, writing
the Trust or visiting the Fund’s website as follows:
By telephone: 1-888-474-7725
By mail: IndexIQ ETF Trust
c/o IndexIQ Advisors LLC
51 Madison Avenue
New York, NY 10010
On
the Internet: newyorklifeinvestments.com
APPENDIX A
SUMMARY OF PROXY VOTING POLICY AND PROCEDURES
The Advisor has
delegated proxy-voting authority to the Fund’s Subadvisor, MacKay Shields. A summary of MacKay Shields' proxy voting policies and
procedures is provided below.
MacKay
Shields has adopted a Proxy Policy designed to ensure that where clients have delegated proxy voting authority to MacKay Shields, all
proxies are voted in the best interest of such clients without regard to the interests of MacKay Shields. For purposes of the Policy,
the "best interests of clients" means, unless otherwise specified by the client, the clients' best economic interests over
the long term – that is, the common interest that all clients share in seeing the value of a common investment increase over time.
To assist MacKay Shields in researching and voting proxies, MacKay Shields utilizes the research and implementation services of a third-party
proxy service provider, ISS. MacKay Shields has also utilized ISS in adopting guidelines with respect to voting certain frequently
recurring proxy issues.
Where
clients have delegated authority to vote proxies to MacKay Shields, it votes them in accordance with the standard voting guidelines unless
MacKay Shields agrees with the client to apply modified guidelines. ISS researches each proxy issue and provides a recommendation to
MacKay Shields on how to vote based on such research and its application of the research to the applicable voting guidelines. ISS casts
votes in accordance with its recommendation unless a portfolio manager believes that it is in the best interests of the client(s) to
vote otherwise. To override a proxy recommendation, a portfolio manager must submit a written override request to the Legal/Compliance
Department. MacKay Shields has procedures in place to review each such override request for potential material conflicts of interest
between clients and MacKay Shields. MacKay Shields will memorialize the basis for any decision to override a recommendation or to abstain
from voting, including the resolution of any conflicts of interest.
APPENDIX B
DESCRIPTION OF FIXED-INCOME RATINGS
A rating is generally
assigned to a fixed-income security at the time of issuance by a credit rating agency designated as a nationally recognized statistical
rating organization (“NRSRO”) by the SEC. While NRSROs may from time to time revise such ratings, they undertake no obligation
to do so, and the ratings given to securities at issuance do not necessarily represent ratings which would be given to these securities
on a particular subsequent date.
Fixed-income
securities which are unrated expose the investor to risks with respect to capacity to pay interest or repay principal which are similar
to the risks of lower-rated speculative bonds. Evaluation of these securities is dependent on the investment advisor’s judgment,
analysis and experience in the evaluation of such securities.
Investors should
note that the assignment of a rating to a security by an NRSRO may not reflect the effect of recent developments on the issuer’s
ability to make interest and principal payments or on the likelihood of default.
Securities deemed
to be high yield are rated below Baa3 by Moody’s and below BBB- by Standard & Poor’s Rating Services and Fitch. The
descriptions below relate to general long-term and short-term obligations of an issuer.
Moody’s Ratings
Long-Term Obligations
Ada:
Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Aa:
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A:
Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.
Baa:
Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.
Ba:
Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
B:
Obligations rated B are considered speculative and are subject to high credit risk.
Caa:
Obligations rated Caa are judged to be speculative, of poor standing and are subject to very high credit risk.
Ca:
Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and
interest.
C:
Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal or interest.
Note:
Moody's appends numerical modifiers 1, 2 and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that
the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates a ranking in the lower end of that generic rating category.
Absence
of Rating: Where no rating has been assigned or where a rating has been withdrawn, it may be for reasons unrelated to the creditworthiness
of the issue.
Should no rating
be assigned, the reason may be one of the following:
| 1. | An application was not received or accepted. |
| 2. | The issue or issuer belongs to a group of securities or entities that are not rated as a matter of policy. |
| 3. | There is a lack of essential data pertaining to the issue or issuer. |
| 4. | The issue was privately placed, in which case the rating is not published in Moody’s publications. |
Withdrawal may
occur if new and material circumstances arise, the effects of which preclude satisfactory analysis; if there is no longer available reasonable
up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons.
Short-Term Obligations
Moody’s
short-term debt ratings are opinions of the ability of issuers to honor short-term financial obligations, generally with an original maturity
not exceeding thirteen months.
Moody's employs
the following designations to indicate the relative repayment ability of rated issuers:
P-1:
Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
P-2:
Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P-3:
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP:
Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
US Municipal Short-Term Debt Obligations
There are three
rating categories for short-term municipal obligations that are considered investment-grade and are designated as Municipal Investment
Grade (MIG). In addition, those short-term obligations that are of speculative quality are designated SG, or speculative grade. MIG ratings
expire at the maturity of the obligation.
MIG
1: This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable
liquidity support, or demonstrated broad-based access to the market for refinancing.
MIG
2: This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding
group.
MIG
3: This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market access
for refinancing is likely to be less well-established.
SG:
This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins of protection.
Standard & Poor's Ratings
Services Long-Term Obligations
AAA:
An obligation rated AAA has the highest rating assigned by Standard & Poor's Rating Services. The obligor’s capacity to
meet its financial commitment on the obligation is extremely strong.
AA:
An obligation rated AA differs from the highest-rated obligations only to a small degree. The obligor’s capacity to meet its financial
commitment is very strong.
A:
An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations
in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong.
BBB:
An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB;
B; CCC; CC; and C: Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality
and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB:
An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead to the obligor’s inadequate capacity to meet its
financial commitment on the obligation.
B:
An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity
or willingness to meet its financial commitment on the obligation.
CCC:
An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions,
the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC:
An obligation rated CC is currently highly vulnerable to nonpayment. The CC rating is used when a default has not yet occurred, but Standard &
Poor's Rating Services expects default to be a virtual certainty, regardless of the anticipated time to default.
C:
An obligation rated C is currently highly vulnerable to nonpayment, and the obligation is expected to have lower relative seniority or
lower ultimate recovery compared to obligations that are rated higher.
D:
An obligation rated D is in default or in breach of an imputed promise. For non-hybrid capital instruments, the D rating category is used
when payments on an obligation are not made on the date due, unless Standard & Poor's Rating Services believes that such payments
will be made within five business days in the absence of a stated grace period or within the earlier of the stated grace period or 30
calendar days. The D rating also will be used upon the filing of a bankruptcy petition or the taking of similar action and where default
on an obligation is a virtual certainty, for example due to automatic stay provisions. An obligation's rating is lowered to D if it is
subject to a distressed exchange offer.
NR:
NR indicates no rating has been requested, or that there is insufficient information on which to base a rating, or that Standard &
Poor's Rating Services does not rate a particular obligation as a matter of policy.
Note:
The ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major
rating categories.
Short-Term Obligations
A-1:
A short-term obligation rated A-1 is rated in the highest category by Standard & Poor's Rating Services. The obligor's capacity
to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign
(+). This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong.
A-2:
A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions
than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is satisfactory.
A-3:
A short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
B:
A short-term obligation rated B is regarded as vulnerable and has significant speculative characteristics. The obligor currently has the
capacity to meet its financial commitments; however, it faces major ongoing uncertainties which could lead to the obligor's inadequate
capacity to meet its financial commitments.
C:
A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
D:
A short-term obligation rated D is in default or in breach of an imputed promise. For non-hybrid capital instruments, the D rating category
is used when payments on an obligation are not made on the date due, unless Standard & Poor's Rating Services believes that such
payments will be made within any stated grace period. However, any stated grace period longer than five business days will be treated
as five business days. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action and where
default on an obligation is a virtual certainty, for example due to automatic stay provisions. An obligation's rating is lowered to D
if it is subject to a distressed exchange offer.
Municipal Short-Term Obligations
An S&P U.S.
municipal note rating reflects Standard & Poor's opinion about the liquidity factors and market access risks unique to the notes.
Notes due in three years or less will likely receive a note rating. Notes with an original maturity of more than three years will most
likely receive a long-term debt rating.
SP-1:
Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus
(+) designation.
SP-2:
Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3:
Speculative capacity to pay principal and interest.
Fitch Ratings
Long-Term Obligations
AAA:
Highest credit quality. AAA ratings denote the lowest expectation of credit risk. They are assigned only in cases of exceptionally strong
capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
AA:
Very high credit quality. AA ratings denote expectations of very low credit risk. They indicate very strong capacity for payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable events.
A:
High credit quality. A ratings denote expectations of low credit risk. The capacity for payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.
BBB:
Good credit quality. BBB ratings indicate that expectations of credit risk are currently low. The capacity for payment of financial commitments
is considered adequate but adverse business or economic conditions are more likely to impair this capacity.
BB:
Speculative. BB ratings indicate an elevated vulnerability to credit risk, particularly in the event of adverse changes in business or
economic conditions over time; however, business or financial alternatives may be available to allow financial commitments to be met.
B:
Highly speculative. B ratings indicate that material credit risk is present.
CCC:
Substantial credit risk. CCC ratings indicate that substantial credit risk is present.
CC:
Very high levels of credit risk. CC ratings indicate very high levels of credit risk.
C:
Exceptionally high levels of credit risk. C indicates exceptionally high levels of credit risk.
Defaulted obligations
typically are not assigned RD or D ratings, but are instead rated in the B to C rating categories, depending upon their recovery prospects
and other relevant characteristics. This approach better aligns obligations that have comparable overall expected loss but varying vulnerability
to default and loss.
Note: The
modifiers “+” or “-” may be appended to a rating to denote relative status within major rating categories. Such
suffixes are not added to the AAA obligation rating category, or to corporate finance obligation ratings in the categories below CCC.
The subscript
'emir' is appended to a rating to denote embedded market risk which is beyond the scope of the rating. The designation is intended to
make clear that the rating solely addresses the counterparty risk of the issuing bank. It is not meant to indicate any limitation in the
analysis of the counterparty risk, which in all other respects follows published Fitch criteria for analyzing the issuing financial institution.
Fitch does not rate these instruments where the principal is to any degree subject to market risk.
Short-Term Obligations (Corporate
and Public Finance)
A short-term
issuer or obligation rating is based in all cases on the short-term vulnerability to default of the rated entity or security stream and
relates to the capacity to meet financial obligations in accordance with the documentation governing the relevant obligation. Short-Term
Ratings are assigned to obligations whose initial maturity is viewed as “short-term” based on market convention. Typically,
this means up to 13 months for corporate, sovereign, and structured obligations, and up to 36 months for obligations in U.S. public finance
markets.
F1:
Highest short-term credit quality. Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an
added “+” to denote any exceptionally strong credit feature.
F2:
Good short-term credit quality. Good intrinsic capacity for timely payment of financial commitments.
F3:
Fair short-term credit quality. The intrinsic capacity for timely payment of financial commitments is adequate.
B:
Speculative short-term credit quality. Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to
near term adverse changes in financial and economic conditions.
C:
High short-term default risk. Default is a real possibility.
RD:
Restricted default. Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet
other financial obligations. Typically applicable to entity ratings only.
D:
Default. Indicates a broad-based default event for an entity, or the default of a short-term obligation.
IndexIQ
ETF Trust
Part C
– Other Information
|
|
4. |
Expense Limitation Agreements and Fee Waivers |
|
|
|
|
a. |
Expense Limitation Agreement dated August 31, 2018 between the Registrant and the Investment Advisor for IQ Chaikin U.S. Dividend Achievers ETF, IQ Chaikin U.S. Small Cap ETF, IQ Chaikin U.S. Large Cap ETF, IQ S&P High Yield Low Volatility Bond ETF and IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF.(13) |
|
|
|
|
b. |
Amendment to the Expense Limitation Agreement dated August 30,
2021 between the Registrant and the Investment Adviser for IQ 50 Percent Hedged FTSE International ETF, IQ 500 International ETF, IQ
Chaikin U.S. Dividend Achievers ETF, IQ Chaikin U.S. Large Cap ETF, IQ Chaikin U.S. Small Cap ETF, IQ S&P High Yield
Low Volatility Bond ETF, IQ S&P U.S. Preferred Stock Low Volatility High Dividend ETF, IQ Candriam ESG US Equity ETF, IQ
Candriam ESG International Equity ETF, IQ Healthy Hearts ETF and IQ Global Resources ETF. (16) |
|
|
|
|
c. |
Notice of Fee Waiver dated August 30, 2021 between the
Registrant and the Investment Advisor for IQ Hedge Multi-Strategy Tracker ETF, IQ Real Return ETF, IQ Hedge Market Neutral
Tracker ETF, IQ Hedge Macro Tracker ETF, IQ Hedge Long/Short Tracker ETF and IQ Hedge Event Drive Tracker ETF. (16) |
(q) |
Powers of Attorney executed by Reena Aggarwal, Michael A. Pignataro, Paul D. Schaeffer and Kirk C. Lehneis.(10) |
|
|
101.INS |
XBRL Instance Document -- the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH |
XBRL Taxonomy Extension Schema Document |
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document |
(1) |
Previously filed as part of Pre-Effective Amendment No. 1 to the Registration Statement, filed on February 4, 2009. |
(2) |
Previously filed as part of Post-Effective Amendment No. 17 to the Registration Statement, filed on June 29, 2011. |
(3) |
Previously filed as part of Post-Effective Amendment No. 19 to the Registration Statement filed on August 29, 2011. |
(4) |
Previously filed as part of Post-Effective Amendment No. 21 to the Registration Statement filed on August 27, 2012. |
(5) |
Previously filed as part of Post-Effective Amendment No. 32 to the Registration Statement filed on May 1, 2015. |
(6) |
Previously filed as part of Post-Effective Amendment No. 78 to the Registration Statement filed on August 26, 2016. |
(7) |
Previously filed as part of Post-Effective Amendment No. 85 to the Registration Statement filed on October 17, 2016. |
(8) |
Previously filed as part of Post-Effective Amendment No. 94 to the Registration Statement filed on January 11, 2017. |
(9) |
Previously filed as part of Post-Effective Amendment No. 107 to the Registration Statement filed on May 11, 2017. |
(10) |
Previously filed as part of Post-Effective Amendment No. 136 to the Registration Statement filed on May 8, 2018. |
(11) |
Previously filed as part of Post-Effective Amendment No. 152 to the Registration Statement filed on August 17, 2018. |
(12) |
Previously filed as part of Post-Effective Amendment No. 154 to the Registration Statement filed on August 29, 2018. |
(13) |
Previously filed as part of Post-Effective Amendment No. 169 to the Registration Statement filed on December 7, 2018. |
(14) |
Previously filed as part of Post-Effective Amendment No. 189 to the Registration Statement filed on August 27, 2020. |
(15) |
Previously filed as part of Post-Effective Amendment No. 193 to the Registration Statement filed on January 11, 2021. |
(16) |
Filed herewith. |
Item 29. |
Persons Controlled By or Under Common Control with Registrant |
Not Applicable.
Under Delaware law, Section 3817
of the Treatment of Delaware Statutory Trusts empowers Delaware business trusts to indemnify and hold harmless any trustee or beneficial
owner or other person from and against any and all claims and demands whatsoever, subject to such standards and restrictions as may be
set forth in the governing instrument of the business trust. The Registrant’s Trust Instrument contains the following provisions:
Section 2. Indemnification
and Limitation of Liability. The Trustees shall not be responsible or liable in any event for any neglect or wrong-doing of any officer,
agent, employee, Investment Advisor or Principal Underwriter of the Trust, nor shall any Trustee be responsible for the act or omission
of any other Trustee, and, as provided in Section 3 of this Article VII, the Trust out of its assets shall indemnify and hold
harmless each and every Trustee and officer of the Trust from and against any and all claims, demands, costs, losses, expenses, and damages
whatsoever arising out of or related to such Trustee’s performance of his or her duties as a Trustee or officer of the Trust; provided
that nothing herein contained shall indemnify, hold harmless or protect any Trustee or officer from or against any liability to the Trust
or any Shareholder to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
Section 3. Indemnification.
(a) Subject
to the exceptions and limitations contained in Subsection (b) below:
(i) every
person who is, or has been, a Trustee or an officer, employee or agent of the Trust (including any individual who serves at its request
as director, officer, partner, trustee or the like of another organization in which it has any interest as a shareholder, creditor or
otherwise) (“Covered Person”) shall be indemnified by the Trust or the appropriate Series to the fullest extent permitted
by law against liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding
in which he becomes involved as a party or otherwise by virtue of his being or having been a Covered Person and against amounts paid or
incurred by him in the settlement thereof; and
(ii) as
used herein, the words “claim,” “action,” “suit,” or “proceeding” shall apply to all claims,
actions, suits or proceedings (civil, criminal or other, including appeals), actual or threatened, and the words “liability”
and “expenses” shall include, without limitation, attorneys, fees, costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
(b) No
indemnification shall be provided hereunder to a Covered Person:
(i) who
shall have been adjudicated by a court or body before which the proceeding was brought (A) to be liable to the Trust or its Shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office,
or (B) not to have acted in good faith in the reasonable belief that his action was in the best interest of the Trust; or
(ii) in
the event the matter is not adjudicated by a court or other appropriate body, unless there has been a determination that such Covered
Person did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct
of his office: by at least a majority of those Trustees who are neither Interested Persons of the Trust nor are parties to the matter
based upon a review of readily available facts (as opposed to a full trial-type inquiry); or by written opinion of independent legal counsel
based upon a review of readily available facts (as opposed to a full trial-type inquiry).
(c) The rights of indemnification
herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not be exclusive of or affect any
other rights to which any Covered Person may now or hereafter be entitled, and shall inure to the benefit of the heirs, executors and
administrators of a Covered Person.
(d) To the maximum extent permitted
by applicable law, expenses incurred in defending any proceeding may be advanced by the Trust before the disposition of the proceeding
upon receipt of an undertaking by or on behalf of such Covered Person that such amount will be paid over by him to the Trust or applicable
Series if it is ultimately determined that he is not entitled to indemnification under this Section; provided, however, that either
a majority of the Trustees who are neither Interested Persons of the Trust nor parties to the matter, or independent legal counsel in
a written opinion, shall have determined, based upon a review of readily available facts (as opposed to a full trial-type inquiry) that
there is reason to believe that such Covered Person will not be disqualified from indemnification under this Section.
(e) Any repeal or modification
of this Article VII by the Shareholders, or adoption or modification of any other provision of the Declaration or By-laws inconsistent
with this Article, shall be prospective only, to the extent that such repeal, or modification would, if applied retrospectively, adversely
affect any limitation on the liability of any Covered Person or indemnification available to any Covered Person with respect to any act
or omission which occurred prior to such repeal, modification or adoption.
In addition, the Registrant
has entered into an Investment Advisory Agreement with its Investment Advisor and a Distribution Agreement with its Distributor. These
agreements provide indemnification for those entities and their affiliates. The Investment Advisor’s and Distributor’s personnel
may serve as trustees and officers of the Trust. The Investment Advisory Agreement with the Fund provides that the Investment Advisor
will not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment Advisor or from reckless disregard by the Investment Advisor
of its obligations or duties under the Agreement. Under the Distribution Agreement, the Registrant will indemnify ALPS Distributors, Inc.
against certain liabilities.
Insofar as indemnification
for liability arising under the Securities Act of 1933, as amended (“Act”), may be permitted to trustees, officers and controlling
persons of the Registrant by the Registrant pursuant to the Trust Instrument or otherwise, the Registrant has been advised that in
the
opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by trustees, officers or controlling persons of the Registrant in connection with the successful defense of any act,
suit or proceeding) is asserted by such trustees, officers or controlling persons in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issues.
Trustees and officers’
liability policies purchased by the Registrant insure the Registrant and their respective trustees, partners, officers and employees,
subject to the policies’ coverage limits and exclusions and varying deductibles, against loss resulting from claims by reason of
any act, error, omission, misstatement, misleading statement, neglect or breach of duty.
Item 31. | Business and Other Connections of the Investment Adviser |
The description of the Investment
Advisor is found under the caption “Service Providers—Investment Advisor” in the Prospectus and under the caption “Management
Services—Investment Advisor” in the Statement of Additional Information constituting Parts A and B, respectively, of this
Registration Statement, which are incorporated by reference herein. The Investment Advisor provides investment advisory services to other
persons or entities other than the Registrant.
Item 32. | Principal Underwriter |
(a) ALPS
Distributors, Inc. acts as the distributor for the Registrant and the following investment companies: 1WS Credit Income Fund, 1290
Funds, Aberdeen Standard Investments ETFs, ALPS Series Trust, The Arbitrage Funds, AQR Funds, Axonic Alternative Income Fund, Axonic
Funds, Barings Funds Trust, BBH Trust, Bluerock Total Income+ Real Estate Fund, Brandes Investment Trust, Bridge Builder Trust, Broadstone
Real Estate Access Fund, Brown Advisory Funds, Brown Capital Management Mutual Funds, Cambria ETF Trust, CC Real Estate Income Fund, Centre
Funds, CIM Real Assets & Credit Fund, CION Ares Diversified Credit Fund, Columbia ETF Trust, Columbia ETF Trust I, Columbia ETF
Trust II, CRM Mutual Fund Trust, Cullen Funds Trust, DBX ETF Trust, ETF Series Solutions, Flat Rock Opportunity Fund, Financial Investors
Trust, Firsthand Funds, FS Credit Income Fund, FS Energy Total Return Fund, FS Series Trust, FS Multi-Alternative Income Fund, Goehring &
Rozencwajg Investment Funds, Goldman Sachs ETF Trust, Griffin Institutional Access Credit Fund, Griffin Institutional Access Real Estate
Fund, Hartford Funds Exchange-Traded Trust, Hartford Funds NextShares Trust, Heartland Group, Inc., Holland Series Fund, Inc., IndexIQ
Active ETF Trust, Index IQ ETF Trust, Infusive US Trust, James Advantage Funds, Janus Detroit Street Trust, Lattice Strategies
Trust, Litman Gregory Funds Trust, Longleaf Partners Funds Trust, M3Sixty Funds Trust, Mairs & Power Funds Trust, Meridian Fund, Inc.,
Natixis ETF Trust, Pax World Series Trust I, Pax World Funds Trust III, PRIMECAP Odyssey Funds, Principal Exchange-Traded Funds,
Reality Shares ETF Trust, Resource Credit Income Fund, RiverNorth Funds, Sierra Total Return Fund, SPDR Dow Jones Industrial Average ETF
Trust, SPDR S&P 500 ETF Trust, SPDR S&P MidCap 400 ETF Trust, Sprott Funds Trust, Stadion Investment Trust, Stone Harbor
Investment
Funds, Stone Ridge Trust, Stone Ridge Trust II, Stone Ridge Trust III, Stone Ridge Trust IV, Stone Ridge Trust V, USCF ETF Trust, Wasatch
Funds, WesMark Funds, Wilmington Funds, XAI Octagon Credit Trust, X-Square Balanced Fund and YieldStreet Prism Fund.
(b) The
directors and executive officers of ALPS Distributors, Inc., are as follows:
Name* |
Position with Underwriter |
Positions with Fund |
Bradley J. Swenson |
President, Chief Operating Officer, Director |
None |
Robert J. Szydlowski |
Senior Vice President, Chief Technology Officer |
None |
Eric T. Parsons |
Vice President, Controller and Assistant Treasurer |
None |
Joseph J. Frank** |
Secretary |
None |
Patrick J. Pedonti ** |
Vice President, Treasurer and Assistant Secretary |
None |
Richard C. Noyes |
Senior Vice President, General Counsel, Assistant Secretary |
None |
Liza Orr |
Vice President, Senior Counsel |
None |
Jed Stahl |
Vice President, Senior Counsel |
None |
James Stegall |
Vice President |
None |
Gary Ross |
Senior Vice President |
None |
Kevin Ireland |
Senior Vice President |
None |
Stephen J. Kyllo |
Vice President, Chief Compliance Officer |
None |
Hilary Quinn |
Vice President |
None |
Jennifer Craig |
Assistant Vice President |
None |
| * | Except as otherwise noted, the principal business address for each of the above directors and executive
officers is 1290 Broadway, Suite 1000, Denver, Colorado 80203. |
| ** | The principal business address for Messrs. Pedonti and Frank is 333 W. 11th Street, 5th Floor, Kansas
City, Missouri 64105. |
| * | This list does not serve as an admission that the Trust considers all of these persons listed to be
officers of investment companies having the same Investment Advisor or Distributor or having an Investment Advisor or Distributor that
directly or indirectly controls, is controlled by or is under common control with the Investment Advisor or Distributor. |
(c) Not
Applicable.
Item 33. | Location of Accounts and Records |
All accounts, books and other
documents required by Section 31(a) of the Investment Company Act of 1940, as amended, and the rules thereunder are maintained
at:
IndexIQ Advisors LLC
51 Madison Avenue
New York, NY 10010
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
ALPS Distributors, Inc.
1625 Broadway, Suite 2200
Denver, CO 80202
Item 34. | Management Services |
Not Applicable.
Not Applicable.
Signatures
Pursuant to the requirements
of the Securities Act of 1933, as amended (the “Securities Act”) and the Investment Company Act of 1940, as amended,
the Registrant certifies that is meets all of the requirements for effectiveness of this Registration Statement under Rule 485(b) under
the Securities Act has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the
City of New York, and State of New York, on August 30, 2021.
|
By: |
/s/ Kirk C. Lehneis |
|
|
Kirk C. Lehneis |
|
|
President |
Pursuant to the requirements
of the Securities Act, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated:
Name |
|
Title |
|
Date |
Reena Aggarwal* |
|
Trustee |
|
August 30, 2021 |
Reena Aggarwal |
|
|
|
|
|
|
|
|
|
Michael A. Pignataro* |
|
Trustee |
|
August 30, 2021 |
Michael A. Pignataro |
|
|
|
|
|
|
|
|
|
Paul D. Schaeffer* |
|
Trustee |
|
August 30, 2021 |
Paul D. Schaeffer |
|
|
|
|
|
|
|
|
|
/s/ Kirk C. Lehneis |
|
Trustee, President and Principal |
|
August 30, 2021 |
Kirk C. Lehneis |
|
Executive Officer |
|
|
|
|
|
|
|
/s/ Adefolahan Oyefeso |
|
Treasurer, Principal Financial |
|
August 30, 2021 |
Adefolahan Oyefeso |
|
Officer, and Principal Accounting |
|
|
|
|
Officer |
|
|
|
|
|
|
|
/s/ Matthew V. Curtin |
|
|
|
|
Matthew V. Curtin,
Attorney-in-fact* |
|
|
|
|
*
PURSUANT TO POWERS OF ATTORNEY PREVIOUSLY FILED
Index
to Exhibits
(h)(4)(b) | Amendment to the Expense Limitation Agreement dated August 30, 2021 between the Registrant and the
Investment Adviser for IQ 50 Percent Hedged FTSE International ETF, IQ 500 International ETF, IQ Chaikin U.S. Dividend Achievers
ETF, IQ Chaikin U.S. Large Cap ETF, IQ Chaikin U.S. Small Cap ETF, IQ S&P High Yield Low Volatility Bond ETF, IQ
S&P U.S. Preferred Stock Low Volatility High Dividend ETF, IQ Candriam ESG US Equity ETF, IQ Candriam ESG International
Equity ETF, IQ Healthy Hearts ETF and IQ Global Resources ETF. |