UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-22310
ETF Managers Trust (Formerly FactorShares Trust)
(Exact name of registrant as specified in charter)
(Exact name of registrant as specified in charter)
30 Maple Street, Suite 2
Summit, NJ 07901
(Address of principal executive offices) (Zip code)
(Address of principal executive offices) (Zip code)
U.S. Bancorp Fund Services, LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202
(Name and address of agent for service)
(908) 897-0518
Registrant's telephone number, including area code
Date of fiscal year end: September 30, 2018
Date of reporting period: March 31, 2018
Item 1. Reports to Stockholders.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-22310
ETF Managers Trust (Formerly FactorShares Trust)
(Exact name of registrant as specified in charter)
(Exact name of registrant as specified in charter)
30 Maple Street, Suite 2
Summit, NJ 07901
(Address of principal executive offices) (Zip code)
(Address of principal executive offices) (Zip code)
U.S. Bancorp Fund Services, LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202
(Name and address of agent for service)
(908) 897-0518
Registrant's telephone number, including area code
Date of fiscal year end: September 30, 2018
Date of reporting period: March 31, 2018
Item 1. Reports to Stockholders.
Semi-Annual Report
March 31, 2018
March 31, 2018
ETFMG Prime Junior Silver ETF
Ticker: SILJ
ETFMG Prime Cyber Security ETF
Ticker: HACK
ETFMG Prime Mobile Payments ETF
Ticker: IPAY
ETFMG Drone Economy Strategy ETF
Ticker: IFLY
ETFMG Video Game Tech ETF
Ticker: GAMR
The funds are a series of ETF Managers Trust.
ETFMG™ ETFs
TABLE OF CONTENTS
March 31, 2018
Page | |
Shareholders’ Letter | 2 |
Growth of $10,000 Investment and Top Ten Holdings | 4 |
Important Disclosures and Key Risk Factors | 14 |
Portfolio Allocations | 17 |
Schedule of Investments | 18 |
Statements of Assets and Liabilities | 33 |
Statements of Operations | 34 |
Statements of Changes in Net Assets | 35 |
Financial Highlights | 40 |
Notes to Financial Statements | 45 |
Approval of Advisory Agreements and Board Considerations | 57 |
Expense Examples | 60 |
Supplementary Information | 61 |
1
ETFMG™ ETFs
On behalf of the entire team, we want to express our appreciation for the confidence you have placed in these ETFs. We continue to strive to deliver thematic technology ETFs that focus on major areas of technological advancement in business and life. Below is a discussion of performance for each of the funds.
Performance Overview
During the 6-month period from October 1, 2017 to March 31, 2018, the S&P 500 Information Technology Sector Index, a broad measure of US listed technology companies, returned 12.85%. During the same period, the S&P Global 1200 Information Technology Sector Index, a broad measure of global technology companies, returned 11.79%. For all of the funds, the primary difference between fund returns and index returns were the expenses of the funds, which are not part of the indexes that each of the funds track.
ETFMG Prime Junior Silver ETF (SILJ)
The ETFMG Prime Junior Silver ETF (the “Fund”) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Prime Junior Silver Miners & Explorers Index (the “Index”).
The Index was down - 8.98% during the period while the NAV return for the Fund was down -10.26%, in line with the return of the Index. The best performers in the Fund were SilverCrest Metals (up 65.26%) and Maya Gold & Silver (up 41.51%). The worst performers were Cautivo Mining (down -49.33%) and Santacruz Silver Mining (down - 45.29%).
ETFMG Prime Cyber Security ETF (HACK)
The ETFMG Prime Cyber Security ETF (the “Fund”) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Prime Cyber Defense Index (the “Index”).
Over the period, the Index returned 16.72% while the NAV return for the Fund was 13.83%, in line with the return of the Index. The best performers in the Fund were Anhlab (up 100.12%) and Fortinet (up 49.50%). The worst performers were SecureWorks (down - 34.57%) and A10 Networks (down -23.02%).
ETFMG Prime Mobile Payments ETF (IPAY)
The ETFMG Prime Mobile Payments ETF (the “Fund”) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Prime Mobile Payments Index (the “Index”).
Over the period, the Index returned 11.65% while the NAV return for the Fund was 11.26%, in line with the return of the Index. The best performers in the Fund were Square (up 70.77%) and USA Technologies (up 41.06%). The worst performers were MoneyGram International (down - 31.04%) and VeriFone Systems (down - 25.33%).
ETFMG Drone Economy Strategy ETF (IFLY)
The ETFMG Drone Economy Strategy ETF (“the Fund”) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Reality Shares Drone Index (“the Index”).
2
ETFMG™ ETFs
ETFMG Video Game Tech ETF (GAMR)
Over the period, the Index returned 3.61% while the NAV return for IFLY was -3.93%, in line with the return of the Index. The best performers in the Fund were Vestel (up 40.71%) and Intel (up 38.48%). The worst performers were GoPro (down - 56.49%) and Parrot SA (down - 46.54%).
The ETFMG Video Game Tech ETF (the “Fund”) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the EEFund Video Game Tech Index (the “Index”).
Over the period, the Index returned 9.56% while the NAV return for the Fund was 9.24%, in line with the return of the Index. The best performers in the Fund were Neowiz (up 102.90%) and Capcom (up 86.29%). The worst performers were Rovio Entertainment (down - 47.43%) and GameStop (down - 36.19%).
On behalf of ETFMG and our industry leading partners, I would like to thank you for your continued interest in our unique suite of ETFs. We endeavor to provide our investors with new and innovative products and look forward to continuing this for years to come.
You can find further details about SILJ, HACK, IPAY, IFLY and GAMR by visiting www.etfmgfunds.com, or by calling 1-844-383-6477.
Sincerely,
Samuel Masucci III
Chairman of the Board
Samuel Masucci III is a registered representative of ETFMG Financial, LLC.
3
Since | ||||||||||||||||||||
Average Annual Returns | 6 Months | 1 Year | 3 Year | 5 Year | Inception | |||||||||||||||
Period Ended March 31, 2018 | Return1 | Return | Return | Return | (11/29/12) | |||||||||||||||
ETFMG Prime Junior Silver ETF (NAV) | -10.26 | % | -17.95 | % | 15.76 | % | -8.67 | % | -10.67 | % | ||||||||||
ETFMG Prime Junior Silver ETF (Market) | -10.58 | % | -18.08 | % | 15.46 | % | -8.81 | % | -10.71 | % | ||||||||||
S&P 500 Index2 | 5.84 | % | 14.07 | % | 10.91 | % | 13.30 | % | 14.78 | % | ||||||||||
Prime Junior Silver Miners & Explorers Index2 | -8.98 | % | -14.12 | % | 17.89 | % | -6.86 | % | -8.84 | % |
Total Fund Operating Expenses3 | 0.69% |
1. Not annualized. |
2. The return reflects the actual performance through March 29, 2018 (the last day of the New York Stock Exchange was open) to maintain consistency with the Fund’s net asset value calculations used for shareholder transactions.
3. The expense ratio is taken from the Fund’s most recent prospectus dated January 31, 2018.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on November 29, 2012, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the sale of Fund shares. The chart assumes reinvestment of capital gains and dividends, if any. The unmanaged indices do not reflect fees and are not available for direct investment.
4
ETFMG Prime Junior Silver ETF
Top Ten Holdings*
% of Total | |||
Security | Investments† | ||
1 | Pan American Silver Corporation | 12.15% | |
2 | Coeur Mining, Inc. | 11.43% | |
3 | Hecla Mining Co. | 11.20% | |
4 | Hochschild Mining PLC | 11.18% | |
5 | Yamana Gold, Inc. | 4.73% | |
6 | First Majestic Silver Corp. | 4.71% | |
7 | MAG Silver Corporation | 4.42% | |
8 | Hudbay Minerals, Inc. | 4.11% | |
9 | Tahoe Resources, Inc. | 3.83% | |
10 | Silvercorp Metals, Inc. | 3.60% | |
Top Ten Holdings = 71.37% of Total Investments†
* Current portfolio holdings may not be indicative of future Fund holdings.
† Percentage of total investments less cash.
5
ETFMG Prime Cyber Security ETF
Growth of $10,000
Since | ||||||||||||||||
Average Annual Returns | 6 Months | 1 Year | 3 Year | Inception | ||||||||||||
Period Ended March 31, 2018 | Return1 | Return | Return | (11/11/14) | ||||||||||||
ETFMG Prime Cyber Security ETF (NAV) | 13.83 | % | 16.17 | % | 7.49 | % | 10.17 | % | ||||||||
ETFMG Prime Cyber Security ETF (Market) | 13.87 | % | 16.10 | % | 7.45 | % | 10.17 | % | ||||||||
S&P 500 Index2 | 5.84 | % | 14.07 | % | 10.91 | % | 10.23 | % | ||||||||
Prime Cyber Defense Index2 | 16.72 | % | 20.73 | % | 8.95 | % | 12.24 | % |
Total Fund Operating Expenses3 | 0.60% |
1. Not annualized. |
2. The return reflects the actual performance through March 29, 2018 (the last day of the New York Stock Exchange was open) to maintain consistency with the Fund’s net asset value calculations used for shareholder transactions.
3. The expense ratio is taken from the Fund’s most recent prospectus dated January 31, 2018.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund data may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on November 11, 2014, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the sale of Fund shares. The chart assumes reinvestment of capital gains and dividends, if any. The unmanaged indices do not reflect fees and are not available for direct investment.
6
ETFMG Prime Cyber Security ETF
Top Ten Holdings*
% of Total | |||
Security | Investments† | ||
1 | Trend Micro, Inc. | 4.06% | |
2 | CommVault Systems, Inc. | 3.92% | |
3 | Cisco Systems, Inc. | 3.81% | |
4 | Palo Alto Networks, Inc. | 3.80% | |
5 | CyberArk Software Ltd. | 3.78% | |
6 | Science Applications International Corp. | 3.77% | |
7 | Fortinet, Inc. | 3.76% | |
8 | Carbonite, Inc. | 3.70% | |
9 | CACI International, Inc. | 3.65% | |
10 | Proofpoint, Inc. | 3.64% |
Top Ten Holdings = 37.88% of Total Investments†
* Current portfolio holdings may not be indicative of future Fund holdings.
† Percentage of total investments less cash.
7
ETFMG Prime Mobile Payments ETF
Growth of $10,000
Average Annual Returns | 6 Months | 1 Year | Since Inception | |||||||||
Period Ended March 31, 2018 | Return1 | Return | (7/15/15) | |||||||||
ETFMG Prime Mobile Payments ETF (NAV) | 11.26 | % | 29.56 | % | 14.88 | % | ||||||
ETFMG Prime Mobile Payments ETF (Market) | 11.23 | % | 29.60 | % | 15.00 | % | ||||||
S&P 500 Index2 | 5.84 | % | 14.07 | % | 11.00 | % | ||||||
Prime Mobile Payments Index2 | 11.65 | % | 31.08 | % | 15.67 | % |
Total Fund Operating Expenses3 | 0.75% |
1. Not annualized. |
2. The return reflects the actual performance through March 29, 2018 (the last day of the New York Stock Exchange was open) to maintain consistency with the Fund’s net asset value calculations used for shareholder transactions.
3. The expense ratio is taken from the Fund’s most recent prospectus dated January 31, 2018.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on July 15, 2015, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the sale of Fund shares. The chart assumes reinvestment of capital gains and dividends, if any. The unmanaged indices do not reflect fees and are not available for direct investment.
8
ETFMG Prime Mobile Payments ETF
Top Ten Holdings*
% of Total | |||
Security | Investments† | ||
1 | Visa, Inc. | 5.57% | |
2 | MasterCard, Inc. | 5.54% | |
3 | American Express Co. | 5.46% | |
4 | PayPal Holdings, Inc. | 5.45% | |
5 | Fidelity National Information Services, Inc. | 4.53% | |
6 | Fiserv, Inc. | 4.30% | |
7 | Worldpay, Inc. | 3.94% | |
8 | Discover Financial Services | 3.85% | |
9 | Dai-ichi Life Holdings, Inc. | 3.57% | |
10 | Square, Inc. | 3.29% |
Top Ten Holdings = 45.50% of Total Investments†
* Current Fund holdings may not be indicative of future Fund holdings.
† Percentage of total investments less cash.
9
ETFMG Drone Economy Strategy ETF
Growth of $10,000
Average Annual Returns | 6 Months | 1 Year | Since Inception | |||||||||
Period Ended March 31, 2018 | Return1 | Return | (3/8/2016) | |||||||||
ETMFG Drone Economy Strategy ETF (NAV) | -3.93 | % | 24.72 | % | 17.87 | % | ||||||
ETFMG Drone Economy Strategy ETF (Market) | -3.60 | % | 25.06 | % | 18.13 | % | ||||||
S&P 500 Index2 | 5.84 | % | 14.07 | % | 17.42 | % | ||||||
Reality Shares DroneTM Index2 | -3.61 | % | 24.78 | % | 17.91 | % |
Total Fund Operating Expenses3 | 0.75% |
1. Not annualized. |
2. The return reflects the actual performance through March 29, 2018 (the last day of the New York Stock Exchange was open) to maintain consistency with the Fund’s net asset value calculations used for shareholder transactions.
3. The expense ratio is taken from the Fund’s most recent prospectus dated January 31, 2018.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on March 8, 2016, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the sale of Fund shares. The chart assumes reinvestment of capital gains and dividends, if any. The unmanaged indices do not reflect fees and are not available for direct investment.
10
ETFMG Drone Economy Strategy ETF
Top Ten Holdings*
% of Total | |||
Security | Investments† | ||
1 | Aerovironment, Inc. | 8.08% | |
2 | Parrot SA | 6.16% | |
3 | Boeing Co. | 4.36% | |
4 | Ambarella, Inc. | 2.99% | |
5 | Thales SA | 2.36% | |
6 | BAE Systems PLC | 2.14% | |
7 | Dassault Aviation SA | 2.11% | |
8 | GoPro, Inc. | 2.09% | |
9 | L3 Technologies, Inc. | 2.05% | |
10 | Vestel Elektronik Sanayi Ve Ticaret AS | 1.96% |
Top Ten Holdings = 34.30% of Total Investments†
* Current Fund holdings may not be indicative of future Fund holdings.
† Percentage of total investments less cash.
11
ETFMG Video Game Tech ETF
Growth of $10,000
Average Annual Returns | 6 Months | 1 Year | Since Inception | |||||||||
Period Ended March 31, 2018 | Return1 | Return | (3/8/2016) | |||||||||
ETFMG Video Game Tech ETF (NAV) | 9.24 | % | 42.96 | % | 39.23 | % | ||||||
ETFMG Video Game Tech ETF (Market) | 9.67 | % | 43.23 | % | 39.57 | % | ||||||
S&P 500 Index2 | 5.84 | % | 14.07 | % | 17.42 | % | ||||||
EEFund Video Game Tech Index2 | 9.56 | % | 42.20 | % | 40.31 | % |
Total Fund Operating Expenses3 | 0.75% |
1. Not annualized. |
2. The return reflects the actual performance through March 29, 2018 (the last day of the New York Stock Exchange was open) to maintain consistency with the Fund’s net asset value calculations used for shareholder transactions.
3. The expense ratio is taken from the Fund’s most recent prospectus dated January 31, 2018.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on March 8, 2016, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the sale of Fund shares. The chart assumes reinvestment of capital gains and dividends, if any. The unmanaged indices do not reflect fees and are not available for direct investment.
12
ETFMG Video Game Tech ETF
Top Ten Holdings*
% of Total | |||
Security | Investments† | ||
1 | Capcom Co. Ltd. | 3.20% | |
2 | Micro-Star International Co. Ltd. | 2.92% | |
3 | Nintendo Co. Ltd | 2.83% | |
4 | G5 Entertainment AB | 2.77% | |
5 | Gravity Co. Ltd. - ADR | 2.61% | |
6 | Electronic Arts, Inc. | 2.58% | |
7 | Gumi, Inc. | 2.55% | |
8 | NEXON CO Ltd. | 2.51% | |
9 | Activision Blizzard, Inc. | 2.40% | |
10 | Neowiz | 2.38% |
Top Ten Holdings = 26.74% of Total Investments†
* Current Fund holdings may not be indicative of future Fund holdings.
† Percentage of total investments less cash.
13
ETFMG™ ETFs
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility.
Past performance is no indicative of future return. A fund’s performance for very short time periods may not be indicative of future performance.
SILJ
The ETFMG Prime Junior Silver ETF (the “Fund” or the “Junior Silver ETF”) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Prime Junior Silver Miners & Explorers Index (the “Index”).
Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. These risks are greater for investments in emerging markets. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Therefore, the Fund is more exposed to individual issuer volatility than a diversified fund. Funds that are less diversified across countries or geographic regions are generally riskier than more geographically diversified funds and risks associated with such countries or geographic regions may negatively affect a Fund. Investments in small capitalization companies tend to have limited liquidity and greater price volatility than large-capitalization companies. The ETFMG Prime Junior Silver ETF is subject to risks associated with the worldwide price of silver and the costs of extraction and production. Worldwide silver prices may fluctuate substantially over short periods of time, so the Fund’s share price may be more volatile than other types of economic conditions, tax treatment, government regulation and intervention, and world events in the regions in which the companies operation. Several foreign countries have begun a process of privatizing certain entities and industries. Privatized entities may lose money or be renationalized. The Fund invests in some economies that are heavily dependent upon trading with key partners. Any reduction in this trading may cause an adverse impact on the economy in which the Fund invests. The Fund’s return may not match or achieve a high degree of correlation with the return of the Prime Junior Silver Miners & Explorers Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Prime Junior Silver Miners & Explorers Index. IOPV or indicative optimized portfolio value is an estimated intraday fair value of one share of an ETF determined by the last trade price of the fund’s underlying securities.
The Prime Junior Silver Miners & Explorers Index is designed to provide a benchmark for investors interested in tracking public, small-cap companies that are active in silver mining exploration and production industry. The stocks are screened for liquidity and weighted according to modified free-float market capitalization. The Index generally is comprised of 25-35 securities. An investment cannot be made directly in an index.
HACK
The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Prime Cyber Defense Index (the “Index”).
The ETFMG Prime Cyber Security ETF (The “Fund”) or the “Cyber Security ETF” is concentrated in technology-related companies face intense competition, both domestically and internationally, which may have an adverse effect on profit margins. Such companies may have limited product lines, markets, financial resources or personnel. The products of such companies may face obsolescence due to rapid technological developments, frequent new product introduction, unpredictable changes in growth rates, competition for the services of qualified personnel, and competition from foreign competitors with lower production costs. Technology companies are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies. Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. The Funds are non-diversified, meaning they may concentrate its assets in fewer individual holdings than a diversified fund. Investments in smaller companies tend to have limited liquidity and greater price volatility than large-capitalization companies. Diversification does not assure a profit or protect against a loss in a declining market. The Fund’s return may not match or achieve a high degree of correlation with the return of the Prime Cyber Defense Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Prime Cyber Defense Index.
14
ETFMG™ ETFs
The Prime Cyber Defense Index provides a benchmark for investors interested in tracking companies actively involved in providing cyber security technology and services. The Index uses a market capitalization weighted allocation across the infrastructure provider and service provider categorizations as well as an equal weighted allocation methodology for all components within each sector allocation. Index components are reviewed semi-annually for eligibility, and the weights are reset accordingly. An investment cannot be made directly in an index.
IPAY
The ETFMG Prime Mobile Payments ETF (the “Fund” or the “Mobile Payments ETF”) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Prime Mobile Payments Index (the “Index”).
Mobile Payment Companies face intense competition, both domestically and internationally, and are subject to increasing regulatory constraints, particularly with respect to fees, competition and antitrust matters, cybersecurity and privacy. Mobile Payment Companies may be highly dependent on their ability to enter into agreements with merchants and other third parties to utilize a particular payment method, system, software or service, and such agreements may be subject to increased regulatory scrutiny. Additionally, certain Mobile Payment Companies have recently faced increased costs related to class-action litigation challenging such agreements. Such factors may adversely affect the profitability and value of such companies. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Investments in smaller companies tend to have limited liquidity and greater price volatility than large-capitalization companies. The Fund’s return may not match or achieve a high degree of correlation with the return of the Prime Mobile Payments Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not guarantee a profit, nor does it protect against a loss in a declining market.
The Prime Mobile Payments Index is designed to provide a benchmark for investors interested in tracking the mobile and electronic payments industry. The stocks are screened for liquidity and weighted according to a modified linear-based capitalization-weighted methodology. The Index generally is comprised of 25-40 securities. An investment cannot be made directly in an index.
IFLY
The ETFMG Drone Economy Strategy ETF (the “Fund” or the “Drone Economy ETF”) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Reality Shares Drone Index (the “Index”).
15
ETFMG™ ETFs
Drone Economy Companies face intense competition, both domestically and internationally and are heavily dependent on the protection of patent and intellectual property rights. In addition, Drone Economy Companies may be dependent on the U.S. government and its agencies for a significant portion of their sales, and their success and growth may be affected by budgetary constraints, spending reductions, congressional appropriations, and administrative allocations of funds that affect the U.S. government and its agencies. Such factors may adversely affect the profitability and value of such companies. Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Investments in smaller companies tend to have limited liquidity and greater price volatility than large-capitalization companies. The Fund’s return may not match or achieve a high degree of correlation with the return of the Reality Shares Drone™ Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not guarantee a profit, nor does it protect against a loss in a declining market.
The Reality Shares Drone™ Index provides a benchmark for investors interested in tracking companies actively involved in drone technology and services. The Index uses Modified Equal Weight capitalization-weighted methodology. The index was created and is maintained by Reality Shares Index Committee. You cannot invest directly in an index.
GAMR
The ETFMG Video Game Tech ETF (the “Fund” or the “Video Game Tech ETF”) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the EEFund Video Game Tech Index (the “Index”).
Investing involves risk, including the possible loss of principal. The fund is new with limited operating history. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility. Video Game Tech Companies face intense competition, both domestically and internationally, may have limited product lines, markets, financial resources or personnel, may have products that face rapid obsolescence, and are heavily dependent on the protection of patent and intellectual property rights. Video Game Tech Companies are also subject to increasing regulatory constraints, particularly with respect to cybersecurity and privacy. Such factors may adversely affect the profitability and value of such companies. Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Investments in smaller companies tend to have limited liquidity and greater price volatility than large-capitalization companies. The Fund’s return may not match or achieve a high degree of correlation with the return of the EEFund Video Game Tech Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not guarantee a profit, nor does it protect against a loss in a declining market.
The EEFund Video Game Tech™ Index provides a benchmark for investors interested in tracking companies actively involved in the electronic gaming industry including the entertainment, education and simulation segments. The Index uses a market capitalization weighted allocation across the pure play and non-pure play sectors and a set weight for the conglomerate sector as well as an equal weighted allocation methodology for all components within each sector allocation. The index was created and is maintained by EEFund Management. You cannot invest directly in an index.
16
ETFMG™ ETFs
As of March 31, 2018 (Unaudited)
ETFMG Prime Junior Silver ETF | ETFMG Prime Cyber Security ETF | ETFMG Prime Mobile Payments ETF | ETFMG Drone Economy Strategy ETF | ETFMG Video Game Tech ETF | ||||||||||||||||
As a percent of Net Assets: | ||||||||||||||||||||
Brazil | — | % | — | % | 3.2 | % | — | % | — | % | ||||||||||
Canada | 63.1 | — | — | — | — | |||||||||||||||
Cayman Islands | — | — | 3.0 | 3.4 | 9.3 | |||||||||||||||
Cyprus | — | — | 1.8 | — | — | |||||||||||||||
Finland | — | 0.4 | — | — | 1.4 | |||||||||||||||
France | — | — | 4.2 | 12.1 | 2.6 | |||||||||||||||
Germany | — | — | 3.0 | 1.7 | 1.0 | |||||||||||||||
Hong Kong | — | — | 0.3 | — | 3.1 | |||||||||||||||
Israel | — | 9.4 | — | 1.4 | — | |||||||||||||||
Italy | — | — | — | 2.2 | — | |||||||||||||||
Japan | — | 5.8 | 6.9 | 9.3 | 25.7 | |||||||||||||||
Netherlands | — | 0.8 | — | 2.0 | — | |||||||||||||||
Norway | — | — | — | — | 1.1 | |||||||||||||||
Puerto Rico | — | — | 1.6 | — | — | |||||||||||||||
Republic of Korea | — | 0.9 | — | 2.1 | 12.3 | |||||||||||||||
Spain | — | — | — | 1.7 | — | |||||||||||||||
Sweden | — | — | — | 3.3 | 7.5 | |||||||||||||||
Switzerland | — | — | — | — | 1.4 | |||||||||||||||
Taiwan, Province of China | — | — | — | — | 4.3 | |||||||||||||||
Turkey | — | — | — | 3.6 | — | |||||||||||||||
United Kingdom | 11.2 | 7.3 | 0.6 | 6.3 | 1.0 | |||||||||||||||
United States | 25.0 | 75.1 | 74.9 | 50.6 | 28.8 | |||||||||||||||
Short-Term and other Net Assets | ||||||||||||||||||||
(Liabilities) | 0.7 | 0.3 | 0.5 | 0.3 | 0.5 | |||||||||||||||
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
17
ETFMG™ ETFs
ETFMG Prime Junior Silver ETF
March 31, 2018 (Unaudited)
Shares | Value | |||||||
COMMON STOCKS – 99.3% | ||||||||
Metals & Mining – 99.3% | ||||||||
Canada – 63.1% | ||||||||
Alexco Resource Corp. (a) | 494,729 | $ | 667,884 | |||||
Americas Silver Corp. (a) | 204,009 | 669,816 | ||||||
Arizona Mining, Inc. (a) | 442,766 | 1,391,860 | ||||||
Bear Creek Mining Corp. (a) | 451,888 | 806,724 | ||||||
Cautivo Mining, Inc. (a) (c) | 18,219 | — | ||||||
Endeavour Silver Corp. (a) | 530,937 | 1,290,177 | ||||||
Excellon Resources, Inc. (a) | 487,094 | 559,552 | ||||||
First Majestic Silver Corp. (a) | 390,282 | 2,384,623 | ||||||
Fortuna Silver Mines, Inc. (a) | 230,723 | 1,203,445 | ||||||
Great Panther Silver Ltd. (a) | 359,981 | 421,178 | ||||||
Hudbay Minerals, Inc. (a) | 293,880 | 2,080,324 | ||||||
Kootenay Silver, Inc. (a) | 758,742 | 106,007 | ||||||
MAG Silver Corp. (a) | 228,309 | 2,236,395 | ||||||
Mandalay Resources Corp. (a) | 1,590,059 | 240,666 | ||||||
Maya Gold & Silver, Inc. (a) | 332,050 | 541,239 | ||||||
Minco Silver Corp. (a) | 242,873 | 118,764 | ||||||
Mirasol Resources Ltd. (a) | 201,323 | 303,153 | ||||||
Pan American Silver Corp. (a) | 381,301 | 6,147,104 | ||||||
Sabina Gold & Silver Corp. (a) | 445,117 | 545,880 | ||||||
Sierra Metals, Inc. (a) | 277,519 | 710,842 | ||||||
Silvercorp Metals, Inc. (a) | 676,438 | 1,821,896 | ||||||
SilverCrest Metals, Inc. (a) | 292,963 | 527,554 | ||||||
SSR Mining, Inc. (a) | 165,104 | 1,590,360 | ||||||
Tahoe Resources, Inc. | 413,193 | 1,937,875 | ||||||
Trevali Mining Corp. (a) | 1,155,543 | 1,165,992 | ||||||
Yamana Gold, Inc. | 866,036 | 2,390,259 | ||||||
Total Canada | 31,859,569 | |||||||
United Kingdom – 11.2% | ||||||||
Hochschild Mining PLC | 2,024,579 | 5,656,812 | ||||||
United States – 25.0% | ||||||||
Coeur Mining, Inc. (a) | 723,059 | 5,784,472 | ||||||
Golden Minerals Co. (a) | 287,666 | 115,642 | ||||||
Hecla Mining Co. | 1,543,121 | 5,663,254 | ||||||
McEwen Mining, Inc. | 505,277 | 1,050,976 | ||||||
Total United States | 12,614,344 | |||||||
Total Metals & Mining | 50,130,725 | |||||||
TOTAL COMMON STOCKS (Cost $57,855,397) | 50,130,725 |
The accompanying notes are an integral part of these financial statements
18
ETFMG™ ETFs
ETFMG Prime Junior Silver ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Value | |||||||
SHORT-TERM INVESTMENTS - 0.9% | ||||||||
Money Market Funds - 0.9% | ||||||||
Invesco Advisers, Inc. STIT - Treasury Portfolio - Institutional Class, 1.57% (b) | 455,270 | $ | 455,270 | |||||
TOTAL SHORT-TERM INVESTMENTS (Cost $455,270) | 455,270 | |||||||
Total Investments (Cost $58,310,667) - 100.2% | 50,585,995 | |||||||
Liabilities in Excess of Other Assets - (0.2)% | (101,683 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 50,484,312 |
Percentages are stated as a percent of net assets.
(a) | Non-income producing security. |
(b) | The rate quoted is the annualized seven-day yield at March 31, 2018. |
(c) | Includes a security that is categorized as Level 3 per the Trust’s fair value hierarchy. This security represents $0 or 0.00% of the Fund’s net assets and is classified as a Level 3 security. |
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
19
ETFMG™ ETFs
ETFMG Prime Cyber Security ETF
Schedule of Investments
March 31, 2018 (Unaudited)
Shares | Value | |||||||
COMMON STOCKS - 99.7% | ||||||||
Finland - 0.4% | ||||||||
Software - 0.4% | ||||||||
F-Secure OYJ | 1,075,766 | $ | 4,838,041 | |||||
Israel - 9.4% | ||||||||
Communications Equipment - 0.8% | ||||||||
Radware Ltd. (a) | 454,480 | 9,703,148 | ||||||
Software - 8.6% | ||||||||
Check Point Software Technologies Ltd. (a) ^ | 523,124 | 51,967,138 | ||||||
CyberArk Software Ltd. (a) | 1,060,225 | 54,092,680 | ||||||
Total Software | 106,059,818 | |||||||
Total Israel | 115,762,966 | |||||||
Japan - 5.8% | ||||||||
Software - 5.8% | ||||||||
Digital Arts, Inc. | 184,307 | 7,119,043 | ||||||
FFRI, Inc. (a) ^ | 188,462 | 6,606,487 | ||||||
Trend Micro, Inc. | 974,194 | 58,137,605 | ||||||
Total Software | 71,863,135 | |||||||
Netherlands - 0.8% | ||||||||
Software - 0.8% | ||||||||
Gemalto NV | 166,965 | 10,200,209 | ||||||
Republic of Korea - 0.9% | ||||||||
Internet Software & Services - 0.9% | ||||||||
Ahnlab, Inc. | 132,804 | 10,640,268 | ||||||
United Kingdom - 7.3% | ||||||||
Aerospace & Defense - 2.4% | ||||||||
BAE Systems PLC | 1,258,773 | 10,267,841 | ||||||
QinetiQ Group PLC | 3,334,024 | 9,649,940 | ||||||
Ultra Electronics Holdings PLC | 482,101 | 9,354,421 | ||||||
Total Aerospace & Defense | 29,272,202 | |||||||
Internet Software & Services - 0.7% | ||||||||
Mimecast Ltd. (a) | 238,055 | 8,434,289 | ||||||
IT Services - 0.6% | ||||||||
NCC Group PLC | 2,835,999 | 7,484,306 | ||||||
Software - 3.6% | ||||||||
Sophos Group PLC | 7,360,328 | 44,693,164 | ||||||
Total United Kingdom | 89,883,961 |
The accompanying notes are an integral part of these financial statements.
20
ETFMG™ ETFs
ETFMG Prime Cyber Security ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Value | |||||||
United States - 75.1% | ||||||||
Aerospace & Defense - 0.5% | ||||||||
The KEYW Holding Corp. (a) ^ | 771,340 | $ | 6,062,732 | |||||
Communications Equipment - 14.6% | ||||||||
Cisco Systems, Inc. ^ | 1,273,908 | 54,637,914 | ||||||
F5 Networks, Inc. (a) | 74,122 | 10,718,782 | ||||||
Juniper Networks, Inc. | 2,086,161 | 50,756,297 | ||||||
NetScout Systems, Inc. (a) ^ | 369,744 | 9,742,754 | ||||||
Palo Alto Networks, Inc. (a) | 299,611 | 54,385,389 | ||||||
Total Communications Equipment | 180,241,136 | |||||||
Internet Software & Services - 9.8% | ||||||||
Akamai Technologies, Inc. (a) ^ | 730,754 | 51,868,919 | ||||||
Carbonite, Inc. (a) (b) ^ | 1,842,902 | 53,075,577 | ||||||
VeriSign, Inc. (a) ^ | 90,448 | 10,723,516 | ||||||
Zix Corp. (a) ^ | 1,141,403 | 4,873,791 | ||||||
Total Internet Software & Services | 120,541,803 | |||||||
IT Services - 11.0% | ||||||||
Booz Allen Hamilton Holding Corp. | 253,718 | 9,823,961 | ||||||
CACI International, Inc. (a) | 345,958 | 52,360,743 | ||||||
Leidos Holdings, Inc. | 149,131 | 9,753,167 | ||||||
ManTech International Corp. | 167,641 | 9,299,046 | ||||||
Science Applications International Corp. | 684,627 | 53,948,608 | ||||||
Total IT Services | 135,185,525 | |||||||
Software - 39.2% | ||||||||
A10 Networks, Inc. (a) ^ | 956,470 | 5,566,655 | ||||||
CommVault Systems, Inc. (a) ^ | 981,536 | 56,143,859 | ||||||
Everbridge, Inc. (a) ^ | 234,288 | 8,574,941 | ||||||
FireEye, Inc. (a) ^ | 3,026,322 | 51,235,632 | ||||||
ForeScout Technologies, Inc. (a) | 278,591 | 9,037,492 | ||||||
Fortinet, Inc. (a) ^ | 1,005,147 | 53,855,776 | ||||||
Imperva, Inc. (a) | 1,129,802 | 48,920,427 | ||||||
MobileIron, Inc. (a) | 1,235,476 | 6,115,606 | ||||||
Proofpoint, Inc. (a) ^ | 458,309 | 52,086,818 | ||||||
Qualys, Inc. (a) ^ | 669,963 | 48,739,808 | ||||||
Rapid7, Inc. (a) | 358,838 | 9,175,488 | ||||||
SecureWorks Corp. (a) ^ | 464,142 | 3,750,267 | ||||||
Splunk, Inc. (a) | 518,543 | 51,019,446 | ||||||
Symantec Corp. ^ | 2,003,085 | 51,779,747 | ||||||
Varonis Systems, Inc. (a) ^ | 169,435 | 10,250,818 | ||||||
VASCO Data Security International, Inc. (a) | 516,828 | 6,692,923 | ||||||
Verint Systems, Inc. (a) ^ | 238,836 | 10,174,414 | ||||||
Total Software | 483,120,117 | |||||||
Total United States | 925,151,313 | |||||||
TOTAL COMMON STOCKS (Cost $1,085,152,681) | 1,228,339,893 |
The accompanying notes are an integral part of these financial statements.
21
ETFMG™ ETFs
ETFMG Prime Cyber Security ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Value | |||||||
SHORT-TERM INVESTMENTS - 0.4% | ||||||||
Money Market Funds - 0.4% | ||||||||
Invesco Advisers, Inc. STIT - Treasury Portfolio – Institutional Class, 1.57% (c) | 4,360,744 | $ | 4,360,744 | |||||
TOTAL SHORT-TERM INVESTMENTS (Cost $4,360,744) | 4,360,744 | |||||||
INVESTMENTS PURCHASED WITH SECURITIES LENDING | ||||||||
COLLATERAL - 16.2% | ||||||||
Investment Companies - 16.2% | ||||||||
Mount Vernon Liquid Assets Portfolio, LLC, 1.89% (c) + | 200,148,059 | |||||||
TOTAL INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL (Cost $200,148,059) | 200,148,059 | |||||||
Total Investments (Cost $1,289,661,484) - 116.3% | 1,432,848,696 | |||||||
Liabilities in Excess of Other Assets - (16.3)% | (200,741,199 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 1,232,107,497 |
Percentages are stated as a percent of net assets.
(a) | Non-income producing security. |
(b) | Affiliated security. Please refer to Note 10 of the Notes to Financial Statements. |
(c) | The rate quoted is the annualized seven-day yield at March 31, 2018. |
+ Investments purchased with cash proceeds from securities lending. Total cash collateral has a value of $200,148,059 as of March 31, 2018.
^ All or a portion of this security is out on loan as of March 31, 2018. Total value of securities out on loan is $199,470,200.
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
22
ETFMG™ ETFs
ETFMG Prime Mobile Payments ETF
Schedule of Investments
March 31, 2018 (Unaudited)
Shares | Value | |||||||
COMMON STOCKS - 99.5% | ||||||||
Brazil - 3.2% | ||||||||
IT Services - 3.2% | ||||||||
Cielo SA | 1,542,817 | $ | 9,678,093 | |||||
Cayman Islands - 3.0% | ||||||||
IT Services - 3.0% | ||||||||
Pagseguro Digital Ltd. (a) | 234,735 | 8,995,045 | ||||||
Cyprus - 1.8% | ||||||||
IT Services - 1.8% | ||||||||
QIWI PLC - ADR ^ | 289,845 | 5,538,938 | ||||||
France - 4.2% | ||||||||
Electronic Equipment, Instruments & Components - 2.0% | ||||||||
Ingenico Group SA | 75,677 | 6,134,539 | ||||||
IT Services - 2.2% | ||||||||
Worldline SA (a) | 132,019 | 6,702,396 | ||||||
Total France | 12,836,935 | |||||||
Germany - 3.0% | ||||||||
IT Services - 3.0% | ||||||||
Wirecard AG | 77,405 | 9,135,716 | ||||||
Hong Kong - 0.3% | ||||||||
Electronic Equipment, Instruments & Components - 0.3% | ||||||||
PAX Global Technology Ltd. | 2,136,337 | 966,342 | ||||||
Japan - 6.9% | ||||||||
Consumer Finance - 0.7% | ||||||||
Jaccs Co. Ltd. | 90,131 | 1,977,029 | ||||||
Insurance - 3.9% | ||||||||
Dai-ichi Life Holdings, Inc. (b) | 635,509 | 11,601,675 | ||||||
IT Services - 2.1% | ||||||||
GMO Payment Gateway, Inc. | 63,057 | 6,269,847 | ||||||
Software - 0.2% | ||||||||
Intelligent Wave, Inc. | 119,575 | 582,114 | ||||||
Total Japan | 20,430,665 | |||||||
Puerto Rico - 1.6% | ||||||||
IT Services - 1.6% | ||||||||
EVERTEC, Inc. | 302,537 | 4,946,480 |
The accompanying notes are an integral part of these financial statements.
23
ETFMG™ ETFs
ETFMG Prime Mobile Payments ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Value | |||||||
United Kingdom - 0.6% | ||||||||
Commercial Services & Supplies - 0.6% | ||||||||
PayPoint PLC | 167,357 | $ | 1,873,715 | |||||
United States - 74.9% | ||||||||
Consumer Finance - 11.8% | ||||||||
American Express Co. | 189,932 | 17,716,857 | ||||||
Discover Financial Services | 173,764 | 12,498,845 | ||||||
Green Dot Corp. (a) | 87,160 | 5,592,186 | ||||||
Total Consumer Finance | 35,807,888 | |||||||
Electronic Equipment, Instruments & Components - 1.5% | ||||||||
VeriFone Systems, Inc. (a) | 295,614 | 4,546,543 | ||||||
IT Services - 57.8% | ||||||||
Blackhawk Network Holdings, Inc. (a) | 125,483 | 5,609,090 | ||||||
Euronet Worldwide, Inc. (a) ^ | 70,828 | 5,589,746 | ||||||
Fidelity National Information Services, Inc. | 152,689 | 14,703,951 | ||||||
First Data Corp. (a) | 601,714 | 9,627,424 | ||||||
Fiserv, Inc. (a) | 195,844 | 13,965,636 | ||||||
FleetCor Technologies, Inc. (a) | 51,436 | 10,415,790 | ||||||
Global Payments, Inc. | 91,489 | 10,202,853 | ||||||
MasterCard, Inc. | 102,596 | 17,970,714 | ||||||
MoneyGram International, Inc. (a) | 100,390 | 865,362 | ||||||
Net 1 UEPS Technologies, Inc. (a) ^ | 99,894 | 944,997 | ||||||
PayPal Holdings, Inc. (a) | 233,016 | 17,678,924 | ||||||
Square, Inc. (a) ^ | 217,197 | 10,686,092 | ||||||
Total System Services, Inc. | 110,599 | 9,540,270 | ||||||
Visa, Inc. ^ | 151,047 | 18,068,241 | ||||||
Western Union Co. | 384,175 | 7,387,685 | ||||||
WEX, Inc. (a) | 43,746 | 6,851,499 | ||||||
Worldpay, Inc. (a) | 155,659 | 12,801,396 | ||||||
Total IT Services | 172,909,670 | |||||||
Software - 1.7% | ||||||||
ACI Worldwide, Inc. (a) | 221,655 | 5,257,657 | ||||||
Technology Hardware, Storage & Peripherals - 2.1% | ||||||||
NCR Corp. (a) ^ | 173,035 | 5,454,063 | ||||||
USA Technologies, Inc. (a) | 112,241 | 1,010,169 | ||||||
Total Technology Hardware, Storage & Peripherals | 6,464,232 | |||||||
Total United States | 224,985,990 | |||||||
TOTAL COMMON STOCKS (Cost $271,557,670) | 299,387,919 | |||||||
SHORT-TERM INVESTMENTS - 0.3% | ||||||||
Money Market Funds - 0.3% | ||||||||
Invesco Advisers, Inc. STIT - Treasury Portfolio - Institutional Class, 1.57% (c) | 1,017,229 | 1,017,229 | ||||||
TOTAL SHORT-TERM INVESTMENTS (Cost $1,017,229) | 1,017,229 |
The accompanying notes are an integral part of these financial statements.
24
ETFMG™ ETFs
ETFMG Prime Mobile Payments ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Value | |||||||
INVESTMENTS PURCHASED WITH SECURITIES LENDING | ||||||||
COLLATERAL - 8.1% | ||||||||
Investment Companies - 8.1% | ||||||||
Mount Vernon Liquid Assets Portfolio, LLC, 1.89% (c) + | $ | 24,219,887 | ||||||
TOTAL INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL (Cost $24,219,887) | 24,219,887 | |||||||
Total Investments (Cost $296,794,786) - 107.9% | 324,625,035 | |||||||
Liabilities in Excess of Other Assets - (7.9)% | (23,802,054 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 300,822,981 |
Percentages are stated as a percent of net assets.
ADR American Depositary Receipt
(a) | Non-income producing security. |
(b) | Affiliated security. Please refer to Note 10 of the Notes to Financial Statements. |
(c) | The rate quoted is the annualized seven-day yield at March 31, 2018. |
+ Investments purchased with cash proceeds from securities lending. Total cash collateral has a value of $24,219,887 as of March 31, 2018.
^ All or a portion of this security is out on loan as of March 31, 2018. Total value of securities out on loan is $24,291,864.
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
25
ETFMG™ ETFs
ETFMG Drone Economy Strategy ETF
Schedule of Investments
March 31, 2018 (Unaudited)
Shares | Value | |||||||
COMMON STOCKS - 99.7% | ||||||||
Cayman Islands - 3.4% | ||||||||
Semiconductors & Semiconductor Equipment - 3.4% | ||||||||
Ambarella, Inc. (a) ^ | 30,914 | $ | 1,514,478 | |||||
France - 12.1% | ||||||||
Aerospace & Defense - 5.1% | ||||||||
Dassault Aviation SA | 559 | 1,066,812 | ||||||
Thales SA | 9,793 | 1,192,208 | ||||||
Total Aerospace & Defense | 2,259,020 | |||||||
Communications Equipment - 7.0% | ||||||||
Parrot SA (a) | 485,357 | 3,117,426 | ||||||
Total France | 5,376,446 | |||||||
Germany - 1.7% | ||||||||
Industrial Conglomerates - 1.7% | ||||||||
Rheinmetall AG | 5,435 | 771,403 | ||||||
Israel - 1.4% | ||||||||
Aerospace & Defense - 1.4% | ||||||||
Elbit Systems Ltd. | 5,072 | 608,767 | ||||||
Italy - 2.2% | ||||||||
Aerospace & Defense - 2.2% | ||||||||
Leonardo SpA | 85,915 | 991,388 | ||||||
Japan - 9.3% | ||||||||
Automobiles - 3.0% | ||||||||
Subaru Corp. | 22,348 | 732,367 | ||||||
Yamaha Motor Co. Ltd. | 21,080 | 629,993 | ||||||
Total Automobiles | 1,362,360 | |||||||
Electronic Equipment, Instruments & Components - 3.1% | ||||||||
Hitachi Ltd. | 94,091 | 681,597 | ||||||
TDK Corp. | 8,107 | 730,662 | ||||||
Total Electronic Equipment, Instruments & Components | 1,412,259 | |||||||
Household Durables - 1.6% | ||||||||
Sony Corp. - ADR | 14,956 | 722,973 | ||||||
Technology Hardware, Storage & Peripherals - 1.6% | ||||||||
NEC Corp. | 25,505 | 716,935 | ||||||
Total Japan | 4,214,527 | |||||||
Netherlands - 2.0% | ||||||||
Aerospace & Defense - 2.0% | ||||||||
Airbus SE | 7,960 | 918,714 |
The accompanying notes are an integral part of these financial statements.
26
ETFMG™ ETFs
ETFMG Drone Economy Strategy ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Value | |||||||
Republic of Korea - 2.1% | ||||||||
Aerospace & Defense - 2.1% | ||||||||
Korea Aerospace Industries Ltd. (a) | 20,101 | $ | 941,969 | |||||
Spain - 1.7% | ||||||||
IT Services - 1.7% | ||||||||
Indra Sistemas SA (a) | 54,915 | 758,814 | ||||||
Sweden - 3.3% | ||||||||
Aerospace & Defense - 1.3% | ||||||||
Saab AB | 13,278 | 600,943 | ||||||
Electronic Equipment, Instruments & Components - 2.0% | ||||||||
Hexagon AB | 15,192 | 902,445 | ||||||
Total Sweden | 1,503,388 | |||||||
Turkey - 3.6% | ||||||||
Aerospace & Defense - 1.4% | ||||||||
Aselsan Elektronik Sanayi Ve Ticaret AS | 78,931 | 618,596 | ||||||
Household Durables - 2.2% | ||||||||
Vestel Elektronik Sanayi Ve Ticaret AS (a) | 336,129 | �� | 994,253 | |||||
Total Turkey | 1,612,849 | |||||||
United Kingdom - 6.3% | ||||||||
Aerospace & Defense - 6.3% | ||||||||
BAE Systems PLC | 132,852 | 1,083,677 | ||||||
Cobham PLC (a) | 300,200 | 517,630 | ||||||
Meggitt PLC | 94,459 | 572,246 | ||||||
QinetiQ Group PLC | 214,588 | 621,100 | ||||||
Total Aerospace & Defense | 2,794,653 | |||||||
United States - 50.6% | ||||||||
Aerospace & Defense - 35.5% | ||||||||
Aerovironment, Inc. (a) | 89,904 | 4,091,531 | ||||||
Boeing Co. | 6,727 | 2,205,649 | ||||||
General Dynamics Corp. | 4,031 | 890,448 | ||||||
Kratos Defense & Security Solutions, Inc. (a) | 85,033 | 874,990 | ||||||
L3 Technologies, Inc. | 4,997 | 1,039,376 | ||||||
Lockheed Martin Corp. | 2,481 | 838,404 | ||||||
Northrop Grumman Corp. | 2,588 | 903,522 | ||||||
Orbital ATK, Inc. | 5,064 | 671,537 | ||||||
Raytheon Co. ^ | 4,220 | 910,760 | ||||||
Rockwell Collins, Inc. | 4,220 | 569,067 | ||||||
Teledyne Technologies, Inc. (a) | 2,724 | 509,851 | ||||||
Textron, Inc. | 16,319 | 962,331 | ||||||
TransDigm Group, Inc. ^ | 2,163 | 663,911 | ||||||
United Technologies Corp. | 6,349 | 798,831 |
The accompanying notes are an integral part of these financial statements.
27
ETFMG™ ETFs
ETFMG Drone Economy Strategy ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Value | |||||||
Total Aerospace & Defense | 15,930,208 | |||||||
Electronic Equipment, Instruments & Components - 5.7% | ||||||||
FLIR Systems, Inc. | 9,946 | $ | 497,399 | |||||
Jabil, Inc. ^ | 27,627 | 793,724 | ||||||
Littelfuse, Inc. | 3,438 | 715,723 | ||||||
Trimble, Inc. (a) | 15,591 | 559,405 | ||||||
Total Electronic Equipment, Instruments & Components | 2,566,251 | |||||||
Household Durables - 2.4% | ||||||||
GoPro, Inc. (a) ^ | 221,174 | 1,059,424 | ||||||
Industrial Conglomerates - 2.0% | ||||||||
Honeywell International, Inc. | 6,244 | 902,321 | ||||||
Semiconductors & Semiconductor Equipment - 5.0% | ||||||||
Intel Corp. ^ | 15,731 | 819,270 | ||||||
NVIDIA Corp. ^ | 3,658 | 847,156 | ||||||
QUALCOMM, Inc. | 10,793 | 598,040 | ||||||
Total Semiconductors & Semiconductor Equipment | 2,264,466 | |||||||
Total United States | 22,722,670 | |||||||
TOTAL COMMON STOCKS (Cost $44,574,828) | 44,730,066 | |||||||
SHORT-TERM INVESTMENTS - 0.3% | ||||||||
Money Market Funds - 0.3% | ||||||||
Invesco Advisers, Inc. STIT - Treasury Portfolio - Institutional Class, 1.57% (b) | 125,376 | 125,376 | ||||||
TOTAL SHORT-TERM INVESTMENTS (Cost $125,376) | 125,376 | |||||||
INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL - 12.8% | ||||||||
Investment Companies - 12.8% | ||||||||
Mount Vernon Liquid Assets Portfolio, LLC, 1.89% (b) + | 5,763,924 | |||||||
TOTAL INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL (Cost $5,763,924) | 5,763,924 | |||||||
Total Investments (Cost $50,464,128) - 112.8% | 50,619,366 | |||||||
Liabilities in Excess of Other Assets - (12.8)% | (5,726,628 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 44,892,738 |
Percentages are stated as a percent of net assets.
ADR | American Depositary Receipt |
(a) | Non-income producing security. |
(b) | The rate quoted is the annualized seven-day yield at March 31, 2018. |
+ Investments purchased with cash proceeds from securities lending. Total cash collateral has a value of $5,763,924 as of March 31, 2018.
^ All or a portion of this security is out on loan as of March 31, 2018. Total value of securities out on loan is $5,694,006.
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
28
ETFMG™ ETFs
ETFMG Video Game Tech ETF
Schedule of Investments
March 31, 2018 (Unaudited)
Shares | Value | |||||||
COMMON STOCKS - 99.5% | ||||||||
Cayman Islands - 9.3% | ||||||||
Internet Software & Services - 4.3% | ||||||||
Momo, Inc. - ADR (a) | 40,727 | $ | 1,522,375 | |||||
NetEase, Inc. - ADR | 3,053 | 856,031 | ||||||
SINA Corp. (a) | 10,155 | 1,058,862 | ||||||
YY, Inc. - ADR (a) | 9,562 | 1,005,922 | ||||||
Total Internet Software & Services | 4,443,190 | |||||||
Software - 3.1% | ||||||||
Changyou.com Ltd. - ADR (a) | 71,226 | 1,986,493 | ||||||
Cheetah Mobile, Inc. - ADR (a) ^ | 93,401 | 1,248,771 | ||||||
Total Software | 3,235,264 | |||||||
Technology Hardware, Storage & Peripherals - 1.9% | ||||||||
Razer, Inc. (a) | 5,446,445 | 1,998,657 | ||||||
Total Cayman Islands | 9,677,111 | |||||||
Finland - 1.4% | ||||||||
Software - 1.4% | ||||||||
Rovio Entertainment OYJ | 237,926 | 1,420,454 | ||||||
France - 2.6% | ||||||||
Software - 2.6% | ||||||||
Ubisoft Entertainment SA (a) | 31,874 | 2,687,313 | ||||||
Germany - 1.0% | ||||||||
Health Care Equipment & Supplies - 1.0% | ||||||||
Carl Zeiss Meditec AG | 15,974 | 1,019,124 | ||||||
Hong Kong - 3.1% | ||||||||
Internet Software & Services - 0.9% | ||||||||
Tencent Holdings Ltd. | 18,774 | 979,827 | ||||||
Software - 2.2% | ||||||||
NetDragon Websoft Holdings Ltd. | 947,672 | 2,306,344 | ||||||
Total Hong Kong | 3,286,171 | |||||||
Japan - 25.7% | ||||||||
Household Durables - 1.3% | ||||||||
Sony Corp. - ADR | 29,107 | 1,407,032 | ||||||
Internet Software & Services - 3.0% | ||||||||
DeNa Co. Ltd. | 46,513 | 839,293 | ||||||
Gree, Inc. | 407,334 | 2,316,029 | ||||||
Total Internet Software & Services | 3,155,322 |
The accompanying notes are an integral part of these financial statements.
29
ETFMG™ ETFs
ETFMG Video Game Tech ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Value | |||||||
Leisure Products - 2.2% | ||||||||
Bandai Namco Holdings, Inc. | 30,169 | $ | 990,937 | |||||
Sega Sammy Holdings, Inc. | 80,539 | 1,275,393 | ||||||
Total Leisure Products | 2,266,330 | |||||||
Software - 19.2% | ||||||||
Capcom Co. Ltd. | 170,066 | 3,674,468 | ||||||
Gumi, Inc. (a) ^ | 289,085 | 2,917,883 | ||||||
GungHo Online Entertainment, Inc. ^ | 387,709 | 1,319,023 | ||||||
Koei Tecmo Holdings Co. Ltd. | 50,307 | 982,453 | ||||||
Konami Holdings Corp. | 47,431 | 2,491,794 | ||||||
NEXON CO Ltd. (a) | 174,216 | 2,881,633 | ||||||
Nintendo Co. Ltd. | 7,355 | 3,239,089 | ||||||
Square Enix Holdings Co. Ltd. | 54,807 | 2,508,436 | ||||||
Total Software | 20,014,779 | |||||||
Total Japan | 26,843,463 | |||||||
Norway - 1.1% | ||||||||
Semiconductors & Semiconductor Equipment - 1.1% | ||||||||
Nordic Semiconductor ASA (a) | 199,626 | 1,188,007 | ||||||
Republic of Korea - 12.3% | ||||||||
Software - 12.3% | ||||||||
Gravity Co. Ltd. - ADR (a) ^ | 35,142 | 2,990,584 | ||||||
NCSoft Corp. | 5,655 | 2,228,258 | ||||||
Neowiz (a) | 146,694 | 2,731,847 | ||||||
Netmarble Games Corp. | 15,325 | 2,199,761 | ||||||
Webzen, Inc. (a) | 90,778 | 2,699,749 | ||||||
Total Software | 12,850,199 | |||||||
Sweden - 7.5% | ||||||||
Software - 7.5% | ||||||||
G5 Entertainment AB | 86,739 | 3,170,465 | ||||||
Paradox Interactive AB | 52,422 | 788,546 | ||||||
Starbreeze AB (a) | 1,877,959 | 2,146,772 | ||||||
THQ Nordic AB (a) | 93,787 | 1,594,979 | ||||||
Total Software | 7,700,762 | |||||||
Switzerland - 1.4% | ||||||||
Technology Hardware, Storage & Peripherals - 1.4% | ||||||||
Logitech International SA | 40,732 | 1,496,086 | ||||||
Taiwan, Province of China - 4.3% | ||||||||
Technology Hardware, Storage & Peripherals - 4.3% | ||||||||
Asustek Computer, Inc. | 113,621 | 1,069,691 | ||||||
Micro-Star International Co. Ltd. | 1,021,912 | 3,350,646 | ||||||
Total Technology Hardware, Storage & Peripherals | 4,420,337 |
The accompanying notes are an integral part of these financial statements.
30
ETFMG™ ETFs
ETFMG Video Game Tech ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Value | |||||||
United Kingdom - 1.0% | ||||||||
Hotels, Restaurants & Leisure - 1.0% | ||||||||
International Game Technology PLC | 37,987 | $ | 1,015,393 | |||||
United States - 28.8% | ||||||||
Household Durables - 0.8% | ||||||||
Vuzix Corp. (a) ^ | 145,268 | 798,974 | ||||||
Internet Software & Services - 2.0% | ||||||||
Alphabet, Inc. (a) | 1,292 | 1,333,073 | ||||||
Sohu.com, Inc. (a) ^ | 23,178 | 716,664 | ||||||
Total Internet Software & Services | 2,049,737 | |||||||
Leisure Products - 1.7% | ||||||||
Hasbro, Inc. | 10,814 | 911,620 | ||||||
Mattel, Inc. ^ | 66,151 | 869,886 | ||||||
Total Leisure Products | 1,781,506 | |||||||
Semiconductors & Semiconductor Equipment - 6.2% | ||||||||
Advanced Micro Devices, Inc. (a) ^ | 135,732 | 1,364,107 | ||||||
Intel Corp. ^ | 30,770 | 1,602,502 | ||||||
Kopin Corp. (a) ^ | 316,708 | 988,129 | ||||||
NVIDIA Corp. ^ | 6,933 | 1,605,613 | ||||||
QUALCOMM, Inc. | 15,761 | 873,317 | ||||||
Total Semiconductors & Semiconductor Equipment | 6,433,668 | |||||||
Software - 13.6% | ||||||||
Activision Blizzard, Inc. | 40,746 | 2,748,725 | ||||||
Electronic Arts, Inc. (a) | 24,357 | 2,953,043 | ||||||
Glu Mobile, Inc. (a) | 590,230 | 2,225,167 | ||||||
Microsoft Corp. | 15,842 | 1,445,899 | ||||||
Take-Two Interactive Software, Inc. (a) | 23,359 | 2,284,043 | ||||||
Zynga, Inc. (a) | 672,878 | 2,462,733 | ||||||
Total Software | 14,119,610 | |||||||
Specialty Retail - 1.6% | ||||||||
GameStop Corp. ^ | 134,087 | 1,692,178 | ||||||
Technology Hardware, Storage & Peripherals - 2.9% | ||||||||
Apple, Inc. | 7,890 | 1,323,784 | ||||||
Immersion Corp. (a) | 140,243 | 1,675,904 | ||||||
Total Technology Hardware, Storage & Peripherals | 2,999,688 | |||||||
Total United States | 29,875,361 | |||||||
TOTAL COMMON STOCKS (Cost $101,303,820) | 103,479,781 | |||||||
RIGHTS - 0.0% | ||||||||
Software - 0.0% | ||||||||
Starbreeze AB (a) | 1,877,959 | 31,488 | ||||||
TOTAL RIGHTS (Cost $38,739) | 31,488 |
The accompanying notes are an integral part of these financial statements.
31
ETFMG™ ETFs
ETFMG Video Game Tech ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Value | |||||||
SHORT-TERM INVESTMENTS - 0.4% | ||||||||
Money Market Funds - 0.4% | ||||||||
Invesco Advisers, Inc. STIT - Treasury Portfolio - Institutional Class, 1.57% (b) | 405,962 | $ | 405,962 | |||||
TOTAL SHORT-TERM INVESTMENTS (Cost $405,962) | 405,962 | |||||||
INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL - 10.3% | ||||||||
Investment Companies - 10.3% | ||||||||
Mount Vernon Liquid Assets Portfolio, LLC, 1.89% (b) + | 10,731,904 | |||||||
TOTAL INVESTMENTS PURCHASED WITH SECURITIES | ||||||||
LENDING COLLATERAL (Cost $10,731,904) | 10,731,904 | |||||||
Total Investments (Cost $112,480,425) - 110.2% | 114,649,135 | |||||||
Liabilities in Excess of Other Assets - (10.2)% | (10,594,724 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 104,054,411 |
ADR | American Depositary Receipt |
(a) | Non-income producing security. |
(b) | The rate quoted is the annualized seven-day yield at March 31, 2018. |
+ Investments purchased with cash proceeds from securities lending. Total cash collateral has a value of $10,731,904 as of March 31, 2018.
^ All or a portion of this security is out on loan as of March 31, 2018. Total value of securities out on loan is $10,399,361.
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
32
ETFMG™ ETFs
ETFMG Prime Junior Silver ETF | ETFMG Prime Cyber Security ETF | ETFMG Prime Mobile Payments ETF | ETFMG Drone Economy Strategy ETF | ETFMG Video Game Tech ETF | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Investments in unaffiliated securities, at fair value* | $ | 50,585,995 | $ | 1,379,773,119 | $ | 313,023,360 | $ | 50,619,366 | $ | 114,649,135 | ||||||||||
Investments in affiliated securities, at fair value* | — | 53,075,577 | 11,601,675 | — | — | |||||||||||||||
Cash | 2,037 | 52,044 | 120,568 | — | — | |||||||||||||||
Foreign currency | — | — | 217,689 | 1 | — | |||||||||||||||
Receivables: | ||||||||||||||||||||
Dividends and interest receivable | 4,058 | 153,583 | 292,677 | 64,768 | 185,474 | |||||||||||||||
Securities lending income receivable | — | 51,317 | 6,579 | 4,997 | 23,849 | |||||||||||||||
Total Assets | 50,592,090 | 1,433,105,640 | 325,262,548 | 50,689,132 | 114,858,458 | |||||||||||||||
LIABILITIES | ||||||||||||||||||||
Collateral received for securities | ||||||||||||||||||||
loaned (Note 7) | $ | — | $ | 200,148,059 | $ | 24,219,887 | $ | 5,763,924 | $ | 10,731,904 | ||||||||||
Payables: | ||||||||||||||||||||
Unitary fees payable | 29,609 | 643,239 | 196,241 | 29,471 | 66,914 | |||||||||||||||
Currency transactions | 68,194 | — | — | — | — | |||||||||||||||
Accrued legal expenses | 9,975 | 206,845 | 23,439 | 2,999 | 5,229 | |||||||||||||||
Total Liabilities | 107,778 | 200,998,143 | 24,439,567 | 5,796,394 | 10,804,047 | |||||||||||||||
Net Assets | $ | 50,484,312 | $ | 1,232,107,497 | $ | 300,822,981 | $ | 44,892,738 | $ | 104,054,411 | ||||||||||
NET ASSETS CONSIST OF: | ||||||||||||||||||||
Paid-in Capital | $ | 84,987,750 | $ | 1,234,129,988 | $ | 257,431,172 | $ | 41,450,962 | $ | 98,460,035 | ||||||||||
Undistributed (accumulated) net investment income (loss) | (524,307 | ) | (359,331 | ) | 270,656 | 63,519 | 113,592 | |||||||||||||
Accumulated net realized gain (loss) on investments | (26,253,786 | ) | (144,856,771 | ) | 15,291,209 | 3,223,168 | 3,313,225 | |||||||||||||
Net unrealized appreciation (depreciation) on: | ||||||||||||||||||||
Investments in securities | (7,724,672 | ) | 143,187,212 | 27,830,249 | 155,238 | 2,168,710 | ||||||||||||||
Foreign currency and translation of other assets and liabilities in foreign currency | (673 | ) | 6,399 | (305 | ) | (149 | ) | (1,151 | ) | |||||||||||
Net Assets | $ | 50,484,312 | $ | 1,232,107,497 | $ | 300,822,981 | $ | 44,892,738 | $ | 104,054,411 | ||||||||||
*Identified Cost: | ||||||||||||||||||||
Investments in unaffiliated securities | $ | 58,310,667 | $ | 1,228,871,920 | $ | 283,823,916 | $ | 50,464,128 | $ | 112,480,425 | ||||||||||
Investments in affiliated securities | — | 60,789,564 | 12,970,870 | — | — | |||||||||||||||
Foreign currency | — | — | 217,994 | 150 | 1,151 | |||||||||||||||
Shares Outstanding^ | 4,750,000 | 35,900,000 | 8,300,000 | 1,300,000 | 2,150,000 | |||||||||||||||
Net Asset Value, Offering and Redemption Price per Share | $ | 10.63 | $ | 34.32 | 1 | $ | 36.24 | 1 | $ | 34.53 | 1 | $ | 48.40 | 1 |
^ | No par value, unlimited number of shares authorized |
1 | The stated NAV per share may differ from a recalculation of the NAV per share due to certain foreign markets open on March 30, 2018, while US markets were closed. The stated NAV per share was calculated on the last business day markets were open for this fund. (See Note 2). |
The accompanying notes are an integral part of these financial statements.
33
ETFMG™ ETFs
Six Months Ended March 31, 2018 (Unaudited)
ETFMG Prime Junior Silver ETF | ETFMG Prime Cyber Security ETF | ETFMG Prime Mobile Payments ETF | ETFMG Drone Economy Strategy ETF | ETFMG Video Game Tech ETF | ||||||||||||||||
INVESTMENT INCOME | ||||||||||||||||||||
Income: | ||||||||||||||||||||
Dividends from unaffiliated securities (net of foreign withholdings tax of $6,679, $131,169, $37,344, $9,372, $23,302) | $ | 43,886 | $ | 3,935,755 | $ | 911,301 | $ | 193,634 | $ | 327,860 | ||||||||||
Dividends from affiliated securities | — | — | 271,276 | — | — | |||||||||||||||
Interest | 1,087 | 10,789 | 4,775 | 527 | 1,801 | |||||||||||||||
Securities lending income | — | 238,453 | 28,656 | 60,031 | 135,022 | |||||||||||||||
Total Investment Income | 44,973 | 4,184,997 | 1,216,008 | 254,192 | 464,683 | |||||||||||||||
Expenses: | ||||||||||||||||||||
Unitary fees | 184,393 | 3,484,889 | 945,352 | 167,600 | 269,743 | |||||||||||||||
Total Expenses | 184,393 | 3,484,889 | 945,352 | 167,600 | 269,743 | |||||||||||||||
Net Investment Income (Loss) | (139,420 | ) | 700,108 | 270,656 | 86,592 | 194,940 | ||||||||||||||
REALIZED & UNREALIZED GAIN | ||||||||||||||||||||
(LOSS) ON INVESTMENTS | ||||||||||||||||||||
Net Realized Gain (Loss) on: | ||||||||||||||||||||
Unaffiliated investments | (2,087,439 | ) | (6,115,013 | ) | (972,647 | ) | (27,819 | ) | (169,694 | ) | ||||||||||
Affiliated investments | — | (521,439 | ) | (19,395 | ) | — | — | |||||||||||||
In-Kind redemptions | (73,946 | ) | 93,766,615 | 17,551,623 | 3,491,292 | 3,709,895 | ||||||||||||||
Foreign currency and foreign currency translation | (5,632 | ) | 32,332 | (44,562 | ) | (10,776 | ) | (34,619 | ) | |||||||||||
Net Realized Gain (Loss) on Investments and In-Kind redemptions | (2,167,017 | ) | 87,162,495 | 16,515,019 | 3,452,697 | 3,505,582 | ||||||||||||||
Net Change in Unrealized Appreciation (Depreciation) of: | ||||||||||||||||||||
Unaffiliated Investments | (4,099,556 | ) | 70,158,181 | 7,169,181 | (5,393,977 | ) | (932,413 | ) | ||||||||||||
Affiliated investments | — | (7,713,987 | ) | (1,354,264 | ) | — | — | |||||||||||||
Foreign currency and foreign currency translation | (668 | ) | 2,454 | (2,321 | ) | 818 | (678 | ) | ||||||||||||
Net change in Unrealized Appreciation (Depreciation) of Investments | (4,100,224 | ) | 62,446,648 | 5,812,596 | (5,393,159 | ) | (933,091 | ) | ||||||||||||
Net Realized and Unrealized Gain (Loss) on Investments | (6,267,241 | ) | 149,609,143 | 22,327,615 | (1,940,462 | ) | 2,572,491 | |||||||||||||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | (6,406,661 | ) | $ | 150,309,251 | $ | 22,598,271 | $ | (1,853,870 | ) | $ | 2,767,431 |
The accompanying notes are an integral part of these financial statements.
34
ETFMG Prime Junior Silver ETF
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | |||||||
OPERATIONS | ||||||||
Net investment loss | $ | (139,420 | ) | $ | (294,887 | ) | ||
Net realized loss on investments and In-Kind Redemptions | (2,167,017 | ) | (15,573,596 | ) | ||||
Net change in unrealized depreciation of investments and foreign currency and foreign currency translation | (4,100,224 | ) | (5,423,909 | ) | ||||
Net decrease in net assets resulting from operations | (6,406,661 | ) | (21,292,392 | ) | ||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income | — | (258,169 | ) | |||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase (decrease) in net assets derived | ||||||||
from net change in outstanding shares (a) | (1,141,535 | ) | 2,518,035 | |||||
Net decrease in net assets | $ | (7,548,196 | ) | $ | (19,032,526 | ) | ||
NET ASSETS | ||||||||
Beginning of Period | 58,032,508 | 77,065,034 | ||||||
End of Period | $ | 50,484,312 | $ | 58,032,508 | ||||
Accumulated net investment loss | $ | (524,307 | ) | $ | (384,887 | ) |
(a) Summary of share transactions is as follows:
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 400,000 | $ | 4,651,260 | 2,400,000 | $ | 33,356,410 | ||||||||||
Shares Redeemed | (550,000 | ) | (5,792,795 | ) | (2,450,000 | ) | (30,838,375 | ) | ||||||||
(150,000 | ) | $ | (1,141,535 | ) | (50,000 | ) | $ | 2,518,035 | ||||||||
Beginning Shares | 4,900,000 | 4,950,000 | ||||||||||||||
Ending Shares | 4,750,000 | 4,900,000 |
The accompanying notes are an integral part of these financial statements.
35
ETFMG Prime Cyber Security ETF
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | |||||||
OPERATIONS | ||||||||
Net investment income (loss) | $ | 700,108 | $ | (338,601 | ) | |||
Net realized gain (loss) on investments and In-Kind Redemptions | 87,162,495 | (55,182,766 | ) | |||||
Net change in unrealized appreciation of investments | 62,446,648 | 122,753,939 | ||||||
Net increase in net assets resulting from operations | 150,309,251 | 67,232,572 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income | (125,955 | ) | (3,740,625 | ) | ||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase (decrease) in net assets derived from net change in outstanding shares (a) | (15,440,070 | ) | 230,013,980 | |||||
Transaction Fees (See Note 1) | 4,384 | 60,036 | ||||||
Net increase (decrease) in net assets from capital share transactions | (15,435,686 | ) | 230,074,016 | |||||
Total increase in net assets | $ | 134,747,610 | $ | 293,565,963 | ||||
NET ASSETS | ||||||||
Beginning of Period | 1,097,359,887 | 803,793,924 | ||||||
End of Period | $ | 1,232,107,497 | $ | 1,097,359,887 | ||||
Accumulated net investment loss | $ | (359,331 | ) | $ | (933,484 | ) |
(a) Summary of share transactions is as follows:
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 9,050,000 | $ | 309,334,165 | 17,650,000 | $ | 522,222,875 | ||||||||||
Transaction Fees (See Note 1) | — | 4,384 | — | 60,036 | ||||||||||||
Shares Redeemed | (9,600,000 | ) | (324,774,235 | ) | (10,000,000 | ) | (292,208,895 | ) | ||||||||
(550,000 | ) | $ | (15,435,686 | ) | 7,650,000 | $ | 230,074,016 | |||||||||
Beginning Shares | 36,450,000 | 28,800,000 | ||||||||||||||
Ending Shares | 35,900,000 | 36,450,000 |
The accompanying notes are an integral part of these financial statements.
36
ETFMG Prime Mobile Payments ETF
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | |||||||
OPERATIONS | ||||||||
Net investment income | $ | 270,656 | $ | 104,929 | ||||
Net realized gain on investments and In-Kind Redemptions | 16,515,019 | 4,484,869 | ||||||
Net change in unrealized appreciation of investments | 5,812,596 | 21,832,697 | ||||||
Net increase in net assets resulting from operations | 22,598,271 | 26,422,495 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income | (61,070 | ) | (31,641 | ) | ||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase in net assets derived from net change in outstanding shares (a) | 107,275,475 | 135,868,135 | ||||||
Transaction Fees (See Note 1) | 16,865 | 21 | ||||||
Net increase in net assets from capital share transactions | 107,292,340 | 135,868,156 | ||||||
Total increase in net assets | $ | 129,829,541 | $ | 162,259,010 | ||||
NET ASSETS | ||||||||
Beginning of Period | 170,993,440 | 8,734,430 | ||||||
End of Period | $ | 300,822,981 | $ | 170,993,440 | ||||
Undistributed net investment income | $ | 270,656 | $ | 61,070 |
(a) Summary of share transactions is as follows:
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 4,650,000 | $ | 164,845,530 | 5,550,000 | $ | 155,535,335 | ||||||||||
Transaction Fees (See Note 1) | — | 16,865 | — | 21 | ||||||||||||
Shares Redeemed | (1,600,000 | ) | (57,570,055 | ) | (650,000 | ) | (19,667,200 | ) | ||||||||
3,050,000 | $ | 107,292,340 | 4,900,000 | $ | 135,868,156 | |||||||||||
Beginning Shares | 5,250,000 | 350,000 | ||||||||||||||
Ending Shares | 8,300,000 | 5,250,000 |
The accompanying notes are an integral part of these financial statements.
37
ETFMG Drone Economy Strategy ETF
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | |||||||
OPERATIONS | ||||||||
Net investment income | $ | 86,592 | $ | 120,642 | ||||
Net realized gain on investments and In-Kind Redemptions | 3,452,697 | 271,606 | ||||||
Net change in unrealized appreciation (depreciation) of investments | (5,393,159 | ) | 5,251,260 | |||||
Net increase (decrease) in net assets resulting from operations | (1,853,870 | ) | 5,643,508 | |||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income | (44,402 | ) | (101,055 | ) | ||||
From net realized gain | (242,738 | ) | (28,851 | ) | ||||
Total Distributions to Shareholders | (287,140 | ) | (129,906 | ) | ||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase in net assets derived from net change in outstanding shares (a) | 9,079,925 | 25,745,485 | ||||||
Transaction Fees (See Note 1) | 5,629 | 2,630 | ||||||
Net increase in net assets from capital share transactions | 9,085,554 | 25,748,115 | ||||||
Total increase in net assets | $ | 6,944,544 | $ | 31,261,717 | ||||
NET ASSETS | ||||||||
Beginning of Period | 37,948,194 | 6,686,477 | ||||||
End of Period | $ | 44,892,738 | $ | 37,948,194 | ||||
Undistributed net investment income | $ | 63,519 | $ | 21,329 |
(a) Summary of share transactions is as follows:
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 500,000 | $ | 18,174,525 | 850,000 | $ | 27,286,680 | ||||||||||
Transaction Fees (See Note 1) | — | 5,629 | — | 2,630 | ||||||||||||
Shares Redeemed | (250,000 | ) | (9,094,600 | ) | (50,000 | ) | (1,541,195 | ) | ||||||||
250,000 | $ | 9,085,554 | 800,000 | $ | 25,748,115 | |||||||||||
Beginning Shares | 1,050,000 | 250,000 | ||||||||||||||
Ending Shares | 1,300,000 | 1,050,000 |
The accompanying notes are an integral part of these financial statements.
38
ETFMG Video Game Tech ETF
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | |||||||
OPERATIONS | ||||||||
Net investment income | $ | 194,940 | $ | 115,714 | ||||
Net realized gain on investments and In-Kind Redemptions | 3,505,582 | 2,509,264 | ||||||
Net change in unrealized appreciation (depreciation) of investments | (933,091 | ) | 2,154,494 | |||||
Net increase in net assets resulting from operations | 2,767,431 | 4,779,472 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income | (134,985 | ) | (114,780 | ) | ||||
From net realized gain | (33,059 | ) | (96,540 | ) | ||||
Total Distributions to Shareholders | (168,044 | ) | (211,320 | ) | ||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase in net assets derived from net change in outstanding shares (a) | 61,498,865 | 28,765,980 | ||||||
Transaction Fees (See Note 1) | 22,483 | 18,631 | ||||||
Net increase in net assets from capital share transactions | 61,521,348 | 28,784,611 | ||||||
Net increase in net assets | $ | 64,120,735 | $ | 33,352,763 | ||||
NET ASSETS | ||||||||
Beginning of Period | 39,933,676 | 6,580,913 | ||||||
End of Period | $ | 104,054,411 | $ | 39,933,676 | ||||
Undistributed net investment income | $ | 113,592 | $ | 53,637 |
(a) Summary of share transactions is as follows:
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 1,500,000 | $ | 73,420,965 | 900,000 | $ | 37,042,630 | ||||||||||
Transaction Fees (See Note 1) | — | 22,483 | — | 18,631 | ||||||||||||
Shares Redeemed | (250,000 | ) | (11,922,100 | ) | (200,000 | ) | (8,276,650 | ) | ||||||||
1,250,000 | $ | 61,521,348 | 700,000 | $ | 28,784,611 | |||||||||||
Beginning Shares | 900,000 | 200,000 | ||||||||||||||
Ending Shares | 2,150,000 | 900,000 |
The accompanying notes are an integral part of these financial statements.
39
ETFMG Prime Junior Silver ETF
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | Year Ended September 30, 2016 | Year Ended September 30, 2015 | Year Ended September 30, 2014 | Period Ended September 30, 20131 | |||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 11.84 | $ | 15.57 | $ | 5.28 | $ | 10.00 | $ | 11.71 | $ | 20.00 | ||||||||||||
Income (Loss) from Investment Operations: | ||||||||||||||||||||||||
Net investment loss 2 | (0.03 | ) | (0.06 | ) | (0.06 | ) | (0.03 | ) | (0.06 | ) | (0.02 | ) | ||||||||||||
Net realized and unrealized gain (loss) on investments | (1.18 | ) | (3.61 | ) | 10.47 | (4.69 | ) | (1.64 | ) | (8.27 | ) | |||||||||||||
Total from investment operations | (1.21 | ) | (3.67 | ) | 10.41 | (4.72 | ) | (1.70 | ) | (8.29 | ) | |||||||||||||
Less Distributions: | ||||||||||||||||||||||||
Distributions from net investment income | — | (0.06 | ) | (0.12 | ) | — | (0.01 | ) | — | |||||||||||||||
Total distributions | — | (0.06 | ) | (0.12 | ) | — | (0.01 | ) | — | |||||||||||||||
Net asset value, end of period | $ | 10.63 | $ | 11.84 | $ | 15.57 | $ | 5.28 | $ | 10.00 | $ | 11.71 | ||||||||||||
Total Return | -10.26 | %3 | -23.53 | % | 201.99 | % | -47.20 | % | -14.52 | % | -41.45 | %3 | ||||||||||||
Ratios/Supplemental Data: | ||||||||||||||||||||||||
Net assets at end of period (000’s) | $ | 50,484 | $ | 58,033 | $ | 77,065 | $ | 3,432 | $ | 6,997 | $ | 1,757 | ||||||||||||
Expenses to Average Net Assets before legal expense | 0.69 | %4 | 0.69 | % | 0.69 | % | 0.69 | % | 0.69 | % | 0.69 | %4 | ||||||||||||
Gross Expenses to Average Net Assets | 0.69 | %4 | 0.72 | %5 | 0.69 | % | 0.69 | % | 0.69 | % | 0.69 | %4 | ||||||||||||
Net Investment Loss to Average Net Assets | -0.52 | %4 | -0.48 | % | -0.45 | % | -0.39 | % | -0.52 | % | -0.21 | %4 | ||||||||||||
Portfolio Turnover Rate | 12 | %3 | 69 | % | 33 | % | 55 | % | 44 | % | 69 | %3 |
1 | Commencement of operations on November 29, 2012. |
2 | Calculated based on average shares outstanding during the period. |
3 | Not annualized. |
4 | Annualized. |
5 | The ratio of gross expenses to average net assets includes legal expense. |
The accompanying notes are an integral part of these financial statements.
40
ETFMG Prime Cyber Security ETF
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the period
For a capital share outstanding throughout the period
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | Year Ended September 30, 2016 | Period Ended September 30, 20151 | |||||||||||||
Net Asset Value, Beginning of Period | $ | 30.11 | $ | 27.91 | $ | 25.28 | $ | 25.00 | ||||||||
Income (Loss) from Investment Operations: | ||||||||||||||||
Net investment income (loss) 2 | 0.02 | (0.01 | ) | 0.30 | (0.05 | ) | ||||||||||
Net realized and unrealized gain on investments | 4.19 | 2.34 | 2.52 | 0.33 | ||||||||||||
Total from investment operations | 4.21 | 2.33 | 2.82 | 0.28 | ||||||||||||
Less Distributions: | ||||||||||||||||
Distributions from net investment income | (0.00 | )6 | (0.13 | ) | (0.19 | ) | — | |||||||||
Total distributions | 0.00 | (0.13 | ) | (0.19 | ) | — | ||||||||||
Net asset value, end of period | $ | 34.32 | $ | 30.11 | $ | 27.91 | $ | 25.28 | ||||||||
Total Return | 13.83 | %3 | 8.42 | % | 11.23 | % | 1.11 | %3 | ||||||||
Ratios/Supplemental Data: | ||||||||||||||||
Net assets at end of period (000’s) | $ | 1,232,107 | $ | 1,097,360 | $ | 803,794 | $ | 1,059,125 | ||||||||
Expenses to Average Net Assets before legal expense | 0.60 | %4 | 0.68 | % | 0.75 | % | 0.75 | %4 | ||||||||
Gross Expenses to Average Net Assets | 0.60 | %4 | 0.72 | %5 | 0.75 | % | 0.75 | %4 | ||||||||
Net Investment Income (Loss) to Average Net Assets | 0.12 | %4 | -0.03 | % | 1.21 | % | -0.19 | %4 | ||||||||
Portfolio Turnover Rate | 29 | %3 | 53 | % | 34 | % | 31 | %3 |
1 | Commencement of operations on November 11, 2014. |
2 | Calculated based on average shares outstanding during the period. |
3 | Not annualized. |
4 | Annualized. |
5 | The ratio of gross expenses to average net assets includes legal expense. |
6 | Per share amount is less than $0.01. |
The accompanying notes are an integral part of these financial statements.
41
ETFMG Prime Mobile Payments ETF
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the period
For a capital share outstanding throughout the period
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | Year Ended September 30, 2016 | Period Ended September 30, 20151 | |||||||||||||
Net Asset Value, Beginning of Period | $ | 32.57 | $ | 24.96 | $ | 23.53 | $ | 25.00 | ||||||||
Income (Loss) from Investment Operations: | ||||||||||||||||
Net investment income (loss) 2 | 0.04 | 0.03 | 0.15 | (0.01 | ) | |||||||||||
Net realized and unrealized gain (loss) on investments | 3.64 | 7.60 | 1.39 | (1.46 | ) | |||||||||||
Total from investment operations | 3.68 | 7.63 | 1.54 | (1.47 | ) | |||||||||||
Less Distributions: | ||||||||||||||||
Distributions from net investment income | (0.01 | ) | (0.02 | ) | (0.11 | ) | — | |||||||||
Total distributions | (0.01 | ) | (0.02 | ) | (0.11 | ) | — | |||||||||
Net asset value, end of period | $ | 36.24 | $ | 32.57 | $ | 24.96 | $ | 23.53 | ||||||||
Total Return | 11.26 | %3 | 30.59 | % | 6.51 | % | -5.86 | %3 | ||||||||
Ratios/Supplemental Data: | ||||||||||||||||
Net assets at end of period (000’s) | $ | 300,823 | $ | 170,993 | $ | 8,734 | $ | 4,707 | ||||||||
Expenses to Average Net Assets before legal expense | 0.75 | %4 | 0.75 | % | 0.75 | % | 0.75 | %4 | ||||||||
Gross Expenses to Average Net Assets | 0.75 | %4 | 0.80 | %5 | 0.75 | % | 0.75 | %4 | ||||||||
Net Investment Income (Loss) to Average Net Assets | 0.21 | %4 | 0.12 | % | 0.63 | % | -0.23 | %4 | ||||||||
Portfolio Turnover Rate | 22 | %3 | 31 | % | 32 | % | 8 | %3 |
1 | Commencement of operations on July 15, 2015. |
2 | Calculated based on average shares outstanding during the period. |
3 | Not annualized. |
4 | Annualized. |
5 | The ratio of gross expenses to average net assets includes legal expense. |
The accompanying notes are an integral part of these financial statements.
42
ETFMG Drone Economy Strategy ETF
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the period
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | Period Ended September 30, 20161 | ||||||||||
Net Asset Value, Beginning of Period | $ | 36.14 | $ | 26.75 | $ | 25.00 | ||||||
Income from Investment Operations: | ||||||||||||
Net investment income 2 | 0.07 | 0.27 | 0.11 | |||||||||
Net realized and unrealized gain (loss) on investments | (1.45 | ) | 9.26 | 1.68 | ||||||||
Total from investment operations | (1.38 | ) | 9.53 | 1.79 | ||||||||
Less Distributions: | ||||||||||||
Distributions from net investment income | (0.04 | ) | (0.04 | ) | (0.04 | ) | ||||||
Distributions from net realized gain | (0.19 | ) | (0.10 | ) | — | |||||||
Total distributions | (0.23 | ) | (0.14 | ) | (0.04 | ) | ||||||
Net asset value, end of period | $ | 34.53 | $ | 36.14 | $ | 26.75 | ||||||
Total Return | -3.93 | %3 | 36.39 | % | 7.15 | %3 | ||||||
Ratios/Supplemental Data: | ||||||||||||
Net assets at end of period (000’s) | $ | 44,893 | $ | 37,948 | $ | 6,686 | ||||||
Expenses to Average Net Assets before legal expense | 0.75 | %4 | 0.75 | % | 0.75 | %4 | ||||||
Gross Expenses to Average Net Assets | 0.75 | %4 | 0.79 | %5 | 0.75 | %4 | ||||||
Net Investment Income to Average Net Assets | 0.41 | %4 | 0.87 | % | 0.68 | %4 | ||||||
Portfolio Turnover Rate | 8 | %3 | 21 | % | 13 | %3 |
1 | Commencement of operations on March 8, 2016. |
2 | Calculated based on average shares outstanding during the period. |
3 | Not annualized. |
4 | Annualized. |
5 | The ratio of gross expenses to average net assets includes legal expense. |
The accompanying notes are an integral part of these financial statements.
43
ETFMG Video Game Tech ETF
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the period
For a capital share outstanding throughout the period
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | Period Ended September 30, 20161 | ||||||||||
Net Asset Value, Beginning of Period | $ | 44.37 | $ | 32.90 | $ | 25.00 | ||||||
Income from Investment Operations: | ||||||||||||
Net investment income 2 | 0.15 | 0.33 | 0.08 | |||||||||
Net realized and unrealized gain on investments | 3.99 | 11.71 | 7.82 | |||||||||
Total from investment operations | 4.14 | 12.04 | 7.90 | |||||||||
Less Distributions: | ||||||||||||
Distributions from net investment income | (0.10 | ) | (0.18 | ) | — | |||||||
Distributions from net realized gain | (0.03 | ) | (0.39 | ) | — | |||||||
Total distributions | (0.13 | ) | (0.57 | ) | — | |||||||
Capital Share Transactions: | ||||||||||||
Transaction fees added to paid-in capital | 0.02 | — | — | |||||||||
Net asset value, end of period | $ | 48.40 | $ | 44.37 | $ | 32.90 | ||||||
Total Return | 9.24 | %3 | 37.67 | % | 31.62 | %3 | ||||||
Ratios/Supplemental Data: | ||||||||||||
Net assets at end of period (000’s) | $ | 104,054 | $ | 39,934 | $ | 6,581 | ||||||
Expenses to Average Net Assets before legal expense | 0.75 | %4 | 0.75 | % | 0.74 | %4 | ||||||
Gross Expenses to Average Net Assets | 0.75 | %4 | 0.82 | %5 | 0.74 | %4 | ||||||
Net Investment Income to Average Net Assets | 0.60 | %4 | 0.86 | % | 0.44 | %4 | ||||||
Portfolio Turnover Rate | 18 | %3 | 49 | % | 10 | %3 |
1 | Commencement of operations on March 8, 2016. |
2 | Calculated based on average shares outstanding during the period. |
3 | Not annualized. |
4 | Annualized. |
5 | The ratio of gross expenses to average net assets includes legal expense. |
The accompanying notes are an integral part of these financial statements.
44
ETFMG Prime Junior Silver ETF (“SILJ”), ETFMG Prime Cyber Security ETF (“HACK”), ETFMG Prime Mobile Payments ETF (“IPAY”), ETFMG Drone Economy Strategy ETF (“IFLY”), and ETFMG Video Game Tech ETF (“GAMR”) (each a “Fund”, or collectively the “Funds”) are series of ETF Managers Trust (the “Trust”), an open-end management investment company consisting of multiple investment series, organized as a Delaware statutory trust on July 1, 2009. The Trust is registered with the SEC under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company and the offering of the Funds’ shares (“Shares”) is registered under the Securities Act of 1933, as amended (the “Securities Act”).
The following table is a summary of the Strategy Commencement Date and Strategy of the Funds:
Fund Ticker | Strategy Commencement Date | Strategy |
SILJ | 8/1/2017 | Seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Prime Junior Silver Miners & Explorers Index (“Prime Silver Index”). |
HACK | 8/1/2017 | Seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield of the Prime Cyber Defense Index (“Prime Cyber Index”). |
IPAY | 8/1/2017 | Seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Prime Mobile Payments Index (“Prime Mobile Index”). |
IFLY | 3/8/2016 | Seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Reality Shares Drone™ Index. |
GAMR | 3/8/2016 | Seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the EEFund Video Game Tech™ Index. |
The Funds each currently offer one class of shares, which have no front end sales load, no deferred sales charges, and no redemption fees. The Funds may issue an unlimited number of shares of beneficial interest, with no par value. All shares of each Fund have equal rights and privileges.
Shares of the Funds are listed and traded on the NYSE Arca, Inc. Market prices for the Shares may be different from their net asset value (“NAV”). Each Fund issues and redeems Shares on a continuous basis at NAV only in blocks of 50,000 shares, called “Creation Units.” Creation Units are issued and redeemed principally in-kind for securities included in a specified Index. Once created, Shares generally trade in the secondary market at market prices that change throughout the day in quantities less than a Creation Unit. Except when aggregated in Creation Units, Shares are not redeemable securities of a Fund. Shares of a Fund may only be purchased or redeemed by certain financial institutions (“Authorized Participants”). An Authorized Participant is either (i) a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a DTC participant and, in each case, must have executed a Participant Agreement with the Distributor. Most retail investors do not qualify as Authorized Participants nor have the resources to buy and sell whole Creation Units. Therefore, they are unable to purchase or redeem the Shares directly from a Fund. Rather, most retail investors may purchase Shares in the secondary market with the assistance of a broker and may be subject to customary brokerage commissions or fees.
45
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited)
Authorized Participants transacting in Creation Units for cash may pay an additional variable charge to compensate the relevant Fund for certain transaction costs (i.e., brokerage costs) and market impact expenses relating to investing in portfolio securities. Such variable charges, if any, are included in “Transaction Fees” in the Statements of Changes in net assets.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Funds. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946 Financial Services – Investment Companies.
The Fund may invest in certain other investment companies (underlying funds). For specific investments in underlying funds, please refer to the complete schedule of portfolio holdings on Form N-CSR(S) for this reporting period, which is filed with the U.S. Securities and Exchange Commission (SEC). For more information about the underlying Fund’s operations and policies, please refer to those Fund’s semiannual and annual reports, which are filed with the SEC.
A. | Security Valuation. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on NASDAQ), including securities traded over the counter, are valued at the last quoted sale price on the primary exchange or market (foreign or domestic) on which they are traded on the valuation date (or at approximately 4:00 pm Eastern Time if a security’s primary exchange is normally open at that time), or, if there is no such reported sale on the valuation date, at the most recent quoted bid price. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. |
Securities for which quotations are not readily available are valued at their respective fair values as determined in good faith by the Board of Trustees (the “Board”). When a security is “fair valued,” consideration is given to the facts and circumstances relevant to the particular situation, including a review of various factors set forth in the pricing procedures adopted by the Funds’ Board. The use of fair value pricing by a Fund may cause the net asset value of its shares to differ significantly from the net asset value that would be calculated without regard to such considerations. As of March 31, 2018, ETFMG Prime Junior Silver ETF held one fair valued security. More detail on this security can be found in the Schedule of Investments. ETFMG Prime Cyber Security ETF, ETFMG Prime Mobile Payments ETF, ETFMG Drone Economy Strategy ETF, and ETFMG Video Game Tech did not hold any fair valued securities. |
As described above, the Funds utilize various methods to measure the fair value of their investments on a recurring basis. U.S. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are: |
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities that the Funds have the ability to access. |
46
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited)
Level 2 | Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 | Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Funds’ own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The following table presents a summary of the Funds’ investments in securities, at fair value, as of March 31, 2018:
ETFMG Prime Junior Silver ETF | ||||||||||||||||
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 50,130,725 | $ | — | $ | — | (1) | $ | 50,130,725 | |||||||
Short Term Investments | 455,270 | — | — | 455,270 | ||||||||||||
Total Investments in Securities | $ | 50,585,995 | $ | — | $ | — | $ | 50,585,995 | ||||||||
ETFMG Prime Cyber Security ETF+ | ||||||||||||||||
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 1,228,339,893 | $ | — | $ | — | $ | 1,228,339,893 | ||||||||
Short Term Investments | 4,360,744 | — | — | 4,360,744 | ||||||||||||
Investments Purchased with Securities Lending | ||||||||||||||||
Collateral* | — | — | — | 200,148,059 | ||||||||||||
Total Investments in Securities | $ | 1,232,700,637 | $ | — | $ | — | $ | 1,432,848,696 | ||||||||
ETFMG Prime Mobile Payments ETF+ | ||||||||||||||||
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 299,387,919 | $ | — | $ | — | $ | 299,387,919 | ||||||||
Short Term Investments | 1,017,229 | — | — | 1,017,229 | ||||||||||||
Investments Purchased with Securities Lending | ||||||||||||||||
Collateral* | — | — | — | 24,219,887 | ||||||||||||
Total Investments in Securities | $ | 300,405,148 | $ | — | $ | — | $ | 324,625,035 |
47
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited)
ETFMG Drone Economy Strategy ETF+ | ||||||||||||||||
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 44,730,066 | $ | — | $ | — | $ | 44,730,066 | ||||||||
Short Term Investments | 125,376 | — | — | 125,376 | ||||||||||||
Investments Purchased with Securities Lending | ||||||||||||||||
Collateral* | — | — | — | 5,763,924 | ||||||||||||
Total Investments in Securities | $ | 44,855,442 | $ | — | $ | — | $ | 50,619,366 | ||||||||
ETFMG Video Game Tech ETF+ | ||||||||||||||||
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 103,479,781 | $ | — | $ | — | $ | 103,479,781 | ||||||||
Rights | 31,488 | — | — | 31,488 | ||||||||||||
Short Term Investments | 405,962 | — | — | 405,962 | ||||||||||||
Investments Purchased with Securities Lending | ||||||||||||||||
Collateral* | — | — | — | 10,731,904 | ||||||||||||
Total Investments in Securities | $ | 103,917,231 | $ | — | $ | — | $ | 114,649,135 |
^ | See Schedule of Investments for classifications by country and industry. |
(1) | Includes a security valued at $0. The ETFMG Prime Junior Silver ETF held a Level 3 security at the end of the period. The security classified as a Level 3 is deemed immaterial. This security transferred from Level 1 to Level 3 due to being previously priced in an active market. |
+ | On March 30, 2018, US and certain other financial markets were closed, while some foreign markets were open. The Fund was re-priced for financial reporting purposes to reflect, in the valuation, the transactions related to open foreign market activities and were valued at the official closing price on the primary market or exchange on which the securities trade. |
* | Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Schedules of Investments. |
Below are the transfers into or out of Levels 1 and 2 during the six months ended March 31, 2018:
ETFMG Prime Junior Silver ETF | ||||
Transfers into Level 1 | $ | 118,764 | ||
Transfers out of Level 1 | ||||
Net Transfers in and/(out) of Level 1 | $ | 118,764 | ||
Transfers into Level 2 | $ | — | ||
Transfers out of Level 2 | (118,764 | ) | ||
Net Transfers in and/(out) of Level 2 | $ | (118,764 | ) |
The transfers from Level 2 to Level 1 are due to increased trading activity on March 31, 2018. Transfers between levels are recognized at the end of the reporting period.
Each of ETFMG Prime Cyber Security ETF, ETFMG Prime Mobile Payments ETF, ETFMG Drone Economy Strategy ETF and ETFMG Video Game Tech ETF did not have any transfers between Levels 1, 2, and 3 during the six months ended March 31, 2018.
48
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited)
B. | Federal Income Taxes. The Funds have each elected to be taxed as a “regulated investment company” and intend to distribute substantially all taxable income to their shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. Therefore, no provisions for federal income taxes or excise taxes have been made. |
To avoid imposition of the excise tax applicable to regulated investment companies, each Fund intends to declare each year as dividends, in each calendar year, at least 98.0% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts, if any, from prior years.
Net capital losses incurred after October 31, within the taxable year are deemed to arise on the first business day of each Fund’s next taxable year.
Each Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. Each Fund has analyzed its tax position and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions expected to be taken in the Funds’ 2017 tax returns. The Funds identify their major tax jurisdictions as U.S. Federal, the State of New Jersey, and the State of Delaware; however the Funds are not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.
Management has reviewed the tax positions for open periods (for Federal purposes, three years from the date of filing and for state purposes, four years from the date of filing), as applicable to the Funds, and has determined that no provision for income tax is required in the Funds’ financial statements.
C. | Security Transactions and Investment Income. Investment securities transactions are accounted for on the trade date. Gains and losses realized on sales of securities are determined on a specific identification basis. Discounts/premiums on debt securities purchased are accreted/amortized over the life of the respective securities using the effective interest method. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Income, including gains, from investments in foreign securities received by the Funds may be subject to income, withholding or other taxes imposed by foreign countries. |
D. | Foreign Currency Translations and Transactions. The Funds may engage in foreign currency transactions. Foreign currency transactions are translated into U.S. dollars on the following basis: (i) market value of investment securities, assets and liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. For financial reporting purposes, the Funds do not isolate changes in the exchange rate of investment securities from the fluctuations arising from changes in the market prices of securities for unrealized gains and losses. However, for federal income tax purposes, the Funds do isolate and treat as ordinary income the effect of changes in foreign exchange rates on realized gains or losses from the sale of investment securities and payables and receivables arising from trade-date and settlement-date differences. |
49
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited)
E. | Distributions to Shareholders. Distributions to shareholders from net investment income are generally declared and paid by each of the Funds on a quarterly basis. Distributions to shareholders from realized gains on securities for each Fund normally are declared and paid on an annual basis. Distributions are recorded on the ex-dividend date. |
F. | Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
G. | Share Valuation. The net asset value (“NAV”) per share of each Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding for the Fund, rounded to the nearest cent. The Funds’ shares will not be priced on the days on which the NYSE is closed for trading. For Authorized Participants, the offering and redemption price per share for the Funds are equal to the Funds’ respective net asset value per share. |
H. | Guarantees and Indemnifications. In the normal course of business, the Funds enter into contracts with service providers that contain general indemnification clauses. The Funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote. |
NOTE 3 – RISK FACTORS
Investing in the Funds may involve certain risks, as discussed in the Funds’ prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.
Market Risk. Financial markets rise and fall in response to a variety of factors, sometimes rapidly and unpredictably. As with any investment whose performance is tied to these markets, the value of an investment in a Fund will fluctuate, which means that an investor could lose money over short or long periods.
Investment Style Risk. The Funds are not actively managed. Therefore, the Funds follow the securities included in its respective index during upturns as well as downturns. Because of their indexing strategies, the Funds do not take steps to reduce market exposure or to lessen the effects of a declining market. In addition, because of the Funds’ expenses, the Funds’ performance may be below that of their respective index.
Equity Risk. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles which may cause stock prices to fall over short or extended periods of time.
Securities Lending Risk. Securities lending involves the risk of loss of rights in, or delay in recovery of, the loaned securities if the borrower fails to return the security loaned or becomes insolvent.
50
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited)
Concentration Risk. To the extent that a Fund’s or an index’s portfolio is concentrated in the securities of issuers in a particular market, industry, group of industries, sector or asset class, the fund may be adversely affected by the performance of those securities, may be subject to increased price volatility and may be more vulnerable to adverse economic, market, political or regulatory occurrences affecting that market, industry, group of industries, sector or asset class.
NOTE 4 – COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS.
ETF Managers Group, LLC (the “Advisor”), serves as the investment advisor to the Funds. Pursuant to an Investment Advisory Agreement (“Advisory Agreement”) between the Trust, on behalf of the Funds, and the Advisor, the Advisor provides investment advice to the Funds and oversees the day-to-day operations of the Funds, subject to the direction and control of the Board and the officers of the Trust. Under the Advisory Agreement, the Advisor is also responsible for arranging transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Funds to operate.
Under the Investment Advisory Agreement the Advisor has overall responsibility for the general management and administration of the Funds and arranges for sub-advisory, transfer agency, custody, fund administration, securities lending, and all other non-distribution related services necessary for the Funds to operate. The Funds unitary fees are accrued daily and paid monthly. The Advisor bears the costs of all advisory and non-advisory services required to operate the Funds, in exchange for a single unitary fee at the following annual rates:
ETFMG Prime Junior Silver ETF | 0.69 | % | ||
ETFMG Prime Cyber Security ETF | 0.60 | % | ||
ETFMG Prime Mobile Payments ETF | 0.75 | % | ||
ETFMG Drone Economy Strategy ETF | 0.75 | % | ||
ETFMG Video Game Tech ETF | 0.75 | % |
The Advisor has an agreement with, and is dependent on, a third party to pay the Funds’ expenses in excess of the annual expense rates of each Funds’ average daily net assets. Additionally, under the Investment Advisory Agreement, the Advisor has agreed to pay all expenses of the Funds, except for: the fee paid to the Advisor pursuant to the Investment Advisory Agreement, interest charges on any borrowings, taxes, brokerage commissions and other expenses incurred in placing orders for the purchase and sale of securities and other investment instruments, acquired fund fees and expenses, accrued deferred tax liability, extraordinary expenses, and distribution (12b-1) fees and expenses (collectively, “Excluded Expenses”). The Sponsor provides marketing support for the Funds, including distributing marketing materials related to the Funds. The Advisor has entered into an agreement with ETFMG Financial, LLC (“the Sponsor”). The Sponsor provides marketing support for the Funds, including distributing marketing materials related to the Funds. Level ETF Ventures, LLC serves as the index provider for SILJ, HACK, IPAY, and GAMR. Reality Shares, LLC serves as the index provider for IFLY.
U.S. Bancorp Fund Services, LLC (the “Administrator”) provides fund accounting, fund administration, and transfer agency services to the Funds. The Advisor compensates the Administrator for these services under an administration agreement between the two parties.
51
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited)
The Advisor pays each independent Trustee a quarterly fee for service to the Funds. Each Trustee is also reimbursed by the Advisor for all reasonable out-of-pocket expenses incurred in connection with his duties as Trustee, including travel and related expenses incurred in attending Board meetings.
NOTE 5 – DISTRIBUTION PLAN
The Funds have each adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, each Fund may pay compensation to the Distributor or any other distributor or financial institution with which the Trust has an agreement with respect to each Fund, with the amount of such compensation not to exceed an annual rate of 0.25% of each Fund’s average daily net assets. During the six months ended March 31, 2018, the Funds did not incur any 12b-1 expenses.
NOTE 6 - PURCHASES AND SALES OF SECURITIES
The costs of purchases and sales of securities, excluding short-term securities and in-kind transactions, during the six months ended March 31, 2018:
Purchases | Sales | |||||||
ETFMG Prime Junior Silver ETF | $ | 6,417,530 | $ | 6,856,775 | ||||
ETFMG Prime Cyber Security ETF | 369,155,383 | 331,026,631 | ||||||
ETFMG Prime Mobile Payments ETF | 61,053,062 | 55,428,391 | ||||||
ETFMG Drone Economy Strategy ETF | 3,642,787 | 3,441,486 | ||||||
ETFMG Video Game Tech ETF | 22,924,954 | 13,001,677 |
The costs of purchases and sales of in-kind transactions associated with creations and redemptions during the six months ended March 31, 2018.
Purchases In-Kind | Sales In-Kind | |||||||
ETFMG Prime Junior Silver ETF | $ | 4,638,131 | $ | 5,785,445 | ||||
ETFMG Prime Cyber Security ETF | 306,005,548 | 312,776,456 | ||||||
ETFMG Prime Mobile Payments ETF | 161,762,488 | 54,753,822 | ||||||
ETFMG Drone Economy Strategy ETF | 17,451,431 | 8,841,122 | ||||||
ETFMG Video Game Tech ETF | 63,477,869 | 12,064,704 |
Purchases in-kind are the aggregate of all in-kind purchases and sales in-kind are the aggregate of all proceeds from in-kind sales. Net capital gains or losses resulting from in-kind redemptions are excluded from the Funds’ determination of taxable gains and are not distributed to shareholders.
There were no purchases or sales of U.S. Government obligations during the six months ended March 31, 2018.
NOTE 7 — SECURITIES LENDING
The Funds, except for ETFMG Prime Junior Silver ETF, may lend up to 33 1⁄3% of the value of the securities in their portfolios to brokers, dealers and financial institutions (but not individuals) under terms of participation in a securities lending program administered by U.S. Bank N.A. (“the Custodian”). The securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 102% of the value of any loaned securities at the time of the loan, plus accrued interest. The Funds receive compensation in the form of fees and earn interest on the cash collateral.
52
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited)
The amount of fees depends on a number of factors including the type of security and length of the loan. The Funds continue to receive interest payments or dividends on the securities loaned during the borrowing period. Gain or loss on the fair value of securities loaned that may occur during the term of the loan will be for the account of the Funds. The Funds have the right under the terms of the securities lending agreement to recall the securities from the borrower on demand. During the six months ended March 31, 2018, Funds had loaned securities and received cash collateral for the loans. The cash collateral is invested by the Custodian in accordance with approved investment guidelines. Those guidelines require the cash collateral to be invested in readily marketable, high quality, short-term obligations; however, such investments are subject to risk of payment delays or default on the part of the issuer or counterparty or otherwise may not generate sufficient interest to support the costs associated with securities lending. The Funds could also experience delays in recovering their securities and possible loss of income or value if the borrower fails to return the borrowed securities, although the Fund is indemnified from this risk by contract with the securities lending agent.
As of the six months ended March 31, 2018, the value of the securities on loan and payable for collateral due to broker were as follows:
Value of Securities on Loan Collateral Received
Fund | Values of Securities on Loan | Fund Collateral Received* | ||||||
ETFMG Prime Cyber Security ETF | $199,470,200 | $200,148,059 | ||||||
ETFMG Prime Mobile Payments ETF | 24,291,864 | 24,219,887 | ||||||
ETFMG Drone Economy Strategy ETF | 5,694,006 | 5,763,924 | ||||||
ETFMG Video Game Tech ETF | 10,399,361 | 10,731,904 |
* The cash collateral received was invested in the Mount Vernon Prime Portfolio as shown on the Schedule of Investments, a money market fund with an overnight and continuous maturity, as shown on the Schedule of Investments.
Net interest income earned on collateral investments and recognized by the Funds during the six months ended March 31, 2018, were as follows:
Fees and Interest Income Earned
Fund | Interest income earned including applicable fees | |||
ETFMG Prime Cyber Security ETF | $ | 238,453 | ||
ETFMG Prime Mobile Payments ETF | 28,656 | |||
ETFMG Drone Economy Strategy ETF | 60,031 | |||
ETFMG Video Game Tech ETF | 135,022 |
53
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited)
NOTE 8 – FEDERAL INCOME TAXES
The components of distributable earnings (losses) and cost basis of investments for federal income tax purposes at September 30, 2017 were as follows:
Cost | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | |||||||||||||
SILJ | $ | 67,360,521 | $ | 1,412,448 | $ | (10,692,092 | ) | $ | (9,279,644 | ) | ||||||
HACK | 1,292,858,769 | 116,813,291 | (72,036,210 | ) | 44,777,081 | |||||||||||
IPAY | 183,951,975 | 23,481,359 | (2,515,418 | ) | 20,965,941 | |||||||||||
IFLY | 37,964,549 | 6,150,972 | (833,945 | ) | 5,317,027 | |||||||||||
GAMR | 40,456,291 | 4,257,663 | (1,430,711 | ) | 2,826,952 |
The difference between the tax cost of investments and the cost of investments for GAAP purposes is primarily due to the tax treatment of wash sale losses.
As of September 30, 2017, the components of distributable earnings (loss) on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-term Gain | Total Distributable Earnings | Other Accumulated Loss | Undistributed Long-term Gain | Total Accumulated Gain (Loss) | |||||||||||||||||||
SILJ | $ | — | $ | — | $ | — | $ | (18,817,133 | ) | $ | — | $ | 28,096,777 | |||||||||||
HACK | — | — | — | (196,892,868 | ) | — | (152,205,787 | ) | ||||||||||||||||
IPAY | 61,070 | — | 61,070 | (173,403 | ) | — | 20,854,608 | |||||||||||||||||
IFLY | 263,376 | 2,383 | 265,759 | — | — | 5,582,786 | ||||||||||||||||||
GAMR | 168,037 | — | 168,037 | — | — | 2,994,989 |
The difference between the tax cost of investments and the cost of investments for GAAP purposes is primarily due to the tax treatment of wash sale losses.
As of September 30, 2017, the Funds had accumulated capital loss carryovers of:
Capital Loss Carryover | Expires | ||||
SILJ | $ | 18,738,756 | Indefinite | ||
HACK | 196,049,384 | Indefinite | |||
IPAY | 172,403 | Indefinite | |||
IFLY | — | Indefinite | |||
GAMR | — | Indefinite |
54
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited)
Under current tax law, capital and currency losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The following Funds had deferred post-October capital and currency losses, which will be treated as arising on the first business day of the year ending September 30, 2017.
Late Year Ordinary Loss | Post- October Capital Loss | |||||||
SILJ | $ | 78,377 | $ | — | ||||
HACK | 933,484 | — | ||||||
IPAY | — | — | ||||||
IFLY | — | — | ||||||
GAMR | — | — |
U.S. GAAP requires that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the fiscal year ended September 30, 2017, the following table shows the reclassifications made:
Undistributed Accumulated Net Investment Income/(Loss) | Accumulated Net Realized Loss | Paid-In Capital | ||||||||||
SILJ | $ | 289,106 | $ | (3,535,059 | ) | $ | 3,245,953 | |||||
HACK | (41,251 | ) | (60,487,918 | ) | 60,529,169 | |||||||
IPAY | (21,624 | ) | (5,557,187 | ) | 5,578,811 | |||||||
IFLY | (5,567 | ) | (246,956 | ) | 252,523 | |||||||
GAMR | 45,831 | (2,668,537 | ) | 2,622,706 |
NOTE 9 – DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid by the Funds during the fiscal years are as follows:
Year Ended September 30, 2017 | Year Ended September 30, 2016 | |||||||||||||||
From Ordinary Income | From Capital Gains | From Ordinary Income | From Capital Gains | |||||||||||||
SILJ | $ | 258,169 | $ | — | $ | 87,131 | $ | — | ||||||||
HACK | 3,740,625 | — | 5,498,499 | — | ||||||||||||
IPAY | 31,641 | — | 40,000 | — | ||||||||||||
IFLY | 101,055 | 28,851 | 4,000 | — | ||||||||||||
GAMR | 114,780 | 96,540 | — | — |
55
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited)
NOTE 10 – INVESTMENTS IN AFFILIATES
ETFMG Prime Cyber Security ETF
ETFMG Prime Cyber Security ETF owned 5% or more of the voting securities of the following companies during the six months ended March 31, 2018. After ETFMG Prime Cyber Security ETF sold some of their holdings in SecureWorks Corp., the company was no longer deemed an affiliate of the Fund as defined by the 1940 Act. Carbonite, Inc. is deemed to be an affiliate of the Fund as of March 31, 2018. Transactions during the period in these securities were as follows:
Share Activity | ||||||||
Security Name | Balance September 30, 2017 | Purchases | Sales | Balance March 31, 2018 | Realized Losses1 | Net Unrealized Appreciation (Depreciation) | Dividend Income | Value March 31, 2018 |
SecureWorks | ||||||||
Corp. | 768,717 | 370,477 | (675,052) | 464,142 | (2,439,590) | (1,049,026) | — | 3,750,267 |
Carbonite, | ||||||||
Inc.* | — | 1,970,020 | (127,118) | 1,842,902 | (521,439) | (7,713,987) | — | 53,075,578 |
Total | 2,340,497 | (802,170) | 2,307,044 | (2,961,029) |
ETFMG Prime Mobile Payments ETF
ETFMG Prime Mobile Payments ETF owned 5% or more of the voting securities of the following company during the six months ended March 31, 2018. Dai-ichi Life Holdings, Inc is deemed to be an affiliate of the Fund as of March 31, 2018 as defined by the 1940 Act. Transactions during the period in this security was as follows:
Share Activity | ||||||||
Security Name | Balance September 30, 2017 | Purchases | Sales | Balance March 31, 2018 | Realized Losses1 | Net Unrealized Appreciation (Depreciation) | Dividend Income | Value March 31, 2018 |
Dai-ichi Life Holdings, Inc.* | — | 659,409 | (23,900) | 635,509 | (19,395) | (1,354,264) | 271,276 | 11,601,675 |
*Affiliate as of March 31, 2018.
1 | Realized Losses include transactions in affiliated investments and affiliated in-kind redemptions. |
NOTE 11 – SUBSEQUENT EVENTS
In preparing these financial statements, the Funds have evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
56
ETFMG™ ETFs
For the Period Ended March 31, 2018 (Unaudited)
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on March 28, 2018, the Board of Trustees (the “Board”) of ETF Managers Trust (the “Trust”) considered the renewal of the Investment Advisory Agreement (the “Advisory Agreement”) between ETF Managers Group LLC (the “Adviser”) and the Trust, on behalf of each of ETFMG Prime Junior Silver ETF (“SILJ”), ETFMG Prime Cyber Security ETF (“HACK”), ETFMG Prime Mobile Payments ETF (“IPAY”), ETFMG Drone Economy Strategy ETF (“IFLY”) and ETFMG Video Game Tech ETF (“GAMR”) (each a “Fund” and collectively, the “Funds”).
Pursuant to Section 15(c) of the 1940 Act, the Board must annually review and approve the Advisory Agreement after its initial two-year term: (i) by the vote of the Trustees or by a vote of the shareholders of the Fund; and (ii) by the vote of a majority of the Trustees who are not parties to the Advisory Agreement or “interested persons” of any party thereto, as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. Each year, the Board calls and holds a meeting to decide whether to renew the Advisory Agreement for an additional one-year term. In preparation for such meeting, the Board requests and reviews a wide variety of information from the Adviser.
In reaching its decision, the Board, including the Independent Trustees, considered all factors it believed relevant, including: (i) the nature, extent and quality of the services provided to the Funds’ shareholders by the Adviser; (ii) the investment performance of the Funds; (iii) the Adviser’s costs and profits realized in providing services to the Funds, including any fall-out benefits enjoyed by the Adviser; (iv) comparative fee and expense data for the Funds in relation to other similar investment companies; (v) the extent to which economies of scale would be realized as the Funds grow and whether the advisory fees for the Funds reflect these economies of scale for the benefit of the Funds; and (vi) other financial benefits to the Adviser and its affiliates resulting from services rendered to the Funds. The Board’s review included written and oral information furnished to the Board prior to and at the meeting held on March 28, 2018, and throughout the year. Among other things, the Adviser provided responses to a detailed series of questions, which included information about the Adviser’s operations, service offerings, personnel, compliance program and financial condition. The Board then discussed the written and oral information that it received before the meeting and throughout the year, and the Adviser’s oral presentations and any other information that the Board received at the meeting, and deliberated on the renewal of the Advisory Agreement in light of this information.
The Independent Trustees were assisted throughout the contract review process by independent legal counsel. The Independent Trustees relied upon the advice of such counsel and their own business judgment in determining the material factors to be considered in evaluating the renewal of the Advisory Agreement, and the weight to be given to each such factor. The conclusions reached with respect to the Advisory Agreement were based on a comprehensive evaluation of all the information provided and not any single factor. Moreover, each Trustee may have placed varying emphasis on particular factors in reaching conclusions with respect to each Fund. The matters discussed were also considered separately by the Independent Trustees in executive session with independent legal counsel, at which no representatives of management were present.
Nature, Extent and Quality of Services Provided by the Adviser
The Trustees considered the scope of services provided under the Advisory Agreement, noting that the Adviser provides investment management services to the Funds. The Board discussed the responsibilities of the Adviser, including: responsibility for the general management of the day-today investment and reinvestment of the assets of the Funds; determining the daily baskets of deposit securities and cash components; executing portfolio security trades for purchases and redemptions of Fund shares conducted on a cash-in-lieu basis; responsibility for daily monitoring of tracking error and quarterly reporting to the Board; and implementation of Board directives as they relate to the Funds. In considering the nature, extent and quality of the services provided by the Adviser, the Board considered the qualifications, experience and responsibilities of the Adviser’s investment personnel, the quality of the Adviser’s compliance infrastructure, and the determination of the Trust’s Chief Compliance Officer that the Adviser has appropriate compliance policies and procedures in place. The Board also considered the Adviser’s experience managing exchange-traded funds (“ETFs”).
57
ETFMG™ ETFs
APPROVAL OF ADVISORY AGREEMENTS AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2018 (Unaudited) (Continued)
The Board also considered other services provided to the Funds, such as overseeing the Funds’ service providers, monitoring adherence to the Funds’ investment restrictions, and monitoring compliance with various policies and procedures and with applicable securities laws.
Based on the factors above, as well as those discussed below, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Funds by the Adviser.
Historical Performance
The Board then considered the past performance of the Funds. The Board reviewed information regarding the performance history of the Funds over various time periods, including the year-to-date period, the most recent one-year period and the period since each Fund’s inception. The Board noted management’s explanation that analysis of investment performance, in absolute terms, is less relevant for the Funds than it is for actively managed funds, given the Funds’ index-based investment objectives. The Board also noted management’s further explanation that it is more relevant to review the performance of the Funds by focusing on the extent to which each Fund tracked its underlying index. The Board reviewed information regarding each Fund’s index tracking during the time it was managed by the Adviser, discussing, as applicable, factors which contributed to each Fund’s tracking error over certain periods of time. The Board noted that the Funds had underperformed their underlying indexes over certain periods, but that such underperformance was, at least in part, a result of costs incurred by the Funds not incurred by their underlying indexes. The Board considered other factors that contributed to the Funds’ tracking error, including the cash drag, the effect of trading stocks denominated in foreign currencies and the effects of rebalancing index components. The Board noted that the Funds’ performance was nonetheless generally in line with that of their underlying indexes. The Board concluded that, after taking these factors into account, each of the Funds satisfactorily tracked its underlying index. The Board further noted that it had received and would continue to receive regular reports regarding each Fund’s performance at its quarterly meetings.
Cost of Services Provided and Economies of Scale
The Board reviewed the advisory fees for the Funds and compared them to the total operating expenses of comparable ETFs, as determined by an independent third party. Among other information, the Board noted that the advisory fee for each of the Funds was higher than the average and median expense ratios for its comparable ETFs. The Board took into consideration management’s discussion of the fees, including that the Funds have niche investment strategies and limited comparable ETFs.
The Board also noted the importance of the fact that the advisory fee for each Fund is a “unified fee,” meaning that the shareholders of the Funds pay no expenses other than the advisory fee and certain other costs such as interest, brokerage and extraordinary expenses and, to the extent it is implemented, fees pursuant to a Distribution and/or Shareholder Servicing (12b-1) Plan. The Board further noted that the Adviser was responsible for compensating the Trust’s other service providers and paying the Funds’ other expenses out of its own fees and resources. The Board also evaluated the compensation and benefits received by the Adviser from its relationship with the Funds, taking into account an analysis of the Adviser’s profitability provided at the meeting. The Board concluded that the advisory fee for each of the Funds was reasonable in light of the factors considered.
58
ETFMG™ ETFs
APPROVAL OF ADVISORY AGREEMENTS AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2018 (Unaudited) (Continued)
In addition, the Board considered whether economies of scale may be realized for the Funds. The Board noted that the Adviser regularly considers whether fee reductions are appropriate as the Funds grow in size. The Board noted that a unitary fee provides a level of certainty in expenses for the Funds. The Trustees concluded that the flat advisory fee was reasonable.
Based on the Board’s deliberations and its evaluation of the information described above, the Board, including the Independent Trustees, unanimously: (a) concluded that the terms of the Advisory Agreement are fair and reasonable; (b) concluded that the Adviser’s fees are reasonable in light of the services that the Adviser provides to the Funds; and (c) approved the renewal of the Advisory Agreement for another year.
59
ETFMG™ ETFs
For the Six Months Ended March 31, 2018 (Unaudited)
As a shareholder of ETFMG Prime Junior Silver ETF, ETFMG Prime Cyber Security ETF, ETFMG Prime Mobile Payments ETF, ETFMG Drone Economy Strategy ETF, and ETFMG Video Game Tech ETF (the “Funds”) you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares, and (2) ongoing costs, including unitary fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other funds. The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period (October 1, 2017 to March 31, 2018).
Actual Expenses
The first line of the table provides information about actual account values based on actual returns and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then, multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table provides information about hypothetical account values based on a hypothetical return and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
Fund Name | Beginning Account Value October 1, 2017 | Ending Account Value March 31, 2018 | Expenses Paid During the Period ^ | |||||||||
ETFMG Prime Junior Silver ETF | ||||||||||||
Actual | $ | 1,000.00 | $ | 897.40 | $ | 3.26 | ||||||
Hypothetical (5% annual) | 1,000.00 | 1,021.49 | 3.48 | |||||||||
ETFMG Prime Cyber Security ETF | ||||||||||||
Actual | 1,000.00 | 1,138.30 | 3.20 | |||||||||
Hypothetical (5% annual) | 1,000.00 | 1,021.94 | 3.02 | |||||||||
ETFMG Prime Mobile Payments ETF | ||||||||||||
Actual | 1,000.00 | 1,112.60 | 3.95 | |||||||||
Hypothetical (5% annual) | 1,000.00 | 1,021.19 | 3.78 | |||||||||
ETFMG Drone Economy Strategy ETF | ||||||||||||
Actual | 1,000.00 | 960.70 | 3.67 | |||||||||
Hypothetical (5% annual) | 1,000.00 | 1,021.19 | 3.78 | |||||||||
ETFMG Video Game Tech ETF | ||||||||||||
Actual | 1,000.00 | 1,092.40 | 3.91 | |||||||||
Hypothetical (5% annual) | 1,000.00 | 1,021.19 | 3.78 |
^ The dollar amounts shown as expenses paid during the period are equal to the annualized six-month expense ratio multiplied by the average account value during the period, multiplied by 182/365 (to reflect the period from October 1, 2017 to March 31, 2018).
60
ETFMG™ ETFs
March 31, 2018
INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Fund files its Form N-Q with the Securities and Exchange Commission (the ‘‘SEC’’) no more than sixty days after the Funds’ first and third fiscal quarters. For each Fund, this would be for the fiscal quarters ending June 30 and December 31. Form N-Q includes a complete schedule of the Funds’ portfolio holdings as of the end of those fiscal quarters. The Funds’ N-Q filings can be found free of charge on the SEC’s website at http://www.sec.gov, or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (call 800-SEC-0330 for information on the operation of the Public Reference Room). The Funds’ portfolio holdings are posted on the Funds’ website at www.ETFMG.com daily.
INFORMATION ABOUT PROXY VOTING
A description of the policies and procedures the Funds use to determine how to vote proxies relating to portfolio securities is provided in the Statement of Additional Information (“SAI”). The SAI is available without charge upon request by calling toll-free at (877) 756-7873, by accessing the SEC’s website at www.sec.gov, or by accessing the Funds’ website at www.etfmgfunds.com.
Information regarding how the Funds voted proxies relating to portfolio securities during the period ending June 30 is available by calling toll-free at (877) 756-7873 or by accessing the SEC’s website at www.sec.gov.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477) or by visiting www.etfmgfunds.com. Read the prospectus carefully before investing.
61
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Advisor
ETF Managers Group, LLC
30 Maple Street, Suite 2, Summit, NJ 07901
Distributor
ETFMG Financial, Inc.
30 Maple Street, Suite 2, Summit, NJ 07901
Custodian
U.S. Bank National Association
Custody Operations
1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212
Transfer Agent
U.S. Bancorp Fund Services, LLC
615 East Michigan Street, Milwaukee, Wisconsin 53202
Securities Lending Agent
U.S. Bank, National Association
Securities Lending
800 Nicolet Mall
Minneapolis, MN 55402-7020
Independent Registered Public Accounting Firm
WithumSmith + Brown, PC
1411 Broadway, 9th Floor, New York, NY 10018
Legal Counsel
Sullivan & Worcester LLP
1666 K Street NW, Washington, DC 20006
Semi-Annual Report
March 31, 2018
March 31, 2018
ETFMG Alternative Harvest ETF
Ticker: MJ
Ticker: MJ
The fund is a series of ETF Managers Trust.
ETFMG Alternative Harvest ETF
TABLE OF CONTENTS
March 31, 2018
March 31, 2018
Page | |
Shareholders’ Letter | 2 |
Growth of $10,000 Investment | 3 |
Top Ten Holdings | 4 |
Important Disclosures and Key Risk Factors | 5 |
Portfolio Allocations | 6 |
Schedule of Investments | 7 |
Statement of Assets and Liabilities | 10 |
Statement of Operations | 11 |
Statements of Changes in Net Assets | 12 |
Financial Highlights | 13 |
Notes to Financial Statements | 14 |
Approval of Advisory Agreement and Board Considerations | 23 |
Expense Example | 26 |
Supplementary Information | 27 |
ETFMG Alternative Harvest ETF
On behalf of the entire team, we want to express our appreciation for the confidence you have placed in the ETFMG Alternative Harvest ETF Exchange-Traded Fund (“MJ” or the “Fund”). The following information pertains to the fiscal period from October 1, 2017 to March 31, 2018.
The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Prime Alternative Harvest Index (the “Index”). On December 26, 2017, the Fund’s investment objective and principal investment strategy were substantially revised. The performance and average annual total returns shown for periods prior to December 26, 2017 is likely to have differed had the Fund’s current investment strategy been in effect during those periods. Over the 6-month period the Fund NAV decreased -2.80%, which reflects the cumulative result of performance of the Fund under two different investment strategies for that period.
HISTORICAL PERFORMANCE FOR THE ETFMG ALTERNATIVE HARVEST ETF | ||||
6 Month | Cumulative Since Inception | 1 Year | Annualized Since Inception | |
Market | -4.32 | 41.90 | 6.36 | 16.22 |
NAV | -2.80 | 43.30 | 7.38 | 16.71 |
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477). |
You can find further details about MJ by visiting www.etfmj.com, or by calling 1-844-ETF-MGRS (1-844-383-6477).
Sincerely,
Samuel Masucci III
Chairman of the Board
Chairman of the Board
Samuel Masucci III is a registered representative of ETFMG Financial, LLC.
2
Average Annual Returns Period Ended March 31, 2018 | 6 Months Return1 | 1 Year Return | Since Inception (12/3/2015) | |||||||||
ETFMG Alternative Harvest ETF (NAV)2 | -2.80 | % | 7.38 | % | 16.71 | % | ||||||
ETFMG Alternative Harvest ETF (Market)2 | -4.32 | % | 6.36 | % | 16.22 | % | ||||||
S&P 500 Index3 | 5.84 | % | 14.07 | % | 13.87 | % | ||||||
Prime Alternative Harvest Index3 | -3.30 | % | 7.20 | % | 17.46 | % | ||||||
Total Fund Operating Expenses4 | 0.75 | % |
1. Not annualized.
2. The Fund’s investment objective changed on December 26, 2017. Performance of the Fund prior to December 26, 2017 was based on an entirely different index.
3. The return reflects the actual performance through March 29, 2018 (the last day of the New York Stock Exchange was open) to maintain consistency with the Fund’s net asset value calculations used for shareholder transactions.
4. The expense ratio is taken from the Fund’s most recent prospectus dated January 31, 2018.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on December 3, 2015, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the sale of Fund shares. The chart assumes reinvestment of capital gains and dividends, if any. The unmanaged indices do not reflect fees and are not available for direct investment.
3
ETFMG Alternative Harvest ETF
Security | % of Total Investments† | |||
1 | Canopy Growth Corp. | 5.25% | ||
2 | Hydropothecary Corp. | 4.82% | ||
3 | Cannabis Wheaton Income Corp. | 4.70% | ||
4 | GW Pharmaceuticals PLC - ADR | 4.67% | ||
5 | CannTrust Holdings, Inc. | 4.58% | ||
6 | MedReleaf Corp. | 4.54% | ||
7 | Emerald Health Therapeutics, Inc. | 4.04% | ||
8 | Aurora Cannabis, Inc. | 4.01% | ||
9 | Organigram Holdings, Inc. | 3.59% | ||
10 | Corbus Pharmaceuticals Holdings, Inc. | 3.59% | ||
Top Ten Holdings = 43.79% of Total Investments† | ||||
* Current Fund holdings may not be indicative of future Fund holdings. | ||||
† Percentage of total investments less cash. |
4
ETFMG Alternative Harvest ETF
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility.
The possession and use of marijuana, even for medical purposes, is illegal under federal and certain states’ laws, which may negatively impact the value of the Fund’s investments. Use of marijuana is regulated by both the federal government and state governments, and state and federal laws regarding marijuana often conflict. Even in those states in which the use of marijuana has been legalized, its possession and use remains a violation of federal law. Federal law criminalizing the use of marijuana pre-empts state laws that legalizes its use for medicinal and recreational purposes. Cannabis companies and pharmaceutical companies may never be able to legally produce and sell products in the United States or other national or local jurisdictions.
The Fund’s investments will be concentrated in an industry or group of industries to the extent that the Index is so concentrated. In such event, the value of the Fund’s shares may rise and fall more than the value of shares of a fund that invests in securities of companies in a broader range of industries.
The consumer staples sector may be affected by the permissibility of using various product components and production methods, marketing campaigns and other factors affecting consumer demand. Tobacco companies, in particular, may be adversely affected by new laws, regulations and litigation. The consumer staples sector may also be adversely affected by changes or trends in commodity prices, which may be influenced or characterized by unpredictable factors.
ETF shares are not individually redeemable and owners of the shares may acquire those shares from the Fund and tender those shares for redemption to the Fund in Creation Units only, typically consisting of aggregations of 50,000 shares.
5
ETFMG Alternative Harvest ETF
ETFMG Alternative Harvest ETF | ||||
As a percent of Net Assets: | ||||
Australia | 2.6 | % | ||
Canada | 62.0 | |||
Denmark | 1.2 | |||
Hong Kong | 1.2 | |||
Italy | 1.3 | |||
Japan | 1.3 | |||
Mexico | — | ^ | ||
Spain | 1.4 | |||
Sweden | 1.3 | |||
United Kingdom | 7.9 | |||
United States | 17.4 | |||
Short-Term and other Net Assets (Liabilities) | 2.4 | |||
100.0 | % |
^ Less than 0.05%.
6
ETFMG Alternative Harvest ETF
March 31, 2018 (Unaudited)
Shares | Value | |||||||
COMMON STOCKS - 97.6% | ||||||||
Australia - 2.6% | ||||||||
Pharmaceuticals - 2.6% | ||||||||
Cann Group Ltd. (a) | 4,138,956 | $ | 9,473,187 | |||||
Canada - 62.0% | ||||||||
Cosmetics/Personal Care - 2.2% | ||||||||
Isodiol International, Inc. (a) | 9,944,351 | 8,181,792 | ||||||
Investment Companies - 9.3% | ||||||||
Cannabis Wheaton Income Corp. (a) | 15,813,702 | 19,639,014 | ||||||
Cronos Group, Inc. (a) ^ | 2,173,235 | 14,625,872 | ||||||
Total Investment Companies | 34,264,886 | |||||||
Miscellaneous Manufacturing - 1.6% | ||||||||
Radient Technologies, Inc. (a) | 4,976,786 | 5,678,484 | ||||||
Pharmaceuticals - 48.9% | ||||||||
ABcann Global Corp. (a) | 7,256,969 | 9,688,351 | ||||||
Aphria, Inc. (a) | 17,778 | 158,551 | ||||||
Aurora Cannabis, Inc. (a) | 2,289,285 | 16,756,283 | ||||||
CannTrust Holdings, Inc. (a) | 3,125,002 | 19,113,607 | ||||||
Canopy Growth Corp. (a) | 838,045 | 21,895,133 | ||||||
Emerald Health Therapeutics, Inc. (a) | 4,247,366 | 16,879,353 | ||||||
Hiku Brands Company Ltd. (a) | 3,908,065 | 6,794,788 | ||||||
Hydropothecary Corp. (a) | 6,381,571 | 20,110,357 | ||||||
MedReleaf Corp. (a) | 1,392,243 | 18,932,819 | ||||||
Newstrike Resources Ltd. (a) | 14,420,938 | 12,760,406 | ||||||
Organigram Holdings, Inc. (a) | 4,844,817 | 15,004,323 | ||||||
Supreme Cannabis Co., Inc. (a) | 10,270,600 | 14,030,548 | ||||||
TerrAscend Corp. (a) | 2,026,366 | 7,864,191 | ||||||
Total Pharmaceuticals | 179,988,710 | |||||||
Total Canada | 228,113,872 | |||||||
Denmark - 1.2% | ||||||||
Tobacco - 1.2% | ||||||||
Scandinavian Tobacco Group AS | 250,602 | 4,405,162 | ||||||
Hong Kong - 1.2% | ||||||||
Chemicals - 1.2% | ||||||||
Huabao International Holdings Ltd. | 6,724,687 | 4,455,620 | ||||||
Italy - 1.3% | ||||||||
Machinery - 1.3% | ||||||||
Gima TT SpA | 222,677 | 4,756,522 | ||||||
Japan - 1.3% | ||||||||
Tobacco - 1.3% | ||||||||
Japan Tobacco, Inc. | 173,991 | 5,013,423 |
The accompanying notes are an integral part of these financial statements.
7
ETFMG Alternative Harvest ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Value | |||||||
Mexico - 0.0% | ||||||||
Construction & Engineering - 0.0% | ||||||||
Empresas ICA SAB de CV (a)(c) | 155,893 | $ | — | |||||
Spain - 1.4% | ||||||||
Paper & Forest Products - 1.4% | ||||||||
Miquel y Costas & Miquel SA | 118,009 | 5,125,712 | ||||||
Sweden - 1.3% | ||||||||
Tobacco - 1.3% | ||||||||
Swedish Match AB | 109,937 | 4,970,325 | ||||||
United Kingdom - 7.9% | ||||||||
Pharmaceuticals - 5.3% | ||||||||
GW Pharmaceuticals PLC - ADR (a) | 172,891 | 19,479,628 | ||||||
Tobacco - 2.6% | ||||||||
British American Tobacco PLC | 82,031 | 4,754,336 | ||||||
Imperial Brands PLC | 135,248 | 4,603,396 | ||||||
Total Tobacco | 9,357,732 | |||||||
Total United Kingdom | 28,837,360 | |||||||
United States - 17.4% | ||||||||
Biotechnology - 7.5% | ||||||||
Arena Pharmaceuticals, Inc. (a) | 114,890 | 4,538,155 | ||||||
Cara Therapeutics, Inc. (a) ^ | 337,486 | 4,178,077 | ||||||
Corbus Pharmaceuticals Holdings, Inc. (a) ^ | 2,456,921 | 14,987,218 | ||||||
Insys Therapeutics, Inc. (a) ^ | 649,898 | 3,925,384 | ||||||
Total Biotechnology | 27,628,834 | |||||||
Chemicals - 1.2% | ||||||||
Scotts Miracle-Gro Co. ^ | 52,850 | 4,531,887 | ||||||
Paper & Forest Products - 1.3% | ||||||||
Schweitzer-Mauduit International, Inc. | 120,897 | 4,733,118 | ||||||
Tobacco - 7.4% | ||||||||
22nd Century Group, Inc. (a) ^ | 1,741,659 | 4,092,899 | ||||||
Altria Group, Inc. | 73,976 | 4,610,184 | ||||||
Philip Morris International, Inc. | 44,841 | 4,457,195 | ||||||
Turning Point Brands, Inc. | 224,595 | 4,366,127 | ||||||
Universal Corp. ^ | 95,692 | 4,641,062 | ||||||
Vector Group Ltd. ^ | 229,293 | 4,675,284 | ||||||
Total Tobacco | 26,842,751 | |||||||
Total United States | 63,736,590 | |||||||
TOTAL COMMON STOCKS (Cost $416,829,023) | 358,887,773 |
The accompanying notes are an integral part of these financial statements.
8
ETFMG Alternative Harvest ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Value | |||||||
SHORT-TERM INVESTMENTS - 3.6% | ||||||||
Money Market Funds - 3.6% | ||||||||
Invesco Advisers, Inc. STIT - Treasury Portfolio - Institutional Class, 1.57% (b) | 13,199,605 | $ | 13,199,605 | |||||
TOTAL SHORT-TERM INVESTMENTS (Cost $13,199,605) | 13,199,605 | |||||||
INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL - 12.3% | ||||||||
Investment Companies - 12.3% | ||||||||
Mount Vernon Liquid Assets Portfolio, LLC, 1.89% (b) + | 45,347,164 | |||||||
TOTAL INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL (Cost 45,347,164) | 45,347,164 | |||||||
Total Investments (Cost $475,375,792) - 113.5% | 417,434,542 | |||||||
Liabilities in Excess of Other Assets - (13.5)% | (49,508,878 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 367,925,664 |
Percentages are stated as a percent of net assets.
ADR American Depositary Receipt
(a) | Non-income producing security. |
(b) | The rate quoted is the annualized seven-day yield at March 31, 2018. |
(c) | Includes a security that is categorized as Level 3 per the Trust’s fair value hierachy. This security represents $0 or 0.00% of the Fund’s net assets and is classified as a Level 3 security. |
+ | Investments purchased with cash proceeds from securities lending. Total cash collateral has a value of $45,347,164 as of March 31, 2018. |
^ | All or a portion of this security is out on loan as of March 31, 2018. Total value of securities out on loan is $45,267,643. |
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
9
ETFMG Alternative Harvest ETF
As of March 31, 2018 (Unaudited)
ETFMG Alternative Harvest ETF | ||||
ASSETS | ||||
Investments in securities, at fair value* | $ | 417,434,542 | ||
Receivables: | ||||
Dividends and interest receivable | 208,832 | |||
Receivable for investments sold | 22,736,626 | |||
Securities lending income receivable | 350,378 | |||
Total Assets | $ | 440,730,378 | ||
LIABILITIES | ||||
Collateral received for securities loaned (Note 7) | 45,347,164 | |||
Payables: | ||||
Payable for investments purchased | 27,206,609 | |||
Unitary fees payable | 250,941 | |||
Total Liabilities | 72,804,714 | |||
Net Assets | $ | 367,925,664 | ||
NET ASSETS CONSIST OF: | ||||
Paid-in Capital | $ | 441,863,032 | ||
Undistributed (accumulated) net investment income | 341,865 | |||
Accumulated net realized loss on investments | (16,329,386 | ) | ||
Net unrealized depreciation on: | ||||
Investments in securities | (57,941,250 | ) | ||
Foreign currency and translation of other assets and liabilities in foreign currency | (8,597 | ) | ||
Net Assets | $ | 367,925,664 | ||
*Identified Cost: | ||||
Investments in unaffiliated securities | $ | 475,375,792 | ||
Shares Outstanding^ | 12,400,000 | |||
Net Asset Value, Offering and Redemption Price per Share | $ | 29.67 |
^ No par value, unlimited number of shares authorized
The accompanying notes are an integral part of these financial statements.
10
ETFMG Alternative Harvest ETF
Six Months Ended March 31, 2018 (Unaudited)
ETFMG Alternative Harvest ETF | ||||
INVESTMENT INCOME | ||||
Income: | ||||
Dividends from unaffiliated securities (net of foreign withholdings tax of $6,268) | $ | 760,665 | ||
Interest | 15,322 | |||
Securities lending Income | 1,016,452 | |||
Total Investment Income | 1,792,439 | |||
Expenses: | ||||
Unitary fees | 690,046 | |||
Total Expenses | 690,046 | |||
Net Investment Income | 1,102,393 | |||
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||
Net Realized Gain/(Loss) On: | ||||
Unaffiliated investments | (16,967,123 | ) | ||
In-Kind redemptions | 793,310 | |||
Foreign currency | (108,189 | ) | ||
Net Realized Loss on Investments and Foreign Currency | (16,282,002 | ) | ||
Net Change in Unrealized Depreciation of: | ||||
Unaffiliated investments in securities | (58,729,943 | ) | ||
Foreign currency and foreign currency translation | (8,626 | ) | ||
Net Change in unrealized depreciation of investments | (58,738,569 | ) | ||
Net Realized and Unrealized Loss on Investments | (75,020,571 | ) | ||
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | (73,918,178 | ) |
The accompanying notes are an integral part of these financial statements.
11
ETFMG Alternative Harvest ETF
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | |||||||
OPERATIONS | ||||||||
Net investment income | $ | 1,102,393 | $ | 69,004 | ||||
Net realized gain (loss) on investments | (16,282,002 | ) | 68,596 | |||||
Net change in unrealized appreciation (depreciation) of investments | (58,738,569 | ) | 415,461 | |||||
Net increase (decrease) in net assets resulting from operations | (73,918,178 | ) | 553,061 | |||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income | (665,685 | ) | (263,218 | ) | ||||
From net realized gain | (40,848 | ) | (70,581 | ) | ||||
Total Distributions to Shareholders | (706,533 | ) | (333,799 | ) | ||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase in net assets derived from net change in outstanding shares (a) | 436,273,905 | 3,084,065 | ||||||
Transaction Fees (See Note 1) | 5,063 | 4,359 | ||||||
Net increase in net assets from capital share transactions | 436,278,968 | 3,088,424 | ||||||
Net increase in net assets | $ | 361,654,257 | $ | 3,307,686 | ||||
NET ASSETS | ||||||||
Beginning of Period | 6,271,407 | 2,963,721 | ||||||
End of Period | $ | 367,925,664 | $ | 6,271,407 | ||||
Undistributed net investment income (loss) | $ | 341,865 | $ | (94,843 | ) |
(a) Summary of share transactions is as follows:
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 12,400,000 | 442,731,015 | 100,000 | $ | 3,084,065 | |||||||||||
Transaction Fees (See Note 1) | — | 5,063 | — | 4,359 | ||||||||||||
Shares Redeemed | (200,000 | ) | (6,457,110 | ) | — | — | ||||||||||
Net Transactions in Fund Shares | 12,200,000 | $ | 436,278,968 | 100,000 | $ | 3,088,424 | ||||||||||
Beginning Shares | 200,000 | 100,000 | ||||||||||||||
Ending Shares | 12,400,000 | 200,000 |
The accompanying notes are an integral part of these financial statements.
12
ETFMG Alternative Harvest ETF
For a capital share outstanding throughout the period
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | Period Ended September 30, 20161 | ||||||||||
Net Asset Value, Beginning of Period | $ | 31.36 | $ | 29.64 | $ | 25.00 | ||||||
Income from Investment Operations: | ||||||||||||
Net investment income 2 | 0.20 | 0.57 | 0.98 | |||||||||
Net realized and unrealized gain (loss) on investments | (1.07 | ) | 4.42 | 4.59 | ||||||||
Total from investment operations | (0.87 | ) | 4.99 | 5.57 | ||||||||
Less Distributions: | ||||||||||||
Distributions from net investment income | (0.62 | ) | (2.56 | ) | (0.93 | ) | ||||||
Distributions from net realized gain | (0.20 | ) | (0.71 | ) | — | |||||||
Total distributions | (0.82 | ) | (3.27 | ) | (0.93 | ) | ||||||
Net asset value, end of period | $ | 29.67 | $ | 31.36 | $ | 29.64 | ||||||
Total Return | -2.80 | %3 | 20.23 | % | 22.63 | %3 | ||||||
Ratios/Supplemental Data: | ||||||||||||
Net assets at end of period (000’s) | $ | 367,926 | $ | 6,271 | $ | 2,964 | ||||||
Expenses to Average Net Assets | 0.75 | %4 | 0.79 | % | 0.79 | %4 | ||||||
Net Investment Income to Average Net Assets | 1.20 | %4 | 1.98 | % | 5.88 | %4 | ||||||
Portfolio Turnover Rate | 86 | %3 | 44 | % | 44 | %3 |
1 | Commencement of operations on December 2, 2015. |
2 | Calculated based on average shares outstanding during the period. |
3 | Not annualized. |
4 | Annualized. |
The accompanying notes are an integral part of these financial statements.
13
ETFMG Alternative Harvest ETF
March 31, 2018 (Unaudited)
NOTE 1 – ORGANIZATION
ETFMG Alternative Harvest ETF (the “Fund”) is a series of ETF Managers Trust (the “Trust”), an open-end management investment company consisting of multiple investment series, organized as a Delaware statutory trust on July 1, 2009. The Trust is registered with the SEC under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company and the offering of the Fund’s shares (“Shares”) is registered under the Securities Act of 1933, as amended (the “Securities Act”). The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the Prime Alternative Harvest Index (the “Index”). The Fund commenced operations on December 2, 2015 as the Tierra XP Latin America Real Estate ETF. Effective December 26, 2017, the Board of Trustees of the Trust approved the following changes to the Fund: a) The Fund’s name was changed to the ETFMG Alternative Harvest ETF b) the Fund’s former underlying index, the Solactive Latin America Real Estate Index, was replaced with the Prime Alternative Harvest Index; c) The Fund’s investment objective was changed to the following: “The ETFMG Alternative Harvest ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the Prime Alternative Harvest Index” (the “New Index”); and d) the non-fundamental policy that, under normal circumstances, the Fund will not invest less than 80% of its net assets, plus the amount of any borrowings for investment purposes, in securities of real estate related companies in Latin America will be eliminated.
The Fund currently offers one class of shares, which has no front end sales load, no deferred sales charges, and no redemption fees. The Fund may issue an unlimited number of shares of beneficial interest, with no par value. All shares of the Fund have equal rights and privileges.
Shares of the Fund are listed and traded on the NYSE Arca, Inc. Market prices for the Shares may be different from their net asset value (“NAV”). The Fund issues and redeems Shares on a continuous basis at NAV only in blocks of 50,000 shares, called “Creation Units.” Creation Units are issued and redeemed principally in-kind for securities included in the Index. Once created, Shares generally trade in the secondary market at market prices that change throughout the day in quantities less than a Creation Unit. Except when aggregated in Creation Units, Shares are not redeemable securities of the Fund. Shares of the Fund may only be purchased or redeemed by certain financial institutions (“Authorized Participants”). An Authorized Participant is either (i) a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a DTC participant and, in each case, must have executed a Participant Agreement with the Distributor. Most retail investors do not qualify as Authorized Participants nor have the resources to buy and sell whole Creation Units. Therefore, they are unable to purchase or redeem the Shares directly from the Fund. Rather, most retail investors may purchase Shares in the secondary market with the assistance of a broker and are subject to customary brokerage commissions or fees.
Authorized Participants transacting in Creation Units for cash may pay an additional variable charge to compensate the relevant Fund for certain transaction costs (i.e., brokerage costs) and market impact expenses relating to investing in portfolio securities. Such variable charges, are included in “Transaction Fees” in the Statement of Changes in Net Assets.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
14
ETFMG Alternative Harvest ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946 Financial Services – Investment Companies.
The Fund may invest in certain other investment companies (underlying funds). For specific investments in underlying funds, please refer to the complete schedule of portfolio holdings on Form N-CSR(S) for this reporting period, which is filed with the U.S. Securities and Exchange Commission (SEC). For more information about the underlying Fund’s operations and policies, please refer to those Funds’ semiannual and annual reports, which are filed with the SEC.
A. | Security Valuation. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on NASDAQ), including securities traded over the counter, are valued at the last quoted sale price on the primary exchange or market (foreign or domestic) on which they are traded on the valuation date (or at approximately 4:00 pm Eastern Time if a security’s primary exchange is normally open at that time), or, if there is no such reported sale on the valuation date, at the most recent quoted bid price. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. |
Securities for which quotations are not readily available are valued at their respective fair values as determined in good faith by the Board of Trustees (the “Board”). When a security is “fair valued,” consideration is given to the facts and circumstances relevant to the particular situation, including a review of various factors set forth in the pricing procedures adopted by the Fund’s Board. The use of fair value pricing by the Fund may cause the net asset value of its shares to differ significantly from the net asset value that would be calculated without regard to such considerations. As of March 31, 2018, the Fund held one fair value security. More detail on this security can be found in the Schedule of Investments.
As described above, the Fund utilizes various methods to measure the fair value of its investments on a recurring basis. U.S. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are:
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access. |
Level 2 | Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 | Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
15
ETFMG Alternative Harvest ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The following table presents a summary of the Funds’ assets measured at fair value as of March 31, 2018:
ETFMG Alternative Harvest ETF+
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 358,887,773 | $ | — | $ | — | (1) | $ | 358,887,773 | |||||||
Investments Purchased with Securities Lending | ||||||||||||||||
Collateral* | — | — | — | 45,347,164 | ||||||||||||
Short-Term Investments | 13,199,605 | — | — | 13,199,605 | ||||||||||||
Total Investments in Securities | $ | 358,887,773 | $ | — | $ | — | $ | 417,434,542 |
+ On March 30, 2018, US and certain other financial markets were closed, while some foreign markets were open. The Fund was re-priced for financial reporting purposes to reflect in the valuation, the transactions related to open foreign market activities called at the official closing price on the primary market of exchange on which the securities trade.
^ See Schedule of Investments for classifications by country and industry.
(1) Includes a security valued at $0.
The ETFMG Alternative Harvest ETF held a Level 3 security at the end of the period. The security classified as Level 3 is deemed immaterial. This security transferred from Level 1 to Level 3 due to being previously priced in an active market. There were no transfers into or out of Level 2 during the six months ended March 31, 2018. Transfers between levels are recognized at the end of the reporting period.
* Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Schedule of Investments.
B. | Federal Income Taxes. The Fund has elected to be taxed as a “regulated investment company” and intends to distribute substantially all taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. Therefore, no provisions for federal income taxes or excise taxes have been made. |
To avoid imposition of the excise tax applicable to regulated investment companies, the Fund intends to declare each year as dividends, in each calendar year, at least 98.0% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts, if any, from prior years.
16
ETFMG Alternative Harvest ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
Net capital losses incurred after October 31, within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year.
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. The Fund has analyzed its tax position and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions expected to be taken in the Fund’s 2017 tax returns. The Fund identifies its major tax jurisdictions as U.S. Federal, the State of New Jersey, and the State of Delaware; however the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.
Management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the Fund, and has determined that no provision for income tax is required in the Fund’s financial statements.
C. | Security Transactions and Investment Income. Investment securities transactions are accounted for on the trade date. Gains and losses realized on sales of securities are determined on a specific identification basis. Discounts/premiums on debt securities purchased are accreted/amortized over the life of the respective securities using the effective interest method. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Income, including gains, from investments in foreign securities received by the Fund may be subject to income, withholding or other taxes imposed by foreign countries. |
D. | Foreign Currency Translations and Transactions. The Fund may engage in foreign currency transactions. Foreign currency transactions are translated into U.S. dollars on the following basis: (i) market value of investment securities, assets and liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. For financial reporting purposes, the Fund does not isolate changes in the exchange rate of investment securities from the fluctuations arising from changes in the market prices of securities for unrealized gains and losses. However, for federal income tax purposes, the Fund does isolate and treat as ordinary income the effect of changes in foreign exchange rates on realized gains or losses from the sale of investment securities and payables and receivables arising from trade-date and settlement-date differences. |
E. | Distributions to Shareholders. Distributions to shareholders from net investment income are declared and paid by the Fund on a quarterly basis. Distributions to Shareholders from net realized gains on securities of the Fund normally are declared and paid on an annual basis. Distributions are recorded on the ex-dividend date. |
F. | Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. |
17
ETFMG Alternative Harvest ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
G. | Share Valuation. The net asset value (“NAV”) per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding of the Fund, rounded to the nearest cent. The Fund’s shares will not be priced on the days on which the NYSE is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund’s net asset value per share. |
H. | Guarantees and Indemnifications. In the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote. |
NOTE 3 – RISK FACTORS
Investing in the ETFMG Alternative Harvest ETF may involve certain risks, as discussed in the Fund’s prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.
Non-U.S. Regulatory Risks of the Marijuana Industry. The companies in which the Fund invests are subject to various laws, regulations and guidelines relating to the manufacture, management, transportation, storage and disposal of marijuana, as well as being subject to laws and regulations relating to health and safety, the conduct of operations and the protection of the environment. Even if a company’s operations are permitted under current law, they may not be permitted in the future, in which case such company may not be in a position to carry on its operations in its current locations. Additionally, controlled substance legislation differs between countries and legislation in certain countries may restrict or limit the ability of certain companies in which the Fund invests to sell their products.
Operational Risks of the Marijuana Industry. Companies involved in the marijuana industry face intense competition, may have limited access to the services of banks, may have substantial burdens on company resources due to litigation, complaints or enforcement actions, and are heavily dependent on receiving necessary permits and authorizations to engage in medical marijuana research or to otherwise cultivate, possess or distribute marijuana. Since the use of marijuana is illegal under United States federal law, federally regulated banking institutions may be unwilling to make financial services available to growers and sellers of marijuana.
Concentration Risk. The Fund’s investments will be concentrated in an industry or group of industries to the extent that the Index is so concentrated. In such event, the value of the Fund’s shares may rise and fall more than the value of shares of a fund that invests in securities of companies in a broader range of industries.
Consumer Staples Sector Risk. The consumer staples sector may be affected by the permissibility of using various product components and production methods, marketing campaigns and other factors affecting consumer demand. Tobacco companies, in particular, may be adversely affected by new laws, regulations and litigation. The consumer staples sector may also be adversely affected by changes or trends in commodity prices, which may be influenced or characterized by unpredictable factors.
18
ETFMG Alternative Harvest ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
Equity Market Risk. The equity securities held in the Fund’s portfolio may experience sudden, unpredictable drops in value or long periods of decline in value. This may occur because of factors that affect securities markets generally or factors affecting specific issuers, industries, or sectors in which the Fund invests such as political, market and economic developments, as well as events that impact specific issuers.
New Fund Risk. There can be no assurance that the Fund will grow to or maintain an economically viable size.
Non-Diversification Risk. Because the Fund is “non-diversified,” it may invest a greater percentage of its assets in the securities of a single issuer or a small number of issuers than if it was a diversified fund. As a result, a decline in the value of an investment in a single issuer or a small number of issuers could cause the Fund’s overall value to decline to a greater degree than if the Fund held a more diversified portfolio. This may increase the Fund’s volatility and have a greater impact on the Fund’s performance.
NOTE 4 – COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS.
ETF Managers Group, LLC (the “Advisor”), serves as the investment advisor to the Fund. Pursuant to an Investment Advisory Agreement (“Advisory Agreement”) between the Trust, on behalf of the Fund, and the Advisor, the Advisor provides investment advice to the Fund and oversees the day-today operations of the Fund, subject to the direction and control of the Board and the officers of the Trust. Under the Advisory Agreement, the Advisor is also responsible for arranging transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Fund to operate.
Under the Investment Advisory Agreement with the Fund, the Advisor has overall responsibility for the general management and administration of the Fund and arranges for sub-advisory, transfer agency, custody, fund administration, securities lending, and all other non-distribution related services necessary for the Fund to operate. The Advisor bears the costs of all advisory and non-advisory services required to operate the Fund, in exchange for a single unitary fee. For services provided the Fund pays the Advisor at an annual rate of 0.75% of the Fund’s average daily net assets. The Advisor has an agreement with, and is dependent on, a third party to pay the Fund’s expenses in excess of 0.75% of the Fund’s average daily net assets. Additionally, under the Investment Advisory Agreement, the Advisor has agreed to pay all expenses of the Fund, except for: the fee paid to the Advisor pursuant to the Investment Advisory Agreement, interest charges on any borrowings, taxes, brokerage commissions and other expenses incurred in placing orders for the purchase and sale of securities and other investment instruments, acquired fund fees and expenses, accrued deferred tax liability, extraordinary expenses, and distribution (12b-1) fees and expenses (collectively, “Excluded Expenses”). From the period October 1, 2017 to December 25, 2017, the Fund’s Sponsor was Tierra Funds, LLC. Tierra Funds, LLC agreed to sublicense the use of the Underlying Index to the Advisor. Effective December 26, 2017, the Advisor has entered into an Agreement with ETFMG Financial, LLC (the “Sponsor”). The Sponsor provides marketing support for the Fund, including distributing marketing materials related to the Fund.
U.S. Bancorp Fund Services, LLC (the “Administrator”) provides fund accounting, fund administration, and transfer agency services to the Fund. The Advisor compensates the Administrator for these services under an administration agreement between the two parties.
19
ETFMG Alternative Harvest ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
The Advisor pays each independent Trustee a quarterly fee for service to the Fund. Each Trustee is also reimbursed by the Advisor for all reasonable out-of-pocket expenses incurred in connection with his duties as Trustee, including travel and related expenses incurred in attending Board meetings.
NOTE 5 – DISTRIBUTION PLAN
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-l under the 1940 Act. Under the Plan, the Fund may pay compensation to the Distributor or any other distributor or financial institution with which the Trust has an agreement with respect to the Fund, with the amount of such compensation not to exceed an annual rate of 0.25% of each Fund’s average daily net assets. For the six months ended March 31, 2018, the Fund did not incur any 12b-1 expenses.
NOTE 6 - PURCHASES AND SALES OF SECURITIES
The costs of purchases and sales of securities, excluding short-term securities and in-kind transactions, six months ended March 31, 2018:
Purchases | Sales | |||||||
ETFMG Alternative Harvest ETF | $ | 159,823,254 | $ | 164,853,016 |
The costs of purchases and sales of in-kind transactions associated with creations and redemptions for the six months ended March 31, 2018:
Purchases In-Kind | Sales In-Kind | |||||||
ETFMG Alternative Harvest ETF | $ | 440,383,639 | $ | 6,484,340 |
Purchases in-kind are the aggregate of all in-kind purchases and sales in-kind are the aggregate of all proceeds from in-kind sales. Net capital gains or losses resulting from in-kind redemptions are excluded from the determination of the Fund’s taxable gains and are not distributed to shareholders.
There were no purchases or sales of U.S. Government obligations for the six months ended March 31, 2018.
NOTE 7 — SECURITIES LENDING
The Fund may lend up to 33 1/3% of the value of the securities in its portfolio to brokers, dealers and financial institutions (but not individuals) under terms of participation in a securities lending program administered by U.S. Bank N.A. (“the Custodian”). The securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 102% of the value of any loaned securities at the time of the loan, plus accrued interest. The Fund receives compensation in the form of fees and earn interest on the cash collateral. The amount of fees depends on a number of factors including the type of security and length of the loan. The Fund continues to receive interest payments or dividends on the securities loaned during the borrowing period. Gain or loss in the fair value of securities loaned that may occur during the term of the loan will be for the account of the Fund. The Fund has the right under the terms of the securities lending agreement to recall the securities from the borrower on demand. The cash collateral is invested by the Custodian in accordance with approved investment guidelines. Those guidelines require the cash collateral to be invested in readily marketable, high quality, short-term obligations; however, such investments are subject to risk of payment delays or default on the part of the issuer or counterparty or otherwise may not generate sufficient interest to support the costs associated with securities lending. The Fund could also experience delays in recovering its securities and possible loss of income or value if the borrower fails to return the borrowed securities, although the Fund is indemnified from this risk by contract with the securities lending agent.
20
ETFMG Alternative Harvest ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
As of March 31, 2018, the value of the securities on loan and payable for collateral due to broker were as follows:
Value of Securities on Loan Collateral Received | ||||||||
Values of | Fund | |||||||
Securities | Collateral | |||||||
Fund | on Loan | Received* | ||||||
ETFMG Alternative Harvest ETF | $ | 45,267,643 | $ | 45,347,164 |
* The cash collateral received was invested in the Mount Vernon Securities Lending Prime Portfolio as shown on the Schedule of Investments, a money market fund with an overnight and continuous maturity.
Interest income earned on collateral investments (including applicable fees) and recognized by the Fund during the six months ended March 31, 2018, aggregated $1,016,452.
NOTE 8 – FEDERAL INCOME TAXES
The components of distributable earnings (losses) and cost basis of investments for federal income tax purposes at September 30, 2017 were as follows:
Cost | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | |||||||||||||
ETFMG Alternative Harvest ETF | $ | 5,811,821 | $ | 930,946 | $ | (387,897 | ) | $ | 543,049 |
Undistributed Ordinary Income | Undistributed Long-term Gain | Total Distributable Earnings | Other Accumulated Loss | Total Accumulated Gain | ||||||||||||||||
ETFMG Alternative Harvest ETF | $ | 112,470 | $ | 35,323 | $ | 147,793 | $ | (3,499 | ) | $ | 687,343 |
As of September 30, 2017, the Fund had accumulated capital loss carryovers of:
Capital Loss Carryover | Expires | ||
ETFMG Alternative Harvest ETF | None | Indefinite |
Under current tax law, capital and currency losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The Fund had deferred post-October capital and currency losses, which will be treated as arising on the first business day of the year ended September 30, 2017.
21
ETFMG Alternative Harvest ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
Late Year Ordinary Loss | Post-October Capital Loss | ||
ETFMG Alternative Harvest ETF | None | None |
U.S. GAAP requires that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the fiscal year ended September 30, 2017, the following table shows the reclassifications made:
Undistributed Accumulated Net Investment Income | Accumulated Net Realized Loss | Paid-In Capital | ||||||||||
ETFMG Alternative Harvest ETF | $ | 99,535 | $ | (93,119 | ) | $ | (6,416 | ) |
NOTE 9 – DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid by the Fund during the fiscal years ended September 30, 2017 and September 30, 2016 are as follows:
Year Ended September 30, 2017 | Year Ended September 30, 2016 | |||||||||||||||
From | From | From | From | |||||||||||||
Ordinary Income | Capital Gains | Ordinary Income | Capital Gains | |||||||||||||
ETFMG Alternative Harvest ETF | $ | 263,218 | $ | 70,581 | $ | 93,090 | $ | — |
NOTE 10 – SUBSEQUENT EVENTS
In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
22
For the Period Ended March 31, 2018 (Unaudited)
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on March 28, 2018, the Board of Trustees (the “Board”) of ETF Managers Trust (the “Trust”) considered the renewal of the Investment Advisory Agreement (the “Advisory Agreement”) between ETF Managers Group LLC (the “Adviser”) and the Trust, on behalf of ETFMG Alternative Harvest ETF (the “Fund”).
Pursuant to Section 15(c) of the 1940 Act, the Board must annually review and approve the Advisory Agreement after its initial two-year term: (i) by the vote of the Trustees or by a vote of the shareholders of the Fund; and (ii) by the vote of a majority of the Trustees who are not parties to the Advisory Agreement or “interested persons” of any party thereto, as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. Each year, the Board calls and holds a meeting to decide whether to renew the Advisory Agreement for an additional one-year term. In preparation for such meeting, the Board requests and reviews a wide variety of information from the Adviser.
In reaching its decision, the Board, including the Independent Trustees, considered all factors it believed relevant, including: (i) the nature, extent and quality of the services provided to the Fund’s shareholders by the Adviser; (ii) the investment performance of the Fund; (iii) the Adviser’s costs and profits realized in providing services to the Fund, including any fall-out benefits enjoyed by the Adviser; (iv) comparative fee and expense data for the Fund in relation to other similar investment companies; (v) the extent to which economies of scale would be realized as the Fund grows and whether the advisory fees for the Fund reflects these economies of scale for the benefit of the Fund; and (vi) other financial benefits to the Adviser and its affiliates resulting from services rendered to the Fund. The Board’s review included written and oral information furnished to the Board prior to and at the meeting held on March 28, 2018, and throughout the year. Among other things, the Adviser provided responses to a detailed series of questions, which included information about the Adviser’s operations, service offerings, personnel, compliance program and financial condition. The Board then discussed the written and oral information that it received before the meeting and throughout the year, and the Adviser’s oral presentations and any other information that the Board received at the meeting, and deliberated on the renewal of the Advisory Agreement in light of this information.
The Independent Trustees were assisted throughout the contract review process by independent legal counsel. The Independent Trustees relied upon the advice of such counsel and their own business judgment in determining the material factors to be considered in evaluating the renewal of the Advisory Agreement, and the weight to be given to each such factor. The conclusions reached with respect to the Advisory Agreement were based on a comprehensive evaluation of all the information provided and not any single factor. Moreover, each Trustee may have placed varying emphasis on particular factors in reaching conclusions with respect to the Fund. The matters discussed were also considered separately by the Independent Trustees in executive session with independent legal counsel, at which no representatives of management were present.
Nature, Extent and Quality of Services Provided by the Adviser
The Trustees considered the scope of services provided under the Advisory Agreement, noting that the Adviser provides investment management services to the Fund. The Board discussed the responsibilities of the Adviser, including: responsibility for the general management of the day-to-day investment and reinvestment of the assets of the Fund; determining the daily baskets of deposit securities and cash components; executing portfolio security trades for purchases and redemptions of Fund shares conducted on a cash-in-lieu basis; responsibility for daily monitoring of tracking error and quarterly reporting to the Board; and implementation of Board directives as they relate to the Fund. In considering the nature, extent and quality of the services provided by the Adviser, the Board considered the qualifications, experience and responsibilities of the Adviser’s investment personnel, the quality of the Adviser’s compliance infrastructure, and the determination of the Trust’s Chief Compliance Officer that the Adviser has appropriate compliance policies and procedures in place. The Board also considered the Adviser’s experience managing exchange-traded funds (“ETFs”).
23
ETFMG Alternative Harvest ETF
APPROVAL OF ADVISORY AGREEMENT AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2018 (Unaudited) (Continued)
The Board also considered other services provided to the Fund, such as overseeing the Fund’s service providers, monitoring adherence to the Fund’s investment restrictions, and monitoring compliance with various policies and procedures and with applicable securities laws.
Based on the factors above, as well as those discussed below, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by the Adviser.
Historical Performance
The Board then considered the past performance of the Fund. The Board reviewed information regarding the performance history of the Fund over various time periods, including the year-to-date period, the most recent one-year period and the period since the Fund’s inception. The Board noted management’s explanation that analysis of investment performance, in absolute terms, is less relevant for the Fund than it is for actively managed funds, given the Fund’s index-based investment objectives. The Board also noted management’s further explanation that it is more relevant to review the performance of the Fund by focusing on the extent to which the Fund tracked its underlying index. The Board reviewed information regarding the Fund’s index tracking during the time it was managed by the Adviser, discussing, as applicable, factors which contributed to the Fund’s tracking error over certain periods of time. The Board noted that the Fund converted to a new investment objective to track a substantially different underlying index, effective December 26, 2017, and the majority of the information of tracking error considered related to the prior underlying index. The Board noted that the Fund’s performance was generally in line with that of its underlying index. The Board concluded that the Fund satisfactorily tracked its underlying index. The Board further noted that it had received and would continue to receive regular reports regarding the Fund’s performance at its quarterly meetings.
Cost of Services Provided and Economies of Scale
The Board reviewed the advisory fee for the Fund and compared it to the total operating expenses of comparable ETFs, as determined by an independent third party. Among other information, the Board noted that the advisory fee for the Fund was higher than the average and median expense ratios for its comparable ETFs. The Board took into consideration management’s discussion of the fees, including that the Fund has a niche investment strategy and limited comparable ETFs.
The Board also noted the importance of the fact that the advisory fee for the Fund is a “unified fee,” meaning that the shareholders of the Fund pay no expenses other than the advisory fee and certain other costs such as interest, brokerage and extraordinary expenses and, to the extent it is implemented, fees pursuant to a Distribution and/or Shareholder Servicing (12b-1) Plan. The Board further noted that the Adviser was responsible for compensating the Trust’s other service providers and paying the Fund’s other expenses out of its own fees and resources. The Board also evaluated the compensation and benefits received by the Adviser from its relationship with the Fund, taking into account an analysis of the Adviser’s profitability provided at the meeting. The Board concluded that the advisory fee for the Fund was reasonable in light of the factors considered.
In addition, the Board considered whether economies of scale may be realized for the Fund. The Board noted that the Adviser regularly considers whether fee reductions are appropriate as the Fund grows in size. The Board noted that a unitary fee provides a level of certainty in expenses for the Fund. The Trustees concluded that the flat advisory fee was reasonable.
24
ETFMG Alternative Harvest ETF
APPROVAL OF ADVISORY AGREEMENT AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2018 (Unaudited) (Continued)
Based on the Board’s deliberations and its evaluation of the information described above, the Board, including the Independent Trustees, unanimously: (a) concluded that the terms of the Advisory Agreement are fair and reasonable; (b) concluded that the Adviser’s fees are reasonable in light of the services that the Adviser provides to the Fund; and (c) approved the renewal of the Advisory Agreement for another year.
25
Six Months Ended March 31, 2018 (Unaudited)
As a shareholder of ETFMG Alternative Harvest ETF (the “Fund”) you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares, and (2) ongoing costs, including unitary fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (October 1, 2017 to March 31, 2018).
Actual Expenses
The first line of the table provides information about actual account values based on actual returns and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then, multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table provides information about hypothetical account values based on a hypothetical return and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
ETFMG Alternative Harvest ETF
Beginning Account Value October 1, 2017 | Ending Account Value March 31, 2018 | Expenses Paid During the Period^ | |||||
Actual | $1,000.00 | $972.00 | $3.88 | ||||
Hypothetical (5% annual) | $1,000.00 | $1,020.99 | $3.98 |
^ The dollar amounts shown as expenses paid during the period are equal to the annualized six-month expense ratio multiplied by the average account value during the period, multiplied by 182/365 (to reflect the period from October 1, 2017 to March 31, 2018).
26
March 31, 2018 (Unaudited)
INFORMATION ABOUT PORTFOLIO HOLDINGS
The Fund files a Form N-Q with the Securities and Exchange Commission (the “SEC”) no more than sixty days after the Fund’s first and third fiscal quarters. For the Fund, this would be for the fiscal quarters ending June 30 and December 31. Form N-Q includes a complete schedule of the Funds’ portfolio holdings as of the end of those fiscal quarters. The Fund’s N-Q filings can be found free of charge on the SEC’s website at http://www.sec.gov, or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (call 800-SEC-0330 for information on the operation of the Public Reference Room). The Fund’s portfolio holdings are posted on the Fund’s website at www.etfmj.com daily.
INFORMATION ABOUT PROXY VOTING
A description of the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is provided in the Statement of Additional Information (“SAI”). The SAI is available without charge upon request by calling toll-free at 1-844-ETF-MGRS (1-844-383-6477), by accessing the SEC’s website at www.sec.gov, or by accessing the Fund’s website at www.etfmj.com.
Information regarding how the Fund voted proxies relating to portfolio securities during the period ending June 30 is available by calling toll-free at 1-844-ETF-MGRS (1-844-383-6477) or by accessing the SEC’s website at www.sec.gov.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477) or by visiting www.etfmj.com. Read the prospectus carefully before investing.
27
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Advisor
ETF Managers Group, LLC
30 Maple Street, Suite 2, Summit, NJ 07901
Distributor
ETFMG Financial, LLC
30 Maple Street, Suite 2, Summit, NJ 07901
Custodian
U.S. Bank National Association
Custody Operations
1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212
Transfer Agent
U.S. Bancorp Fund Services, LLC
615 East Michigan Street, Milwaukee, Wisconsin 53202
Securities Lending Agent
U.S. Bank, National Association
Securities Lending
800 Nicolet Mall
Minneapolis, MN 55402-7020
Independent Registered Public Accounting Firm
WithumSmith + Brown, PC
1411 Broadway, 9th Floor, New York, NY 10018
Legal Counsel
Sullivan & Worcester LLP
1666 K Street NW, Washington, DC 20006
Semi-Annual Report
March 31, 2018
BlueStar Israel Technology ETF
Ticker: ITEQ
The fund is a series of ETF Managers Trust.
BlueStar Israel Technology ETF
TABLE OF CONTENTS
March 31, 2018
Page | |
Shareholders’ Letter | 2 |
Growth of $10,000 Investment | 3 |
Top Ten Holdings | 4 |
Important Disclosures and Key Risk Factors | 5 |
Portfolio Allocations | 6 |
Schedule of Investments | 7 |
Statement of Assets and Liabilities | 11 |
Statement of Operations | 12 |
Statements of Changes in Net Assets | 13 |
Financial Highlights | 14 |
Notes to Financial Statements | 15 |
Approval of Advisory Agreement and Board Considerations | 23 |
Expense Example | 26 |
Supplementary Information | 27 |
BlueStar Israel Technology ETF
On behalf of the entire team, we want to express our appreciation for the confidence you have placed in the BlueStar Israel Technology Exchange-Traded Fund (“ITEQ” or the “Fund”). The following information pertains to the fiscal period from October 1, 2017 to March 31, 2018.
The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the BlueStar Israel Global Technology Index (the “Index”).
Over the 6-month period ending March 31, 2018, the Fund NAV increased 2.49% while the Index increased 2.84%. The difference was primarily attributable to Fund expenses that are not a part of the Index. The best performers were SolarEdge (up 84.24%) and Mellanox Technologies (up 54.51%). The worst performers were Vascular Biogenics (down - 62.30%) and OPKO Health (down - 54.60%).
We believe Israeli companies play an essential role in the global high technology value chain. Most technology users, from online shoppers to Fortune 500 companies, use Israeli technology applications and solutions every day without ever being aware of it. From cybersecurity and defense to clean energy and agriculture, Israeli innovations power some of the biggest names in the tech industry today.
Even in industries where Israeli companies do not have dominant individual market share, the collective footprint of Israeli companies is significant in many key technology subsectors, and Israel-based Research & Development and non-public companies are usually significant contributors to that same sub-industry’s ecosystem.
There is much ahead for Israeli Technology companies and we are thankful you have joined us. You can find further details about ITEQ by visiting www.iteqetf.com, or by calling 1-844-ETF-MGRS. (1-844-383-6477).
Sincerely,
Samuel Masucci III
Chairman of the Board
Samuel Masucci III is a registered representative of ETFMG Financial, LLC.
2
Growth of $10,000 (Unaudited)
Since | ||||||||||||
Average Annual Returns | 6 Months | 1 Year | Inception | |||||||||
Period Ended March 31, 2018 | Return1 | Return | (11/2/2015) | |||||||||
BlueStar Israel Technology ETF (NAV) | 2.49 | % | 13.25 | % | 11.19 | % | ||||||
BlueStar Israel Technology ETF (Market) | 2.59 | % | 13.45 | % | 11.44 | % | ||||||
S&P 500 Index2 | 5.84 | % | 14.07 | % | 12.26 | % | ||||||
BlueStar Israel Global Technology Index 2 | 2.84 | % | 14.23 | % | 12.03 | % | ||||||
Total Fund Operating Expenses3 | 0.75 | % |
1. Not annualized.
2. The return reflects the actual performance through March 29, 2018 (the last day of the New York Stock Exchange was open) to maintain consistency with the Fund’s net asset value calculations used for shareholder transactions.
3. The expense ratio is taken from the Fund’s most recent prospectus dated January 31, 2018.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on November 2, 2015, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the sales of Fund shares. The chart assumes reinvestment of capital gains and dividends. The chart assumes reinvestment of capital gains and dividends, if any. The unmanaged indices do not reflect fees and are not available for direct investment.
3
BlueStar Israel Technology ETF
% of Total | |||||
Security | Investments† | ||||
1 | Nice Ltd. | 6.99 | % | ||
2 | Amdocs Ltd. | 6.81 | % | ||
3 | Check Point Software Technologies Ltd. | 6.35 | % | ||
4 | Mellanox Technologies Ltd. | 4.37 | % | ||
5 | Wix.com Ltd. | 4.08 | % | ||
6 | Orbotech Ltd. | 3.71 | % | ||
7 | Elbit Systems Ltd. | 3.69 | % | ||
8 | Verint Systems, Inc. | 3.58 | % | ||
9 | Tower Semiconductor Ltd. | 3.34 | % | ||
10 | Ormat Technologies, Inc. | 2.85 | % |
Top Ten Holdings = 45.77% of Total Investments†
* Current Fund holdings may not be indicative of future Fund holdings.
† Percentage of total investments less cash.
4
BlueStar Israel Technology ETF
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility.
The BlueStar Israel Technology ETF (the “Fund”) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the BlueStar Israel Global Technology Index (“BIGITech”).
Investment in securities of Israeli companies involves risks that may negatively affect the value of your investment in the Fund. Among other things, Israel’s economy depends on imports of certain key items, such as crude oil, coal, grains, raw materials and military equipment. Foreign investing involves special risks such as currency fluctuations and political uncertainty. Funds that invest in smaller companies may experience greater volatility. Funds that emphasize investments in technology generally will experience greater price volatility. The Fund’s return may not match or achieve a high degree of correlation with the return of the BIGITech. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not guarantee a profit, nor does it protect against a loss in a declining market.
The BlueStar Israel Global Technology Index (“BIGITech”) is an index of more than 60 Israeli technology companies listed on global stock exchanges in Tel Aviv, New York, London and elsewhere.
S&P 500: The S&P 500 Index is the Standard & Poor’s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices.
5
BlueStar Israel Technology ETF
As of March 31, 2018 (Unaudited)
BlueStar Israel | ||||
Technology ETF | ||||
As a percent of Net Assets: | ||||
Australia | 0.6 | % | ||
Guernsey | 8.1 | |||
Hong Kong | 0.4 | |||
Israel | 60.8 | |||
Jersey | 3.1 | |||
Netherlands Antilles | 0.4 | |||
United Kingdom | 4.2 | |||
United States | 21.7 | |||
Short-Term and other Net Assets (Liabilities) | 0.7 | |||
100.0 | % |
6
BlueStar Israel Technology ETF
March 31, 2018 (Unaudited)
Shares | Fair Value | |||||||
COMMON STOCKS - 99.3% | ||||||||
Australia - 0.6% | ||||||||
Commercial Services & Supplies - 0.3% | ||||||||
Fluence Corp Ltd. (a) | 328,475 | $ | 133,711 | |||||
Diversified Telecommunication Services - 0.3% | ||||||||
Sky And Space Global Ltd. (a) | 1,149,962 | 105,987 | ||||||
Total Australia | 239,698 | |||||||
Guernsey - 8.1% | ||||||||
IT Services - 8.1% | ||||||||
Amdocs Ltd. | 43,392 | 2,895,115 | ||||||
SafeCharge International Group Ltd. | 46,281 | 189,926 | ||||||
Total IT Services | 3,085,041 | |||||||
Hong Kong - 0.4% | ||||||||
Health Care Equipment & Supplies - 0.4% | ||||||||
Sisram Medical Ltd. (a) | 209,793 | 156,379 | ||||||
Israel - 60.8% | ||||||||
Aerospace & Defense - 4.7% | ||||||||
Aeronautics Ltd. (a) | 50,635 | 132,867 | ||||||
Elbit Systems Ltd. | 13,068 | 1,568,487 | ||||||
RADA Electronic Industries Ltd. (a) ^ | 39,999 | 94,398 | ||||||
Total Aerospace & Defense | 1,795,752 | |||||||
Auto Components - 0.3% | ||||||||
Foresight Autonomous Holdings Ltd. (a) | 141,632 | 99,776 | ||||||
Biotechnology - 2.9% | ||||||||
BioLine RX Ltd. - ADR (a) | 125,698 | 109,357 | ||||||
Evogene Ltd. (a) | 35,116 | 110,226 | ||||||
Galmed Pharmaceuticals Ltd. (a) | 15,068 | 83,929 | ||||||
Intec Pharma Ltd. (a) | 28,356 | 175,507 | ||||||
Kamada Ltd. (a) | 35,633 | 163,455 | ||||||
UroGen Pharma Ltd. (a) | 8,161 | 405,520 | ||||||
Vascular Biogenics Ltd. (a) ^ | 19,614 | 45,112 | ||||||
Total Biotechnology | 1,093,106 | |||||||
Communications Equipment - 4.1% | ||||||||
AudioCodes Ltd. (a) | 24,419 | 174,596 | ||||||
Ceragon Networks Ltd. (a) | 69,858 | 187,918 | ||||||
Ituran Location and Control Ltd. | 11,409 | 354,820 | ||||||
RADCOM Ltd. (a) | 9,697 | 177,940 | ||||||
Radware Ltd. (a) | 24,017 | 512,763 | ||||||
Silicom Ltd. (a) | 4,255 | 146,415 | ||||||
Total Communications Equipment | 1,554,452 | |||||||
Electronic Equipment, Instruments & Components - 4.8% | ||||||||
Arad Ltd. | 12,369 | 123,175 | ||||||
Magal Security Systems Ltd. (a) | 24,306 | 140,246 |
The accompanying notes are an integral part of these financial statements.
7
BlueStar Israel Technology ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Fair Value | |||||||
Orbotech Ltd. (a) | 25,326 | $ | 1,574,770 | |||||
Total Electronic Equipment, Instruments & Components | 1,838,191 | |||||||
Health Care Equipment & Supplies - 2.1% | ||||||||
Mazor Robotics Ltd. (a) | 27,250 | 800,191 | ||||||
Household Durables - 0.5% | ||||||||
Maytronics Ltd. | 40,469 | 200,178 | ||||||
Independent Power and Renewable Electricity Producers - 0.8% | ||||||||
Energix-Renewable Energies Ltd. (a) | 153,026 | 148,332 | ||||||
Enlight Renewable Energy Ltd. (a) | 342,111 | 170,490 | ||||||
Total Independent Power and Renewable Electricity Producers | 318,822 | |||||||
Internet Software & Services - 4.5% | ||||||||
Wix.com Ltd. (a) | 21,775 | 1,732,202 | ||||||
IT Services - 2.0% | ||||||||
Formula Systems (1985) Ltd. | 6,561 | 239,051 | ||||||
Malam - Team Ltd. | 1,148 | 123,584 | ||||||
Matrix IT Ltd. | 23,700 | 267,230 | ||||||
One Software Technologies Ltd. | 3,706 | 145,806 | ||||||
Total IT Services | 775,671 | |||||||
Life Sciences Tools & Services - 0.6% | ||||||||
Compugen Ltd. (a) | 51,871 | 222,118 | ||||||
Machinery - 1.3% | ||||||||
Kornit Digital Ltd. (a) ^ | 20,666 | 266,592 | ||||||
Sarine Technologies Ltd. | 254,030 | 216,995 | ||||||
Total Machinery | 483,587 | |||||||
Pharmaceuticals - 1.2% | ||||||||
Foamix Pharmaceuticals Ltd. (a) ^ | 32,021 | 164,268 | ||||||
MediWound Ltd. (a) | 26,955 | 140,166 | ||||||
Redhill Biopharma Ltd. - ADR (a) ^ | 26,266 | 135,795 | ||||||
Total Pharmaceuticals | 440,229 | |||||||
Semiconductors & Semiconductor Equipment - 10.2% | ||||||||
Camtek Ltd. | 25,373 | 171,268 | ||||||
Mellanox Technologies Ltd. (a) | 25,497 | 1,857,456 | ||||||
Nova Measuring Instruments Ltd. (a) | 18,186 | 489,336 | ||||||
Tower Semiconductor Ltd. (a) | 52,647 | 1,418,389 | ||||||
Total Semiconductors & Semiconductor Equipment | 3,936,449 | |||||||
Software - 19.3% | ||||||||
Allot Communications Ltd. (a) | 31,120 | 170,612 | ||||||
Attunity Ltd. (a) | 20,006 | 150,045 | ||||||
Check Point Software Technologies Ltd. (a) ^ | 27,162 | 2,698,273 | ||||||
CyberArk Software Ltd. (a) | 20,010 | 1,020,910 | ||||||
Hilan Ltd. | 11,499 | 255,446 | ||||||
Magic Software Enterprises Ltd. | 23,058 | 188,337 | ||||||
Nice Ltd. (a) | 31,992 | 2,970,633 | ||||||
Total Software | 7,454,256 | |||||||
Technology Hardware, Storage & Peripherals - 1.5% | ||||||||
Stratasys Ltd. (a) ^ | 29,019 | 585,603 | ||||||
Total Israel | 23,330,583 |
The accompanying notes are an integral part of these financial statements.
8
BlueStar Israel Technology ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Fair Value | |||||||
Jersey - 3.1% | ||||||||
Health Care Equipment & Supplies - 2.3% | ||||||||
Novocure Ltd. (a) ^ | 41,049 | $ | 894,869 | |||||
Internet Software & Services - 0.8% | ||||||||
XLMedia PLC | 137,959 | 307,754 | ||||||
Total Jersey | 1,202,623 | |||||||
Netherlands Antilles - 0.4% | ||||||||
Software - 0.4% | ||||||||
Sapiens International Corporation NV | 19,088 | 167,883 | ||||||
United Kingdom - 4.2% | ||||||||
Communications Equipment - 0.5% | ||||||||
Telit Communications PLC | 87,114 | 183,575 | ||||||
Diversified Financial Services - 1.9% | ||||||||
Plus500 Ltd. | 46,545 | 744,448 | ||||||
Hotels, Restaurants & Leisure - 1.4% | ||||||||
888 Holdings PLC | 140,881 | 533,274 | ||||||
Media - 0.4% | ||||||||
Taptica international Ltd. | 37,687 | 164,969 | ||||||
Total United Kingdom | 1,626,266 | |||||||
United States - 21.7% | ||||||||
Aerospace & Defense - 0.3% | ||||||||
Arotech Corp. (a) | 34,041 | 103,825 | ||||||
Biotechnology - 2.4% | ||||||||
BrainStorm Cell Therapeutics, Inc. (a) ^ | 30,053 | 94,667 | ||||||
OPKO Health, Inc. (a) | 195,663 | 613,608 | ||||||
Pluristem Therapeutics, Inc. (a) | 108,541 | 142,407 | ||||||
Protalix BioTherapeutics, Inc. (a) | 199,402 | 103,351 | ||||||
Total Biotechnology | 954,033 | |||||||
Commercial Services & Supplies - 0.3% | ||||||||
Pointer Telocation Ltd. (a) | 7,873 | 115,393 | ||||||
Communications Equipment - 0.5% | ||||||||
Gilat Satellite Networks Ltd. (a) | 23,603 | 201,872 | ||||||
Electric Utilities - 3.2% | ||||||||
Ormat Technologies, Inc. | 21,232 | 1,213,049 | ||||||
Internet Software & Services - 1.5% | ||||||||
LivePerson, Inc. (a) | 37,000 | 586,392 | ||||||
Pharmaceuticals - 0.2% | ||||||||
Oramed Pharmaceuticals, Inc. (a) | 13,478 | 87,742 | ||||||
Semiconductors & Semiconductor Equipment - 4.4% | ||||||||
CEVA, Inc. (a) | 13,468 | 487,542 | ||||||
DSP Group, Inc. (a) | 17,215 | 203,137 | ||||||
SolarEdge Technologies, Inc. (a) | 19,020 | 1,000,452 | ||||||
Total Semiconductors & Semiconductor Equipment | 1,691,131 |
The accompanying notes are an integral part of these financial statements.
9
BlueStar Israel Technology ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Fair Value | |||||||
Software - 8.9% | ||||||||
ForeScout Technologies, Inc. (a) | 6,749 | $ | 218,938 | |||||
Imperva, Inc. (a) | 19,074 | 825,904 | ||||||
Varonis Systems, Inc. (a) | 13,433 | 812,697 | ||||||
Verint Systems, Inc. (a) | 35,748 | 1,522,865 | ||||||
Total Software | 3,380,404 | |||||||
Total United States | 8,333,841 | |||||||
TOTAL COMMON STOCKS (Cost $35,316,838) | 38,142,314 | |||||||
SHORT-TERM INVESTMENTS - 0.1% | ||||||||
Money Market Funds - 0.1% | ||||||||
Invesco Advisers, Inc. STIT - Treasury Portfolio - Institutional Class, 1.57% (b) | 19,213 | 19,213 | ||||||
TOTAL SHORT-TERM INVESTMENTS (Cost $19,213) | 19,213 | |||||||
INVESTMENTS PURCHASED WITH SECURITIES LENDING | ||||||||
COLLATERAL - 11.3% | ||||||||
Investment Companies - 11.3% | ||||||||
Mount Vernon Liquid Assets Portfolio, LLC, 1.89% (b) + | 4,334,602 | |||||||
TOTAL INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL (Cost $4,334,602) | 4,334,602 | |||||||
Total Investments (Cost $39,670,653) - 110.7% | 42,496,129 | |||||||
Liabilities in Excess of Other Assets - (10.7)% | (4,108,135 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 38,387,994 |
Percentages are stated as a percent of net assets.
ADR | American Depositary Receipt |
(a) | Non-income producing security. |
(b) | The rate quoted is the annualized seven-day yield at March 31, 2018. |
+ | Investments purchased with cash proceeds from securities lending. Total cash collateral has a value of $4,334,602 as of March 31, 2018. |
^ | All or a portion of this security is out on loan as of March 31, 2018. Total value of securities out on loan is $4,271,286. |
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
10
BlueStar Israel Technology ETF
As of March 31, 2018 (Unaudited)
BlueStar | ||||
Israel | ||||
Technology | ||||
ETF | ||||
ASSETS | ||||
Investments in securities, at fair value* | $ | 42,496,129 | ||
Cash | 4,883 | |||
Foreign currency | 212 | |||
Receivables: | ||||
Receivable for investments sold | 143,788 | |||
Dividends and interest receivable | 99,611 | |||
Securities lending income receivable | 2,521 | |||
Total Assets | 42,747,144 | |||
LIABILITIES | ||||
Collateral received for securities loaned (Note 7) | 4,334,602 | |||
Payables: | ||||
Unitary fees payable | 24,548 | |||
Total Liabilities | 4,359,150 | |||
Net Assets | $ | 38,387,994 | ||
NET ASSETS CONSIST OF: | ||||
Paid-in Capital | $ | 35,621,547 | ||
Undistributed (accumulated) net investment loss | (139,731 | ) | ||
Accumulated net realized gain on investments | 80,707 | |||
Net unrealized appreciation (depreciation) on: | ||||
Investments in securities | 2,825,476 | |||
Foreign currency and translation of other assets and liabilities in foreign currency | (5 | ) | ||
Net Assets | $ | 38,387,994 | ||
*Identified Cost: | ||||
Investments in securities | $ | 39,670,653 | ||
Foreign currency | 217 | |||
Shares Outstanding^ | 1,200,000 | |||
Net Asset Value, Offering and Redemption Price per Share | $ | 31.99 | ||
^ No par value, unlimited number of shares authorized |
The accompanying notes are an integral part of these financial statements.
11
BlueStar Israel Technology ETF
Six Months Ended March 31, 2018 (Unaudited)
BlueStar | ||||
Israel | ||||
Technology | ||||
ETF | ||||
INVESTMENT INCOME | ||||
Income: | ||||
Dividends from unaffiliated securities (net of foreign withholdings tax of $6,619) | $ | 129,988 | ||
Interest | 428 | |||
Securities lending income | 13,650 | |||
Total Investment Income | 144,066 | |||
Expenses: | ||||
Unitary fees | 118,818 | |||
Net Investment Income | 25,248 | |||
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||
Net Realized Gain (Loss) on: | ||||
Unaffiliated investments | (102,604 | ) | ||
In-Kind redemptions | 463,829 | |||
Foreign currency | 167 | |||
Net Realized Gain on Investments and Foreign Currency | 361,392 | |||
Net Change in Unrealized Appreciation (Depreciation) of: | ||||
Unaffiliated investments | 186,712 | |||
Foreign currency and foreign currency translation | (10 | ) | ||
Net Change in Unrealized Appreciation of Investments and Foreign Currency | 186,702 | |||
Net Realized and Unrealized Gain on Investments | 548,094 | |||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 573,342 |
The accompanying notes are an integral part of these financial statements.
12
BlueStar Israel Technology ETF
Six Months | ||||||||
Ended | ||||||||
March 31, | Year Ended | |||||||
2018 | September 30, | |||||||
(Unaudited) | 2017 | |||||||
OPERATIONS | ||||||||
Net investment income | $ | 25,248 | $ | 8,590 | ||||
Net realized gain on investments | 361,392 | 221,184 | ||||||
Net change in unrealized appreciation of investments | 186,702 | 2,411,218 | ||||||
Net increase in net assets resulting from operations | 573,342 | 2,640,992 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income | (163,624 | ) | (18,370 | ) | ||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase in net assets derived | ||||||||
from net change in outstanding shares (a) | 14,440,025 | 15,800,080 | ||||||
Net increase in net assets | $ | 14,849,743 | $ | 18,422,702 | ||||
NET ASSETS | ||||||||
Beginning of Period | 23,538,251 | 5,115,549 | ||||||
End of Period | $ | 38,387,994 | $ | 23,538,251 | ||||
Undistributed net investment loss | $ | (139,731 | ) | $ | (1,355 | ) |
(a) Summary of share transactions is as follows:
Six Months Ended | ||||||||||||||||
March 31, 2018 | Year Ended | |||||||||||||||
(Unaudited) | September 30, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 550,000 | $ | 17,611,895 | 650,000 | $ | 18,752,200 | ||||||||||
Reinvested Dividends | — | — | — | — | ||||||||||||
Shares Redeemed | (100,000 | ) | (3,171,870 | ) | (100,000 | ) | (2,952,120 | ) | ||||||||
450,000 | $ | 14,440,025 | 550,000 | $ | 15,800,080 | |||||||||||
Beginning Shares | 750,000 | 200,000 | ||||||||||||||
Ending Shares | 1,200,000 | 750,000 |
The accompanying notes are an integral part of these financial statements.
13
BlueStar Israel Technology ETF
For a capital share outstanding throughout the period
Six Months | ||||||||||||
Ended | ||||||||||||
March 31, | Year Ended | Period Ended | ||||||||||
2018 | September 30, | September 30, | ||||||||||
(Unaudited) | 2017 | 20161 | ||||||||||
Net Asset Value, Beginning of Period | $ | 31.38 | $ | 25.58 | $ | 25.00 | ||||||
Income from Investment Operations: | ||||||||||||
Net investment income 2 | 0.03 | 0.02 | 0.05 | |||||||||
Net realized and unrealized gain on investments | 0.75 | 5.87 | 0.53 | |||||||||
Total from investment operations | 0.78 | 5.89 | 0.58 | |||||||||
Less Distributions: | ||||||||||||
Distributions from net investment income | (0.17 | ) | (0.09 | ) | — | |||||||
Total distributions | (0.17 | ) | (0.09 | ) | — | |||||||
Net asset value, end of period | $ | 31.99 | $ | 31.38 | $ | 25.58 | ||||||
Total Return | 2.49 | %3 | 23.16 | % | 2.31 | %3 | ||||||
Ratios/Supplemental Data: | ||||||||||||
Net assets at end of period (000’s) | $ | 38,388 | $ | 23,538 | $ | 5,116 | ||||||
Expenses to Average Net Assets | 0.75 | %4 | 0.75 | % | 0.75 | %4 | ||||||
Net Investment Income to Average Net Assets | 0.16 | %4 | 0.07 | % | 0.23 | %4 | ||||||
Portfolio Turnover Rate | 6 | %3 | 19 | % | 14 | %3 |
1 | Commencement of operations on November 2, 2015. |
2 | Calculated based on average shares outstanding during the period. |
3 | Not annualized. |
4 | Annualized. |
The accompanying notes are an integral part of these financial statements.
14
BlueStar Israel Technology ETF
March 31, 2018 (Unaudited)
NOTE 1 – ORGANIZATION
BlueStar Israel Technology ETF (the “Fund”) is a series of ETF Managers Trust (the “Trust”), an open-end management investment company consisting of multiple investment series, organized as a Delaware statutory trust on July 1, 2009. The Trust is registered with the SEC under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company and the offering of the Fund’s shares (“Shares”) is registered under the Securities Act of 1933, as amended (the “Securities Act”). The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the BlueStar Israel Global Technology Index (“BIGITech”). The Fund commenced operations on November 2, 2015.
The Fund currently offers one class of shares, which has no front end sales load, no deferred sales charges, and no redemption fees. The Fund may issue an unlimited number of shares of beneficial interest, with no par value. All shares of the Fund have equal rights and privileges.
Shares of the Fund are listed and traded on the NYSE Arca, Inc. Market prices for the Shares may be different from their net asset value (“NAV”). The Fund issues and redeems Shares on a continuous basis at NAV only in blocks of 50,000 shares, called “Creation Units.” Creation Units are issued and redeemed principally in-kind for securities included in the Index. Once created, Shares generally trade in the secondary market at market prices that change throughout the day in quantities less than a Creation Unit. Except when aggregated in Creation Units, Shares are not redeemable securities of the Fund. Shares of the Fund may only be purchased or redeemed by certain financial institutions (“Authorized Participants”). An Authorized Participant is either (i) a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a DTC participant and, in each case, must have executed a Participant Agreement with the Distributor. Most retail investors do not qualify as Authorized Participants nor have the resources to buy and sell whole Creation Units. Therefore, they are unable to purchase or redeem the Shares directly from the Fund. Rather, most retail investors may purchase Shares in the secondary market with the assistance of a broker and may be subject to customary brokerage commissions or fees.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946 Financial Services –Investment Companies.
The Fund may invest in certain other investment companies (underlying funds). For specific investments in underlying funds, please refer to the complete schedule of portfolio holdings on Form N-CSR(S) for this reporting period, which is filed with the U.S. Securities and Exchange Commission (SEC). For more information about the underlying Fund’s operations and policies, please refer to those Funds’ semiannual and annual reports, which are filed with the SEC.
A. | Security Valuation. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on NASDAQ), including securities traded over the counter, are valued at the last quoted sale price on the primary exchange or market (foreign or domestic) on which they are traded on the valuation date (or at approximately 4:00 pm Eastern Time if a security’s primary exchange is normally open at that time), or, if there is no such reported sale on the valuation date, at the most recent quoted bid price. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. |
15
BlueStar Israel Technology ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
Securities for which quotations are not readily available are valued at their respective fair values as determined in good faith by the Board of Trustees (the “Board”). When a security is “fair valued,” consideration is given to the facts and circumstances relevant to the particular situation, including a review of various factors set forth in the pricing procedures adopted by the Fund’s Board. The use of fair value pricing by the Fund may cause the net asset value of its shares to differ significantly from the net asset value that would be calculated without regard to such considerations. As of March 31, 2018, the Fund did not hold any fair valued securities.
As described above, the Fund utilizes various methods to measure the fair value of its investments on a recurring basis. U.S. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are:
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access. |
Level 2 | Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 | Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
16
BlueStar Israel Technology ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
The following table presents a summary of the Funds’ assets measured at fair value as of March 31, 2018:
BlueStar Israel Technology ETF
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 38,142,314 | $ | — | $ | — | $ | 38,142,314 | ||||||||
Short-Term Investments | 19,213 | — | — | 19,213 | ||||||||||||
Investments Purchased with Securities Lending | ||||||||||||||||
Collateral* | — | — | — | 4,334,602 | ||||||||||||
Total Investments in Securities | $ | 38,161,527 | $ | — | $ | — | $ | 42,496,129 |
^ See Schedule of Investments for classifications by country and industry.
* Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Schedule of Investments.
There were no transfers between Levels 1, 2 and 3 during the six months ended March 31, 2018. Transfers between levels are recognized at the end of the reporting period.
B. | Federal Income Taxes. The Fund has elected to be taxed as a “regulated investment company” and intends to distribute substantially all taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. Therefore, no provisions for federal income taxes or excise taxes have been made. |
To avoid imposition of the excise tax applicable to regulated investment companies, the Fund intends to declare each year as dividends, in each calendar year, at least 98.0% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts, if any, from prior years.
Net capital losses incurred after October 31, within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year.
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. The Fund has analyzed its tax position and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions expected to be taken in the Fund’s 2017 tax returns. The Fund identifies its major tax jurisdictions as U.S. Federal, the State of New Jersey, and the State of Delaware; however the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.
Management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the Fund, and has determined that no provision for income tax is required in the Fund’s financial statements.
C. | Security Transactions and Investment Income. Investment securities transactions are accounted for on the trade date. Gains and losses realized on sales of securities are determined on a specific identification basis. Discounts/premiums on debt securities purchased are accreted/amortized over the life of the respective securities using the effective interest method. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Income, including gains, from investments in foreign securities received by the Fund may be subject to income, withholding or other taxes imposed by foreign countries. |
17
BlueStar Israel Technology ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
D. | Foreign Currency Translations and Transactions. The Fund may engage in foreign currency transactions. Foreign currency transactions are translated into U.S. dollars on the following basis: (i) market value of investment securities, assets and liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. For financial reporting purposes, the Fund does not isolate changes in the exchange rate of investment securities from the fluctuations arising from changes in the market prices of securities for unrealized gains and losses. However, for federal income tax purposes, the Fund does isolate and treat as ordinary income the effect of changes in foreign exchange rates on realized gains or losses from the sale of investment securities and payables and receivables arising from trade-date and settlement-date differences. |
E. | Distributions to Shareholders. Distributions to shareholders from net investment income, if any are generally declared and paid by the Fund on a quarterly basis. Net realized gains on securities of the Fund normally are declared and paid on an annual basis. Distributions are recorded on the ex-dividend date. |
F. | Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. |
G. | Share Valuation. The net asset value (“NAV”) per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding of the Fund, rounded to the nearest cent. The Fund’s shares will not be priced on the days on which the NYSE is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund’s net asset value per share. |
H. | Guarantees and Indemnifications. In the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote. |
NOTE 3 – RISK FACTORS
Investing in the BlueStar Israel Technology ETF may involve certain risks, as discussed in the Fund’s prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.
Market Risk. Financial markets rise and fall in response to a variety of factors, sometimes rapidly and unpredictably. As with any investment whose performance is tied to these markets, the value of an investment in a fund will fluctuate, which means that an investor could lose money over short or long periods.
18
BlueStar Israel Technology ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
Investment Style Risk. The Fund is not actively managed. Therefore, the Fund follows the securities included in its respective index during upturns as well as downturns. Because of its indexing strategy, the Fund does not take steps to reduce market exposure or to lessen the effects of a declining market. In addition, because of the Fund’s expenses, the Fund’s performance may be below that of its index.
Equity Risk. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles which may cause stock prices to fall over short or extended periods of time.
Securities Lending Risk. Securities lending involves the risk of loss of rights in, or delay in recovery of, the loaned securities if the borrower fails to return the security loaned or becomes insolvent.
Concentration Risk. To the extent that the Fund’s or its underlying index’s portfolio is concentrated in the securities of issuers in a particular market, industry, group of industries, sector or asset class, the Fund may be adversely affected by the performance of those securities, may be subject to increased price volatility and may be more vulnerable to adverse economic, market, political or regulatory occurrences affecting that market, industry, group of industries, sector or asset class.
NOTE 4 – COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS.
ETF Managers Group, LLC (the “Advisor”), serves as the investment advisor to the Fund. Pursuant to an Investment Advisory Agreement (“Advisory Agreement”) between the Trust, on behalf of the Fund, and the Advisor, the Advisor provides investment advice to the Fund and oversees the day-today operations of the Fund, subject to the direction and control of the Board and the officers of the Trust. Under the Advisory Agreement, the Advisor is also responsible for arranging transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Fund to operate.
Under the Investment Advisory Agreement with the Fund, the Advisor has overall responsibility for the general management and administration of the Fund and arranges for sub-advisory, transfer agency, custody, fund administration, securities lending, and all other non-distribution related services necessary for the Fund to operate. The Advisor bears the costs of all advisory and non-advisory services required to operate the Fund, in exchange for a single unitary fee. For services provided the Fund pays the Advisor at an annual rate of 0.75% of the Fund’s average daily net assets. The Advisor has an agreement with, and is dependent on, a third party to pay the Fund’s expenses in excess of 0.75% of the Fund’s average daily net assets. Additionally, under the Investment Advisory Agreement, the Advisor has agreed to pay all expenses of the Fund, except for: the fee paid to the Advisor pursuant to the Investment Advisory Agreement, interest charges on any borrowings, taxes, brokerage commissions and other expenses incurred in placing orders for the purchase and sale of securities and other investment instruments, acquired fund fees and expenses, accrued deferred tax liability, extraordinary expenses, and distribution (12b-1) fees and expenses (collectively, “Excluded Expenses”). The Advisor has entered into an Agreement with ITEQ ETF Partners, LLC (the “Sponsor”), under which the Sponsor agrees to sublicense the use of the Underlying Index to the Advisor. The Sponsor also provides marketing support for the Fund, including distributing marketing materials related to the Fund. ITEQ ETF Partners, LLC is a privately held business focused on bringing exchange-traded investment products to investors in the U.S. The Sponsor does not make investment decisions, provide investment advice, or otherwise act in the capacity of an investment adviser to the Fund. Additionally, the Sponsor is not involved in the maintenance of the Underlying Index and does not otherwise act in the capacity of an index provider.
19
BlueStar Israel Technology ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
US Bancorp Fund Services, LLC (the “Administrator”) provides fund accounting, fund administration, and transfer agency services to the Fund. The Advisor compensates the Administrator for these services under an administration agreement between the two parties.
The Advisor pays each independent Trustee a quarterly fee for service to the Fund. Each Trustee is also reimbursed by the Advisor for all reasonable out-of-pocket expenses incurred in connection with his duties as Trustee, including travel and related expenses incurred in attending Board meetings.
NOTE 5 – DISTRIBUTION PLAN
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may pay compensation to the Distributor or any other distributor or financial institution with which the Trust has an agreement with respect to the Fund, with the amount of such compensation not to exceed an annual rate of 0.25% of each Fund’s average daily net assets. For the six months ended March 31, 2018, the Fund did not incur any 12b-1 expenses.
NOTE 6 - PURCHASES AND SALES OF SECURITIES
The costs of purchases and sales of securities, excluding short-term securities and in-kind transactions, for the six months ended March 31, 2018:
Purchases | Sales | |||||||
BlueStar Israel Technology ETF | $ | 1,904,620 | $ | 2,415,828 |
The costs of purchases and sales of in-kind transactions associated with creations and redemptions for the six months ended March 31, 2018:
Purchases | Sales | |||||||
In-Kind | In-Kind | |||||||
BlueStar Israel Technology ETF | $ | 17,491,016 | $ | 2,266,061 |
Purchases in-kind are the aggregate of all in-kind purchases and sales in-kind are the aggregate of all proceeds from in-kind sales. Net capital gains or losses resulting from in-kind redemptions are excluded from the determination of the Fund’s taxable gains and are not distributed to shareholders.
There were no purchases or sales of U.S. Government obligations for the six months ended March 31, 2018.
NOTE 7 — SECURITIES LENDING
The Fund may lend up to 331/3% of the value of the securities in its portfolio to brokers, dealers and financial institutions (but not individuals) under terms of participation in a securities lending program administered by U.S. Bank N.A. (“the Custodian”). The securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 102% of the value of any loaned securities at the time of the loan, plus accrued interest. The Fund receives compensation in the form of fees and earn interest on the cash collateral. The amount of fees depends on a number of factors including the type of security and length of the loan. The Fund continues to receive interest payments or dividends on the securities loaned during the borrowing period. Gain or loss in the fair value of securities loaned that may occur during the term of the loan will be for the account of the Fund. The Fund has the right under the terms of the securities lending agreement to recall the securities from the borrower on demand. As of March 31, 2018, the Fund had loaned securities and received cash collateral for the loans. The cash collateral is invested by the Custodian in accordance with approved investment guidelines. Those guidelines require the cash collateral to be invested in readily marketable, high quality, short-term obligations; however, such investments are subject to risk of payment delays or default on the part of the issuer or counterparty or otherwise may not generate sufficient interest to support the costs associated with securities lending. The Fund could also experience delays in recovering its securities and possible loss of income or value if the borrower fails to return the borrowed securities, although the Fund is indemnified from this risk by contract with the securities lending agent.
20
BlueStar Israel Technology ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
As of March 31, 2018, the value of the securities on loan and payable for collateral due to broker were as follows:
Value of Securities on Loan Collateral Received
Values of | Fund | ||||||
Securities | Collateral | ||||||
Fund | on Loan | Received* | |||||
BlueStar Israel Technology ETF | $ | 4,271,286 | $ | 4,334,602 |
* The cash collateral received was invested in the Mount Vernon Securities Lending Prime Portfolio as shown on the Schedule of Investments, an investment with an overnight and continuous maturity, as shown on the Schedule of Investments.
Interest income earned on collateral investments (including applicable fees) and recognized by the Fund during the six months ended March 31, 2018, aggregated $13,650.
NOTE 8 – FEDERAL INCOME TAXES
The components of distributable earnings (losses) and cost basis of investments for federal income tax purposes at September 30, 2017 were as follows:
Net | |||||||||||||||
Gross | Gross | Unrealized | |||||||||||||
Unrealized | Unrealized | Appreciation | |||||||||||||
Cost | Appreciation | Depreciation | (Depreciation) | ||||||||||||
BlueStar Israel Technology ETF | $ | 26,134,679 | $ | 3,408,844 | $ | (1,114,823 | ) | $ | 2,294,021 |
Undistributed | Undistributed | Total | Other | Total | ||||||||||||||||
Ordinary | Long-term | Distributable | Accumulated | Accumulated | ||||||||||||||||
Income | Gain | Earnings | (Loss) | Gain | ||||||||||||||||
BlueStar Israel Technology ETF | $ | 163,624 | $ | — | $ | 163,624 | $ | (100,916 | ) | $ | 2,356,729 |
As of September 30, 2017, the Fund had accumulated capital loss carryovers of:
Capital Loss | |||||
Carryover | Expires | ||||
BlueStar Israel Technology ETF | $ | 100,916 | Indefinite |
21
BlueStar Israel Technology ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
Under current tax law, capital and currency losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The following Funds had deferred post-October capital and currency losses, which will be treated as arising on the first business day of the year ended September 30, 2017.
Late Year | |||
Ordinary | Post-October | ||
Loss | Capital Loss | ||
BlueStar Israel Technology ETF | None | None |
U.S. GAAP requires that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the fiscal year ended September 30, 2017, the following table shows the reclassifications made:
Undistributed Accumulated Net Investment Income | Accumulated Net Realized Loss | Paid-In Capital | ||||||||||
BlueStar Israel Technology ETF | $ | 1,290 | $ | (480,827 | ) | $ | 479,537 |
NOTE 9 – DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid by the Fund during the fiscal years ended September 30, 2017 and September 30, 2016 are as follows:
Year Ended September 30, 2017 | Year Ended September 30, 2016 | |||||||||||||||
From Ordinary Income | From Capital Gains | From Ordinary Income | From Capital Gains | |||||||||||||
BlueStar Israel Technology ETF | $ | 18,370 | $ | — | $ | — | $ | — |
NOTE 10 – SUBSEQUENT EVENTS
In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
22
BlueStar Israel Technology ETF
For the Period Ended March 31, 2018 (Unaudited)
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on March 28, 2018, the Board of Trustees (the “Board”) of ETF Managers Trust (the “Trust”) considered the renewal of the Investment Advisory Agreement (the “Advisory Agreement”) between ETF Managers Group LLC (the “Adviser”) and the Trust, on behalf of BlueStar Israel Technology ETF (the “Fund”).
Pursuant to Section 15(c) of the 1940 Act, the Board must annually review and approve the Advisory Agreement after its initial two-year term: (i) by the vote of the Trustees or by a vote of the shareholders of the Fund; and (ii) by the vote of a majority of the Trustees who are not parties to the Advisory Agreement or “interested persons” of any party thereto, as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. Each year, the Board calls and holds a meeting to decide whether to renew the Advisory Agreement for an additional one-year term. In preparation for such meeting, the Board requests and reviews a wide variety of information from the Adviser.
In reaching its decision, the Board, including the Independent Trustees, considered all factors it believed relevant, including: (i) the nature, extent and quality of the services provided to the Fund’s shareholders by the Adviser; (ii) the investment performance of the Fund; (iii) the Adviser’s costs and profits realized in providing services to the Fund, including any fall-out benefits enjoyed by the Adviser; (iv) comparative fee and expense data for the Fund in relation to other similar investment companies; (v) the extent to which economies of scale would be realized as the Fund grows and whether the advisory fees for the Fund reflects these economies of scale for the benefit of the Fund; and (vi) other financial benefits to the Adviser and its affiliates resulting from services rendered to the Fund. The Board’s review included written and oral information furnished to the Board prior to and at the meeting held on March 28, 2018, and throughout the year. Among other things, the Adviser provided responses to a detailed series of questions, which included information about the Adviser’s operations, service offerings, personnel, compliance program and financial condition. The Board then discussed the written and oral information that it received before the meeting and throughout the year, and the Adviser’s oral presentations and any other information that the Board received at the meeting, and deliberated on the renewal of the Advisory Agreement in light of this information.
The Independent Trustees were assisted throughout the contract review process by independent legal counsel. The Independent Trustees relied upon the advice of such counsel and their own business judgment in determining the material factors to be considered in evaluating the renewal of the Advisory Agreement, and the weight to be given to each such factor. The conclusions reached with respect to the Advisory Agreement were based on a comprehensive evaluation of all the information provided and not any single factor. Moreover, each Trustee may have placed varying emphasis on particular factors in reaching conclusions with respect to the Fund. The matters discussed were also considered separately by the Independent Trustees in executive session with independent legal counsel, at which no representatives of management were present.
Nature, Extent and Quality of Services Provided by the Adviser
The Trustees considered the scope of services provided under the Advisory Agreement, noting that the Adviser provides investment management services to the Fund. The Board discussed the responsibilities of the Adviser, including: responsibility for the general management of the day-today investment and reinvestment of the assets of the Fund; determining the daily baskets of deposit securities and cash components; executing portfolio security trades for purchases and redemptions of Fund shares conducted on a cash-in-lieu basis; responsibility for daily monitoring of tracking error and quarterly reporting to the Board; and implementation of Board directives as they relate to the Fund. In considering the nature, extent and quality of the services provided by the Adviser, the Board considered the qualifications, experience and responsibilities of the Adviser’s investment personnel, the quality of the Adviser’s compliance infrastructure, and the determination of the Trust’s Chief Compliance Officer that the Adviser has appropriate compliance policies and procedures in place. The Board also considered the Adviser’s experience managing exchange-traded funds (“ETFs”).
23
BlueStar Israel Technology ETF
APPROVAL OF ADVISORY AGREEMENT AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2018 (Unaudited) (Continued)
The Board also considered other services provided to the Fund, such as overseeing the Fund’s service providers, monitoring adherence to the Fund’s investment restrictions, and monitoring compliance with various policies and procedures and with applicable securities laws.
Based on the factors above, as well as those discussed below, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by the Adviser.
Historical Performance
The Board then considered the past performance of the Fund. The Board reviewed information regarding the performance history of the Fund over various time periods, including the year-to-date period, the most recent one-year period and the period since the Fund’s inception. The Board noted management’s explanation that analysis of investment performance, in absolute terms, is less relevant for the Fund than it is for actively managed funds, given the Fund’s index-based investment objectives. The Board also noted management’s further explanation that it is more relevant to review the performance of the Fund by focusing on the extent to which the Fund tracked its underlying index. The Board reviewed information regarding the Fund’s index tracking during the time it was managed by the Adviser, discussing, as applicable, factors which contributed to the Fund’s tracking error over certain periods of time. The Board noted that the Fund had underperformed its underlying index over certain periods, but that such underperformance was largely a result of costs incurred by the Fund not incurred by its underlying index. The Board noted that the Fund’s performance was nonetheless generally in line with that of its underlying index. The Board concluded that, after taking these factors into account, the Fund satisfactorily tracked its underlying index. The Board further noted that it had received and would continue to receive regular reports regarding the Fund’s performance at its quarterly meetings.
Cost of Services Provided and Economies of Scale
The Board reviewed the advisory fee for the Fund and compared it to the total operating expenses of comparable ETFs, as determined by an independent third party. Among other information, the Board noted that the advisory fee for the Fund was higher than the average and median expense ratios for its comparable ETFs. The Board took into consideration management’s discussion of the fees, including that the Fund has a niche investment strategy and limited comparable ETFs.
The Board also noted the importance of the fact that the advisory fee for the Fund is a “unified fee,” meaning that the shareholders of the Fund pay no expenses other than the advisory fee and certain other costs such as interest, brokerage and extraordinary expenses and, to the extent it is implemented, fees pursuant to a Distribution and/or Shareholder Servicing (12b-1) Plan. The Board further noted that the Adviser was responsible for compensating the Trust’s other service providers and paying the Fund’s other expenses out of its own fees and resources. The Board also evaluated the compensation and benefits received by the Adviser from its relationship with the Fund, taking into account an analysis of the Adviser’s profitability provided at the meeting. The Board concluded that the advisory fee for the Fund was reasonable in light of the factors considered.
In addition, the Board considered whether economies of scale may be realized for the Fund. The Board noted that the Adviser regularly considers whether fee reductions are appropriate as the Fund grows in size. The Board noted that a unitary fee provides a level of certainty in expenses for the Fund. The Trustees concluded that the flat advisory fee was reasonable.
24
BlueStar Israel Technology ETF
APPROVAL OF ADVISORY AGREEMENT AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2018 (Unaudited) (Continued)
Based on the Board’s deliberations and its evaluation of the information described above, the Board, including the Independent Trustees, unanimously: (a) concluded that the terms of the Advisory Agreement are fair and reasonable; (b) concluded that the Adviser’s fees are reasonable in light of the services that the Adviser provides to the Fund; and (c) approved the renewal of the Advisory Agreement for another year.
25
BlueStar Israel Technology ETF
Six Months Ended March 31, 2018 (Unaudited)
As a shareholder of BlueStar Israel Technology ETF (the “Fund”) you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares, and (2) ongoing costs, including unitary fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (October 1, 2017 to March 31, 2018).
Actual Expenses
The first line of the table provides information about actual account values based on actual returns and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then, multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table provides information about hypothetical account values based on a hypothetical return and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
BlueStar Israel Technology ETF
Beginning | Ending | Expenses Paid | |||||
Account Value | Account Value | During the | |||||
October 1, 2017 | March 31, 2018 | Period^ | |||||
Actual | $1,000.00 | $1,024.90 | $3.79 | ||||
Hypothetical (5% annual) | $1,000.00 | $1,021.19 | $3.78 |
^ The dollar amounts shown as expenses paid during the period are equal to the annualized six-month expense ratio multiplied by the average account value during the period, multiplied by 182/365 (to reflect the period from October 1, 2017 to March 31, 2018).
26
BlueStar Israel Technology ETF
March 31, 2018 (Unaudited)
The Fund files a Form N-Q with the Securities and Exchange Commission (the ‘‘SEC’’) no more than sixty days after the Fund’s first and third fiscal quarters. For the Fund, this would be for the fiscal quarters ending June 30 and December 31. Form N-Q includes a complete schedule of the Funds’ portfolio holdings as of the end of those fiscal quarters. The Fund’s N-Q filings can be found free of charge on the SEC’s website at http://www.sec.gov, or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (call 800-SEC-0330 for information on the operation of the Public Reference Room). The Fund’s portfolio holdings are posted on the Fund’s website at www.iteqetf.com daily.
INFORMATION ABOUT PROXY VOTING
A description of the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is provided in the Statement of Additional Information (“SAI”). The SAI is available without charge upon request by calling toll-free at 1-844-ETF-MGRS (1-844-383-6477), by accessing the SEC’s website at www.sec.gov, or by accessing the Fund’s website at www.iteqetf.com.
Information regarding how the Fund voted proxies relating to portfolio securities during the period ending June 30 is available by calling toll-free at 1-844-ETF-MGRS (1-844-383-6477) or by accessing the SEC’s website at www.sec.gov.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477) or by visiting www.iteqetf.com. Read the prospectus carefully before investing.
27
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Advisor
ETF Managers Group, LLC
30 Maple Street, Suite 2, Summit, NJ 07901
Distributor
ETFMG Financial, Inc.
30 Maple Street, Suite 2, Summit, NJ 07901
Custodian
U.S. Bank National Association
Custody Operations
Custody Operations
1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212
Transfer Agent
U.S. Bancorp Fund Services, LLC
615 East Michigan Street, Milwaukee, Wisconsin 53202
Securities Lending Agent
U.S. Bank, National Association
Securities Lending
800 Nicolet Mall
Minneapolis, MN 55402-7020
Independent Registered Public Accounting Firm
WithumSmith + Brown, PC
1411 Broadway, 9th Floor, New York, NY 10018
Legal Counsel
Sullivan & Worcester LLP
1666 K Street NW, Washington, DC 20006
Semi-Annual Report
March 31, 2018
Etho Climate Leadership U.S. ETF
Ticker: ETHO
The fund is a series of ETF Managers Trust.
Etho Climate Leadership U.S. ETFE
TABLE OF CONTENTS
March 31, 2018
Page | |
Shareholders’ Letter | 2 |
Growth of $10,000 Investment | 3 |
Top Ten Holdings | 4 |
Important Disclosures and Key Risk Factors | 5 |
Portfolio Allocations | 6 |
Schedule of Investments | 7 |
Statement of Assets and Liabilities | 18 |
Statement of Operations | 19 |
Statements of Changes in Net Assets | 20 |
Financial Highlights | 21 |
Notes to Financial Statements | 22 |
Approval of Advisory Agreement and Board Considerations | 30 |
Expense Example | 33 |
Supplementary Information | 34 |
Etho Climate Leadership U.S. ETF
On behalf of the entire team, we want to express our appreciation for the confidence you have placed in the Etho Climate Leadership U.S. Exchange-Traded Fund (“ETHO” or the “Fund”). The following information pertains to the fiscal period from October 1, 2017 to March 31, 2018.
The Fund saw positive performance during the fiscal period ended March 31, 2018. The NAV price for ETHO increased 7.66% while the Etho Climate Leadership Index – U.S. (“Index”), the Fund’s benchmark, increased 7.35% over the same period. The difference was primarily attributable to Fund expenses that are not a part of the Index.
As you may know, the Etho Climate Leadership U.S. ETF offers broad diversification across companies that have demonstrated efficiency and leadership with their use of resources and their supply chains when compared to industry peers. The Fund holds roughly 290 equities equally weighted and results in a carbon emissions profile that is, on average, 50-70% lower per dollar invested than conventional U.S. benchmark indices. ETHO avoids investment in any direct fossil fuel companies, as well as enablers of that industry, along with a series of other unsustainable industries such as Tobacco/Weapons/Gambling, etc. Equal weighting of the Fund allows for the elimination of equities that do not meet ETHO’s standards without there being a significant impact on the diversification or performance of the Fund. It also creates broad exposure to both the sectors and factors that potentially make for greater stability and higher performance.
There is much ahead for environmentally sustainable and socially responsible investing. We are thankful you have joined us by investing in the Etho Climate Leadership U.S. ETF.
You can find further details about ETHO by visiting www.ethoetf.com, or by calling 1- 844-ETF-MGRS (1-844-383-6477).
Sincerely,
Samuel Masucci III |
Chairman of the Board |
Samuel Masucci III is a registered representative of ETFMG Financial, LLC. |
2
Since | ||||||||||||
Average Annual Returns | 6 Months | 1 Year | Inception | |||||||||
Period Ended March 31, 2018 | Return1 | Return | (11/18/2015) | |||||||||
Etho Climate Leadership U.S. ETF (NAV) | 7.66 | % | 17.87 | % | 15.36 | % | ||||||
Etho Climate Leadership U.S. ETF (Market) | 7.55 | % | 17.34 | % | 15.34 | % | ||||||
S&P 500 Index2 | 5.84 | % | 14.07 | % | 12.88 | % | ||||||
Etho Climate Leadership Index - U.S.2 | 7.35 | % | 17.34 | % | 14.65 | % | ||||||
Total Fund Operating Expenses3 | 0.45 | % |
1. Not annualized.
2. The return reflects the actual performance through March 29, 2018 (the last day of the New York Stock Exchange was open) to maintain consistency with the Fund’s net asset value calculations used for shareholder transactions.
3. The expense ratio is taken from the Fund’s most recent prospectus dated January 31, 2018.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more of less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on November 18, 2015, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the sale of Fund shares. The chart assumes reinvestment of capital gains and dividends. The chart assumes reinvestment of capital gains and dividends, if any. The unmanaged indices do not reflect fees and are not available for direct investment.
3
Etho Climate Leadership U.S. ETF
Security | % of Total Investments† | ||
1 | First Solar, Inc. | 0.62% | |
2 | Alnylam Pharmaceuticals, Inc. | 0.55% | |
3 | Align Technology, Inc. | 0.52% | |
4 | NVIDIA Corp. | 0.50% | |
5 | Netflix, Inc. | 0.47% | |
6 | Interactive Brokers Group, Inc. | 0.46% | |
7 | IPG Photonics Corp. | 0.45% | |
8 | ServiceNow, Inc. | 0.45% | |
9 | PayPal Holdings, Inc. | 0.42% | |
10 | Red Hat, Inc. | 0.41% |
Top Ten Holdings = 4.82% of Total Investments†
* Current Fund holdings may not be indicative of future Fund holdings.
† Percentage of total investments less cash.
4
Etho Climate Leadership U.S. ETF
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility.
The Etho Climate Leadership U.S. ETF (the “Fund”) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the Etho Climate Leadership Index – US (the “Index”).
Funds that invest in smaller companies may experience greater volatility. The Fund’s return may not match or achieve a high degree of correlation with the return of the Etho Climate Leadership Index – US (ticker: ETHO INDEX). To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not guarantee a profit, nor does it protect against a loss in a declining market.
The Etho Climate Leadership Index™ (ECLI™) is an index of more than 350 companies listed on the NYSE Arca stock exchange that have the smallest carbon footprint in their industries.
S&P 500: The S&P 500 Index is the Standard & Poor’s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices.
5
Etho Climate Leadership U.S. ETF
As of March 31, 2018 (Unaudited)
Etho Climate | ||||
Leadership | ||||
U.S. ETF | ||||
As a percent of Net Assets: | ||||
Bermuda | 1.9 | % | ||
Canada | 0.3 | |||
Ireland | 1.4 | |||
Jersey | 0.4 | |||
Switzerland | 0.6 | |||
United Kingdom | 0.3 | |||
United States | 93.7 | |||
Virgin Islands (UK) | 0.4 | |||
Short-Term and other Net Assets (Liabilities) | 1.0 | |||
100.0 | % |
6
Etho Climate Leadership U.S. ETF
March 31, 2018 (Unaudited)
Shares | Fair Value | |||||||
COMMON STOCKS - 99.0% | ||||||||
Bermuda - 1.9% | ||||||||
Chemicals - 0.2% | ||||||||
Axalta Coating Systems Ltd. (a) | 2,181 | $ | 65,844 | |||||
Insurance - 1.4% | ||||||||
Arch Capital Group Ltd. (a) | 740 | 63,337 | ||||||
Axis Capital Holdings Ltd. | 1,056 | 60,794 | ||||||
Everest Re Group Ltd. | 298 | 76,532 | ||||||
RenaissanceRe Holdings Ltd. | 485 | 67,177 | ||||||
Validus Holdings Ltd. | 1,254 | 84,582 | ||||||
White Mountains Insurance Group Ltd. | 80 | 65,802 | ||||||
Total Insurance | 418,224 | |||||||
Professional Services - 0.3% | ||||||||
IHS Markit Ltd. (a) | 1,672 | 80,657 | ||||||
Total Bermuda | 564,725 | |||||||
Canada - 0.3% | ||||||||
Commercial Services & Supplies - 0.3% | ||||||||
Waste Connections, Inc. | 1,193 | 85,586 | ||||||
Ireland - 1.4% | ||||||||
Biotechnology - 0.3% | ||||||||
Alkermes PLC (a) | 1,201 | 69,610 | ||||||
Building Products - 0.3% | ||||||||
Allegion PLC | 930 | 79,320 | ||||||
Insurance - 0.3% | ||||||||
Willis Towers Watson PLC | 536 | 81,574 | ||||||
Pharmaceuticals - 0.5% | ||||||||
Allergan PLC | 293 | 49,309 | ||||||
Jazz Pharmaceuticals PLC (a) | 483 | 72,928 | ||||||
Total Pharmaceuticals | 122,237 | |||||||
Total Ireland | 352,741 | |||||||
Jersey - 0.4% | ||||||||
Auto Components - 0.4% | ||||||||
Aptiv PLC | 873 | 74,179 | ||||||
Delphi Technologies PLC | 291 | 13,866 | ||||||
Total Auto Components | 88,045 | |||||||
Switzerland - 0.6% | ||||||||
Electronic Equipment, Instruments & Components - 0.3% | ||||||||
TE Connectivity Ltd. | 946 | 94,505 | ||||||
Household Durables - 0.3% | ||||||||
Garmin Ltd. ^ | 1,383 | 81,500 | ||||||
Total Switzerland | 176,005 |
The accompanying notes are an integral part of these financial statements.
7
Etho Climate Leadership U.S. ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Fair Value | |||||||
United Kingdom - 0.3% | ||||||||
Insurance - 0.3% | ||||||||
Aon PLC | 594 | $ | 83,356 | |||||
Software - 0.0% | ||||||||
Micro Focus International PLC - ADR | 406 | 5,700 | ||||||
Total United Kingdom | 89,056 | |||||||
United States - 93.7% | ||||||||
Air Freight & Logistics - 0.3% | ||||||||
CH Robinson Worldwide, Inc. | 914 | 85,651 | ||||||
Airlines - 0.4% | ||||||||
Alaska Air Group, Inc. | 760 | 47,090 | ||||||
Southwest Airlines Co. | 1,305 | 74,750 | ||||||
Total Airlines | 121,840 | |||||||
Auto Components - 0.5% | ||||||||
BorgWarner, Inc. | 1,684 | 84,587 | ||||||
Gentex Corp. ^ | 3,304 | 76,058 | ||||||
Total Auto Components | 160,645 | |||||||
Automobiles - 0.7% | ||||||||
Harley-Davidson, Inc. ^ | 1,169 | 50,127 | ||||||
Tesla, Inc. (a) ^ | 249 | 66,266 | ||||||
Thor Industries, Inc. | 729 | 83,959 | ||||||
Total Automobiles | 200,352 | |||||||
Banks - 5.1% | ||||||||
Associated Banc-Corp | 2,890 | 71,817 | ||||||
BancorpSouth Bank | 2,327 | 73,999 | ||||||
Bank of Hawaii Corp. | 855 | 71,051 | ||||||
BOK Financial Corp. | 900 | 89,091 | ||||||
Citizens Financial Group, Inc. | 2,048 | 85,975 | ||||||
Commerce Bancshares, Inc. | 1,316 | 78,842 | ||||||
Cullen/Frost Bankers, Inc. | 791 | 83,901 | ||||||
First Horizon National Corp. | 3,815 | 71,836 | ||||||
First Republic Bank | 746 | 69,087 | ||||||
Fulton Financial Corp. | 3,953 | 70,166 | ||||||
M &T Bank Corp. | 454 | 83,699 | ||||||
People’s United Financial, Inc. | 3,912 | 72,998 | ||||||
Signature Bank (a) | 471 | 66,858 | ||||||
South State Corp. | 788 | 67,216 | ||||||
SVB Financial Group (a) | 375 | 90,004 | ||||||
Synovus Financial Corp. | 1,717 | 85,747 | ||||||
Valley National Bancorp | 6,001 | 74,772 | ||||||
Zions Bancorp | 1,674 | 88,270 | ||||||
Total Banks | 1,395,329 | |||||||
Biotechnology - 2.2% | ||||||||
Agios Pharmaceuticals, Inc. (a) | 1,203 | 98,381 | ||||||
Alnylam Pharmaceuticals, Inc. (a) | 1,369 | 163,048 | ||||||
BioMarin Pharmaceutical, Inc. (a) | 801 | 64,937 |
The accompanying notes are an integral part of these financial statements.
8
Etho Climate Leadership U.S. ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Fair Value | |||||||
Incyte Corp. (a) | 522 | $ | 43,498 | |||||
Ionis Pharmaceuticals, Inc. (a) | 1,749 | 77,096 | ||||||
Seattle Genetics, Inc. (a) ^ | 1,114 | 58,307 | ||||||
Vertex Pharmaceuticals, Inc. (a) | 642 | 104,633 | ||||||
Total Biotechnology | 609,900 | |||||||
Building Products - 2.1% | ||||||||
AO Smith Corp. | 1,378 | 87,627 | ||||||
Apogee Enterprises, Inc. | 1,184 | 51,326 | ||||||
Fortune Brands Home & Security, Inc. | 1,157 | 68,136 | ||||||
Lennox International, Inc. | 419 | 85,631 | ||||||
Masco Corp. | 2,072 | 83,792 | ||||||
Simpson Manufacturing Co., Inc. | 1,635 | 94,160 | ||||||
Trex Co., Inc. (a) | 1,011 | 109,966 | ||||||
Total Building Products | 580,638 | |||||||
Capital Markets - 5.7% | ||||||||
Ares Management LP | 3,731 | 79,843 | ||||||
BlackRock, Inc. | 182 | 98,593 | ||||||
Charles Schwab Corp. ^ | 1,722 | 89,923 | ||||||
CME Group, Inc. | 594 | 96,074 | ||||||
E*TRADE Financial Corp. (a) | 2,010 | 111,374 | ||||||
Interactive Brokers Group, Inc. | 2,026 | 136,228 | ||||||
Intercontinental Exchange, Inc. | 1,175 | 85,211 | ||||||
KKR & Co. LP | 3,905 | 79,272 | ||||||
Morningstar, Inc. | 896 | 85,586 | ||||||
MSCI, Inc. | 724 | 108,216 | ||||||
Northern Trust Corp. | 816 | 84,154 | ||||||
S&P Global, Inc. | 536 | 102,408 | ||||||
SEI Investments Co. | 1,398 | 104,724 | ||||||
T. Rowe Price Group, Inc. ^ | 1,034 | 111,641 | ||||||
TD Ameritrade Holding Corp. | 1,814 | 107,443 | ||||||
Westwood Holdings Group, Inc. | 1,328 | 75,019 | ||||||
Total Capital Markets | 1,555,709 | |||||||
Chemicals - 2.8% | ||||||||
Albemarle Corp. | 663 | 61,487 | ||||||
Celanese Corp. | 787 | 78,865 | ||||||
Ecolab, Inc. | 562 | 77,033 | ||||||
FMC Corp. | 1,011 | 77,412 | ||||||
International Flavors & Fragrances, Inc. | 531 | 72,699 | ||||||
PPG Industries, Inc. | 672 | 74,995 | ||||||
RPM International, Inc. | 1,285 | 61,256 | ||||||
Sherwin-Williams Co. | 226 | 88,619 | ||||||
Westlake Chemical Corp. | 1,063 | 118,153 | ||||||
WR Grace & Co. | 1,011 | 61,904 | ||||||
Total Chemicals | 772,423 | |||||||
Commercial Services & Supplies - 1.1% | ||||||||
Brink’s Co. | 1,317 | 93,968 | ||||||
Cintas Corp. | 552 | 94,160 |
The accompanying notes are an integral part of these financial statements.
9
Etho Climate Leadership U.S. ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Fair Value | |||||||
Copart, Inc. (a) | 2,266 | $ | 115,407 | |||||
Total Commercial Services & Supplies | 303,535 | |||||||
Communications Equipment - 1.0% | ||||||||
Cisco Systems, Inc. | 2,089 | 89,597 | ||||||
F5 Networks, Inc. (a) | 489 | 70,714 | ||||||
Palo Alto Networks, Inc. (a) | 624 | 113,269 | ||||||
Total Communications Equipment | 273,580 | |||||||
Construction & Engineering - 0.8% | ||||||||
AECOM (a) | 1,973 | 70,298 | ||||||
EMCOR Group, Inc. | 1,114 | 86,814 | ||||||
Jacobs Engineering Group, Inc. | 1,272 | 75,239 | ||||||
Total Construction & Engineering | 232,351 | |||||||
Construction Materials - 0.5% | ||||||||
Martin Marietta Materials, Inc. | 322 | 66,751 | ||||||
Vulcan Materials Co. | 582 | 66,447 | ||||||
Total Construction Materials | 133,198 | |||||||
Containers & Packaging - 0.6% | ||||||||
AptarGroup, Inc. | 915 | 82,195 | ||||||
Sealed Air Corp. | 1,617 | 69,191 | ||||||
Total Containers & Packaging | 151,386 | |||||||
Distributors - 0.6% | ||||||||
Genuine Parts Co. | 761 | 68,368 | ||||||
LKQ Corp. (a) | 2,401 | 91,118 | ||||||
Total Distributors | 159,486 | |||||||
Diversified Consumer Services - 0.3% | ||||||||
H&R Block, Inc. ^ | 3,043 | 77,323 | ||||||
Diversified Financial Services - 0.7% | ||||||||
Cannae Holdings, Inc. (a) | 5,302 | 99,996 | ||||||
Voya Financial, Inc. | 1,848 | 93,324 | ||||||
Total Diversified Financial Services | 193,320 | |||||||
Diversified Telecommunication Services - 0.3% | ||||||||
Zayo Group Holdings, Inc. (a) | 2,134 | 72,897 | ||||||
Electric Utilities - 1.4% | ||||||||
Avangrid, Inc. | 1,654 | 84,552 | ||||||
Eversource Energy | 1,203 | 70,881 | ||||||
IDACORP, Inc. | 853 | 75,294 | ||||||
NextEra Energy, Inc. | 549 | 89,668 | ||||||
PPL Corp. | 1,893 | 53,553 | ||||||
Total Electric Utilities | 373,948 | |||||||
Electrical Equipment - 2.0% | ||||||||
Acuity Brands, Inc. | 342 | 47,603 | ||||||
AMETEK, Inc. | 1,301 | 98,838 | ||||||
Emerson Electric Co. | 1,178 | 80,457 | ||||||
Generac Holdings, Inc. (a) | 1,881 | 86,357 | ||||||
Hubbell, Inc. | 585 | 71,241 | ||||||
Rockwell Automation, Inc. | 452 | 78,738 |
The accompanying notes are an integral part of these financial statements.
10
Etho Climate Leadership U.S. ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Fair Value | |||||||
Sensata Technologies Holding PLC (a) | 1,607 | $ | 83,291 | |||||
Total Electrical Equipment | 546,525 | |||||||
Electronic Equipment, Instruments & Components - 4.7% | ||||||||
Amphenol Corp. | 985 | 84,838 | ||||||
AVX Corp. | 4,313 | 71,380 | ||||||
Badger Meter, Inc. | 1,914 | 90,245 | ||||||
CDW Corp. | 1,220 | 85,778 | ||||||
Dolby Laboratories, Inc. | 1,346 | 85,552 | ||||||
IPG Photonics Corp. (a) | 581 | 135,594 | ||||||
Itron, Inc. (a) | 1,156 | 82,712 | ||||||
Keysight Technologies, Inc. (a) | 1,942 | 101,741 | ||||||
Littelfuse, Inc. | 438 | 91,183 | ||||||
National Instruments Corp. | 2,167 | 109,585 | ||||||
OSI Systems, Inc. (a) | 962 | 62,790 | ||||||
Trimble, Inc. (a) | 2,195 | 78,757 | ||||||
Universal Display Corp. | 817 | 82,517 | ||||||
Zebra Technologies Corp. (a) | 770 | 107,176 | ||||||
Total Electronic Equipment, Instruments & Components | 1,269,848 | |||||||
Food & Staples Retailing - 0.7% | ||||||||
Costco Wholesale Corp. ^ | 432 | 81,402 | ||||||
PriceSmart, Inc. | 759 | 63,414 | ||||||
Walgreens Boots Alliance, Inc. | 849 | 55,584 | ||||||
Total Food & Staples Retailing | 200,400 | |||||||
Food Products - 0.7% | ||||||||
Kraft Heinz Co. | 775 | 48,275 | ||||||
McCormick & Co., Inc. | 722 | 76,813 | ||||||
Pinnacle Foods, Inc. | 1,219 | 65,948 | ||||||
Total Food Products | 191,036 | |||||||
Health Care Equipment & Supplies - 2.9% | ||||||||
Align Technology, Inc. (a) | 612 | 153,692 | ||||||
Boston Scientific Corp. (a) | 2,823 | 77,124 | ||||||
Cooper Cos. | 352 | 80,541 | ||||||
DexCom, Inc. (a) ^ | 825 | 61,182 | ||||||
Edwards Lifesciences Corp. (a) | 744 | 103,803 | ||||||
GenMark Diagnostics, Inc. (a) | 5,480 | 29,811 | ||||||
IDEXX Laboratories, Inc. (a) | 453 | 86,700 | ||||||
Intuitive Surgical, Inc. (a) | 266 | 109,813 | ||||||
Stryker Corp. | 533 | 85,770 | ||||||
Total Health Care Equipment & Supplies | 788,436 | |||||||
Health Care Providers & Services - 3.0% | ||||||||
Aetna, Inc. | 551 | 93,119 | ||||||
AMN Healthcare Services, Inc. (a) | 1,730 | 98,178 | ||||||
Anthem, Inc. | 423 | 92,933 | ||||||
Centene Corp. (a) | 983 | 105,054 | ||||||
Cigna Corp. | 480 | 80,515 | ||||||
Humana, Inc. | 340 | 91,402 | ||||||
Laboratory Corp. of America Holdings (a) | 487 | 78,772 |
The accompanying notes are an integral part of these financial statements.
11
Etho Climate Leadership U.S. ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Fair Value | |||||||
MEDNAX, Inc. (a) | 1,012 | $ | 56,298 | |||||
Quest Diagnostics, Inc. | 714 | 71,614 | ||||||
UnitedHealth Group, Inc. | 426 | 91,164 | ||||||
Total Health Care Providers & Services | 859,049 | |||||||
Health Care Technology - 0.5% | ||||||||
Allscripts Healthcare Solutions, Inc. (a) ^ | 5,541 | 68,431 | ||||||
Cerner Corp. (a) | 1,191 | 69,078 | ||||||
Total Health Care Technology | 137,509 | |||||||
Hotels, Restaurants & Leisure - 0.6% | ||||||||
Choice Hotels International, Inc. | 1,124 | 90,089 | ||||||
Starbucks Corp. | 1,206 | 69,815 | ||||||
Total Hotels, Restaurants & Leisure | 159,904 | |||||||
Household Durables - 0.5% | ||||||||
KB Home ^ | 3,540 | 100,713 | ||||||
Newell Brands, Inc. | 1,494 | 38,067 | ||||||
Total Household Durables | 138,780 | |||||||
Household Products - 0.2% | ||||||||
Spectrum Brands Holdings, Inc. ^ | 503 | 52,161 | ||||||
Independent Power and Renewable Electricity Producers - 1.0% | ||||||||
NextEra Energy Partners LP | 2,149 | 85,939 | ||||||
NRG Yield, Inc. | 4,087 | 67,190 | ||||||
Ormat Technologies, Inc. | 1,232 | 69,460 | ||||||
Pattern Energy Group, Inc. ^ | 3,537 | 61,155 | ||||||
Total Independent Power and Renewable Electricity Producers | 283,744 | |||||||
Industrial Conglomerates - 1.3% | ||||||||
3M Co. | 369 | 81,003 | ||||||
Carlisle Cos., Inc. | 660 | 68,911 | ||||||
General Electric Co. ^ | 2,373 | 31,988 | ||||||
Honeywell International, Inc. | 563 | 81,359 | ||||||
Roper Technologies, Inc. | 339 | 95,154 | ||||||
Total Industrial Conglomerates | 358,415 | |||||||
Insurance - 2.7% | ||||||||
Aflac, Inc. ^ | 1,952 | 85,420 | ||||||
Alleghany Corp. | 114 | 70,046 | ||||||
Brown & Brown, Inc. | 3,374 | 85,835 | ||||||
Cincinnati Financial Corp. | 978 | 72,626 | ||||||
Citizens, Inc. (a) ^ | 9,459 | 69,240 | ||||||
Markel Corp. (a) | 70 | 81,918 | ||||||
Marsh & McLennan Cos., Inc. | 951 | 78,543 | ||||||
Torchmark Corp. | 913 | 76,847 | ||||||
Travelers Cos., Inc. | 583 | 80,955 | ||||||
Total Insurance | 701,430 | |||||||
Internet & Direct Marketing Retail - 1.7% | ||||||||
Amazon.com, Inc. (a) | 80 | 115,787 | ||||||
Booking Holdings, Inc. (a) | 37 | 76,974 | ||||||
Expedia Group, Inc. | 554 | 61,167 |
The accompanying notes are an integral part of these financial statements.
12
Etho Climate Leadership U.S. ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Fair Value | |||||||
Netflix, Inc. (a) | 472 | $ | 139,406 | |||||
TripAdvisor, Inc. (a) | 1,625 | 66,446 | ||||||
Total Internet & Direct Marketing Retail | 459,780 | |||||||
Internet Software & Services - 1.4% | ||||||||
CommerceHub, Inc. - Series A (a) | 4,537 | 102,083 | ||||||
Facebook, Inc. (a) | 496 | 79,256 | ||||||
VeriSign, Inc. (a) ^ | 805 | 95,441 | ||||||
Zillow Group, Inc. (a) ^ | 2,087 | 112,280 | ||||||
Total Internet Software & Services | 389,060 | |||||||
IT Services - 4.2% | ||||||||
Automatic Data Processing, Inc. | 689 | 78,188 | ||||||
Broadridge Financial Solutions, Inc. | 1,034 | 113,419 | ||||||
Cognizant Technology Solutions Corp. | 1,178 | 94,829 | ||||||
Fidelity National Information Services, Inc. | 884 | 85,129 | ||||||
Fiserv, Inc. (a) | 1,220 | 86,998 | ||||||
FleetCor Technologies, Inc. (a) | 464 | 93,960 | ||||||
Global Payments, Inc. | 869 | 96,911 | ||||||
MasterCard, Inc. | 625 | 109,475 | ||||||
Paychex, Inc. ^ | 1,205 | 74,216 | ||||||
PayPal Holdings, Inc. (a) | 1,633 | 123,896 | ||||||
Visa, Inc. | 789 | 94,380 | ||||||
Worldpay, Inc. (a) | 1,094 | 89,971 | ||||||
Total IT Services | 1,141,372 | |||||||
Leisure Products - 0.2% | ||||||||
Hasbro, Inc. | 707 | 59,600 | ||||||
Life Sciences Tools & Services - 1.4% | ||||||||
Bio-Techne Corp. | 692 | 104,519 | ||||||
Illumina, Inc. (a) | 409 | 96,696 | ||||||
IQVIA Holdings, Inc. (a) | 870 | 85,356 | ||||||
Waters Corp. (a) | 450 | 89,393 | ||||||
Total Life Sciences Tools & Services | 375,964 | |||||||
Machinery - 4.8% | ||||||||
Crane Co. | 944 | 87,547 | ||||||
Donaldson Co., Inc. | 1,546 | 69,647 | ||||||
Flowserve Corp. | 1,456 | 63,088 | ||||||
Graco, Inc. | 2,242 | 102,504 | ||||||
Hillenbrand, Inc. | 1,970 | 90,423 | ||||||
IDEX Corp. | 754 | 107,453 | ||||||
Illinois Tool Works, Inc. | 531 | 83,186 | ||||||
ITT, Inc. | 1,716 | 84,050 | ||||||
Lincoln Electric Holdings, Inc. | 809 | 72,770 | ||||||
Middleby Corp. (a) | 514 | 63,628 | ||||||
Snap-on, Inc. ^ | 418 | 61,672 | ||||||
Tennant Co. | 967 | 65,466 | ||||||
Toro Co. | 1,126 | 70,319 | ||||||
WABCO Holdings, Inc. (a) | 597 | 79,920 | ||||||
Wabtec Corp. | 900 | 73,260 |
The accompanying notes are an integral part of these financial statements.
13
Etho Climate Leadership U.S. ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Fair Value | |||||||
Xylem, Inc. | 1,401 | $ | 107,764 | |||||
Total Machinery | 1,282,697 | |||||||
Media - 1.5% | ||||||||
Charter Communications, Inc. (a) | 213 | 66,290 | ||||||
Comcast Corp. | 1,874 | 64,035 | ||||||
Liberty Broadband Corp. (a) | 823 | 69,790 | ||||||
Sirius XM Holdings, Inc. ^ | 13,667 | 85,282 | ||||||
Time Warner, Inc. | 722 | 68,287 | ||||||
Walt Disney Co. | 618 | 62,072 | ||||||
Total Media | 415,756 | |||||||
Metals & Mining - 1.2% | ||||||||
Compass Minerals International, Inc. ^ | 1,044 | 62,953 | ||||||
Nucor Corp. | 1,184 | 72,331 | ||||||
Reliance Steel & Aluminum Co. | 882 | 75,623 | ||||||
Schnitzer Steel Industries, Inc. | 3,444 | 111,413 | ||||||
Total Metals & Mining | 322,320 | |||||||
Multiline Retail - 0.3% | ||||||||
Dollar Tree, Inc. (a) | 896 | 85,030 | ||||||
Multi-Utilities - 0.8% | ||||||||
CenterPoint Energy, Inc. | 2,567 | 70,336 | ||||||
Consolidated Edison, Inc. | 912 | 71,081 | ||||||
MDU Resources Group, Inc. | 2,581 | 72,681 | ||||||
Total Multi-Utilities | 214,098 | |||||||
Personal Products - 0.3% | ||||||||
Coty, Inc. | 3,896 | 71,297 | ||||||
Pharmaceuticals - 1.4% | ||||||||
Bristol-Myers Squibb Co. | 1,298 | 82,099 | ||||||
Johnson & Johnson | 565 | 72,405 | ||||||
Merck & Co, Inc. | 1,110 | 60,462 | ||||||
Pfizer, Inc. | 2,082 | 73,890 | ||||||
Zoetis, Inc. | 1,318 | 110,065 | ||||||
Total Pharmaceuticals | 398,921 | |||||||
Professional Services - 1.0% | ||||||||
Dun & Bradstreet Corp. | 650 | 76,050 | ||||||
Equifax, Inc. | 515 | 60,672 | ||||||
Nielsen Holdings PLC | 1,716 | 54,552 | ||||||
Verisk Analytics, Inc. (a) | 866 | 90,064 | ||||||
Total Professional Services | 281,338 | |||||||
Road & Rail - 0.2% | ||||||||
AMERCO | 182 | 62,808 | ||||||
Real Estate Investment Trusts (REITs) - 3.4% | ||||||||
Alexandria Real Estate Equities, Inc. | 640 | 79,930 | ||||||
AvalonBay Communities, Inc. | 385 | 63,317 | ||||||
Crown Castle International Corp. | 746 | 81,769 | ||||||
Digital Realty Trust, Inc. | 662 | 69,762 | ||||||
Essex Property Trust, Inc. | 305 | 73,407 | ||||||
Extra Space Storage, Inc. ^ | 950 | 82,992 |
The accompanying notes are an integral part of these financial statements.
14
Etho Climate Leadership U.S. ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Fair Value | |||||||
Federal Realty Investment Trust | 529 | $ | 61,422 | |||||
Hannon Armstrong Sustainable Infrastructure Capital, Inc. | 3,512 | 68,484 | ||||||
Kimco Realty Corp. | 3,210 | 46,224 | ||||||
Prologis, Inc. | 1,363 | 85,855 | ||||||
Realty Income Corp. | 1,190 | 61,559 | ||||||
Regency Centers Corp. | 1,063 | 62,696 | ||||||
SBA Communications Corp. (a) | 581 | 99,304 | ||||||
Total Real Estate Investment Trusts (REITs) | 936,721 | |||||||
Semiconductors & Semiconductor Equipment - 7.2% | ||||||||
Analog Devices, Inc. | 858 | 78,190 | ||||||
Applied Materials, Inc. | 1,809 | 100,598 | ||||||
Cypress Semiconductor Corp. | 5,141 | 87,191 | ||||||
First Solar, Inc. (a) | 2,595 | 184,194 | ||||||
Integrated Device Technology, Inc. (a) | 2,967 | 90,672 | ||||||
Intel Corp. ^ | 1,969 | 102,546 | ||||||
KLA-Tencor Corp. | 741 | 80,776 | ||||||
Lam Research Corp. ^ | 548 | 111,332 | ||||||
Maxim Integrated Products, Inc. | 1,571 | 94,606 | ||||||
Microchip Technology, Inc. | 953 | 87,066 | ||||||
NVIDIA Corp. | 645 | 149,376 | ||||||
ON Semiconductor Corp. (a) ^ | 4,535 | 110,926 | ||||||
Power Integrations, Inc. | 1,072 | 73,271 | ||||||
Qorvo, Inc. (a) ^ | 1,025 | 72,211 | ||||||
QUALCOMM, Inc. | 1,235 | 68,431 | ||||||
Rambus, Inc. (a) | 5,348 | 71,824 | ||||||
Skyworks Solutions, Inc. | 720 | 72,187 | ||||||
SunPower Corp. (a) ^ | 11,537 | 92,065 | ||||||
Teradyne, Inc. | 2,261 | 103,350 | ||||||
Texas Instruments, Inc. | 880 | 91,423 | ||||||
Xilinx, Inc. | 1,219 | 88,061 | ||||||
Total Semiconductors & Semiconductor Equipment | 2,010,296 | |||||||
Software - 4.0% | ||||||||
Activision Blizzard, Inc. | 1,409 | 95,051 | ||||||
Adobe Systems, Inc. (a) | 537 | 116,035 | ||||||
ANSYS, Inc. (a) | 658 | 103,102 | ||||||
Autodesk, Inc. (a) | 810 | 101,720 | ||||||
Intuit, Inc. | 602 | 104,357 | ||||||
Red Hat, Inc. (a) | 809 | 120,954 | ||||||
salesforce.com, Inc. (a) | 852 | 99,088 | ||||||
ServiceNow, Inc. (a) | 803 | 132,856 | ||||||
Splunk, Inc. (a) | 1,126 | 110,787 | ||||||
Workday, Inc. (a) | 840 | 106,772 | ||||||
Total Software | 1,090,722 | |||||||
Specialty Retail - 2.8% | ||||||||
Advance Auto Parts, Inc. | 471 | 55,837 | ||||||
AutoZone, Inc. (a) | 97 | 62,923 | ||||||
Foot Locker, Inc. | 946 | 43,081 | ||||||
L Brands, Inc. | 1,506 | 57,544 |
The accompanying notes are an integral part of these financial statements.
15
Etho Climate Leadership U.S. ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Fair Value | |||||||
O’Reilly Automotive, Inc. (a) | 259 | $ | 64,071 | |||||
Ross Stores, Inc. | 1,065 | 83,050 | ||||||
The Home Depot, Inc. | 481 | 85,734 | ||||||
Tiffany & Co. | 740 | 72,268 | ||||||
TJX Cos, Inc. | 888 | 72,425 | ||||||
Tractor Supply Co. | 1,018 | 64,154 | ||||||
Ulta Beauty, Inc. (a) | 245 | 50,046 | ||||||
Williams-Sonoma, Inc. ^ | 1,321 | 69,696 | ||||||
Total Specialty Retail | 780,829 | |||||||
Technology Hardware, Storage & Peripherals - 1.1% | ||||||||
3D Systems Corp. (a) ^ | 4,695 | 54,415 | ||||||
Apple, Inc. | 488 | 81,877 | ||||||
Hewlett Packard Enterprise Co. | 2,970 | 52,094 | ||||||
NetApp, Inc. | 1,684 | 103,885 | ||||||
Total Technology Hardware, Storage & Peripherals | 292,271 | |||||||
Textiles, Apparel & Luxury Goods - 2.6% | ||||||||
Hanesbrands, Inc. ^ | 3,402 | 62,665 | ||||||
Lululemon Athletica, Inc. (a) | 1,352 | 120,491 | ||||||
NIKE, Inc. | 1,264 | 83,980 | ||||||
PVH Corp. | 677 | 102,518 | ||||||
Ralph Lauren Corp. | 866 | 96,819 | ||||||
Tapestry, Inc. | 1,712 | 90,068 | ||||||
Under Armour, Inc. (a) ^ | 3,841 | 55,118 | ||||||
VF Corp. | 1,285 | 95,244 | ||||||
Total Textiles, Apparel & Luxury Goods | 706,903 | |||||||
Thrifts & Mortgage Finance - 1.2% | ||||||||
Bear State Financial, Inc. | 7,509 | 76,967 | ||||||
Capitol Federal Financial, Inc. | 4,901 | 60,527 | ||||||
New York Community Bancorp, Inc. | 5,123 | 66,753 | ||||||
TFS Financial Corp. | 4,258 | 62,550 | ||||||
Washington Federal, Inc. ^ | 2,131 | 73,733 | ||||||
Total Thrifts & Mortgage Finance | 340,530 | |||||||
Trading Companies & Distributors - 2.0% | ||||||||
Air Lease Corp. | 1,814 | 77,313 | ||||||
Fastenal Co. | 1,378 | 75,225 | ||||||
GATX Corp. | 1,157 | 79,243 | ||||||
MSC Industrial Direct Co., Inc. | 689 | 63,188 | ||||||
United Rentals, Inc. (a) | 561 | 96,901 | ||||||
WESCO International, Inc. (a) | 1,010 | 62,671 | ||||||
WW Grainger, Inc. | 304 | 85,810 | ||||||
Total Trading Companies & Distributors | 540,351 | |||||||
Water Utilities - 1.1% | ||||||||
American States Water Co. | 1,591 | 84,418 | ||||||
American Water Works Co., Inc. | 906 | 74,410 | ||||||
Aqua America, Inc. | 2,196 | 74,796 | ||||||
Middlesex Water Co. | 1,910 | 70,097 | ||||||
Total Water Utilities | 303,721 | |||||||
Total United States | 25,703,133 |
The accompanying notes are an integral part of these financial statements.
16
Etho Climate Leadership U.S. ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Fair Value | |||||||
Virgin Islands (UK) - 0.4% | ||||||||
Textiles, Apparel & Luxury Goods - 0.4% | ||||||||
Michael Kors Holdings Ltd. (a) | 1,843 | $ | 114,414 | |||||
TOTAL COMMON STOCKS (Cost $23,803,150) | 27,173,705 | |||||||
SHORT-TERM INVESTMENTS - 0.9% | ||||||||
Money Market Funds - 0.9% | ||||||||
Invesco Advisers, Inc. STIT - Treasury Portfolio - Institutional Class, 1.57% (b) | 252,122 | 252,122 | ||||||
TOTAL SHORT-TERM INVESTMENTS (Cost $252,122) | 252,122 | |||||||
INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL - 8.8% | ||||||||
Investment Companies - 8.8% | ||||||||
Mount Vernon Liquid Assets Portfolio, LLC, 1.89% (b) + | 2,404,178 | |||||||
TOTAL INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL (Cost $2,404,178) | 2,404,178 | |||||||
Total Investments (Cost $26,459,450) - 108.7% | 29,830,005 | |||||||
Liabilities in Excess of Other Assets - (8.7)% | (2,382,855 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 27,447,150 |
Percentages are stated as a percent of net assets.
ADR | American Depositary Receipt. |
(a) | Non-income producing security. |
(b) | The rate quoted is the annualized seven-day yield at March 31, 2018. |
+ | Investments purchased with cash proceeds from securities lending. Total cash collateral has a value of $2,404,178 as of March 31, 2018. |
^ | All or a portion of this security is out on loan as of March 31, 2018. Total value of securities out on loan is $2,384,709. |
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
17
Etho Climate Leadership U.S. ETF
As of March 31, 2018 (Unaudited)
Etho Climate Leadership U.S. ETF | ||||
ASSETS | ||||
Investments in securities, at fair value* | $ | 29,830,005 | ||
Cash | 7,089 | |||
Receivables: | ||||
Dividends and interest receivable | 21,638 | |||
Securities lending income receivable | 3,243 | |||
Total Assets | 29,861,975 | |||
LIABILITIES | ||||
Collateral received for securities loaned (Note 7) | 2,404,178 | |||
Payables: | ||||
Unitary fees payable | 10,647 | |||
Total Liabilities | 2,414,825 | |||
Net Assets | $ | 27,447,150 | ||
NET ASSETS CONSIST OF: | ||||
Paid-in Capital | $ | 24,112,217 | ||
Undistributed (accumulated) net investment income | 32,585 | |||
Accumulated net realized loss on investments | (68,207 | ) | ||
Net unrealized appreciation on: | ||||
Investments in securities | 3,370,555 | |||
Net Assets | $ | 27,447,150 | ||
*Identified Cost: | ||||
Investments in unaffiliated securities | $ | 26,459,450 | ||
Shares Outstanding^ | 800,000 | |||
Net Asset Value, Offering and Redemption Price per Share | $ | 34.31 |
^ No par value, unlimited number of shares authorized
The accompanying notes are an integral part of these financial statements.
18
Etho Climate Leadership U.S. ETF
Six Months Ended March 31, 2018 (Unaudited)
Etho Climate Leadership U.S. ETF | ||||
INVESTMENT INCOME | ||||
Income: | ||||
Dividends from unaffiliated securities (net of foreign withholding tax of $76) | $ | 153,280 | ||
Interest | 877 | |||
Securities lending income | 10,412 | |||
Total Investment Income | 164,569 | |||
Expenses: | ||||
Unitary fees | 54,709 | |||
Net Investment Income | 109,860 | |||
REALIZED & UNREALIZED GAIN ON INVESTMENTS | ||||
Net Realized Gain on: | ||||
Unaffiliated investments | 11,737 | |||
Net Realized Gain on Investments and In-Kind Redemptions | 11,737 | |||
Net Change in Unrealized Appreciation of: | ||||
Unaffiliated investments | 1,387,636 | |||
Net Realized and Unrealized Gain on Investments | 1,399,373 | |||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 1,509,233 |
The accompanying notes are an integral part of these financial statements.
19
Etho Climate Leadership U.S. ETF
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | |||||||
OPERATIONS | ||||||||
Net investment income | $ | 109,860 | $ | 128,439 | ||||
Net realized gain on investments and In-Kind Redemptions | 11,737 | 416,202 | ||||||
Net change in unrealized appreciation of investments | 1,387,636 | 1,768,693 | ||||||
Net increase in net assets resulting from operations | 1,509,233 | 2,313,334 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income | (102,363 | ) | (109,859 | ) | ||||
From net realized gain | (11,823 | ) | (40,845 | ) | ||||
Total Distributions to Shareholders | (114,186 | ) | (150,704 | ) | ||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase in net assets derived from net change in outstanding shares (a) | 6,844,300 | 10,294,350 | ||||||
Net increase in net assets | $ | 8,239,347 | $ | 12,456,980 | ||||
NET ASSETS | ||||||||
Beginning of Period | 19,207,803 | 6,750,823 | ||||||
End of Period | $ | 27,447,150 | $ | 19,207,803 | ||||
Undistributed net investment income | $ | 32,585 | $ | 25,088 |
(a) Summary of share transactions is as follows:
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 200,000 | $ | 6,844,300 | 450,000 | $ | 13,209,550 | ||||||||||
Shares Redeemed | — | — | (100,000 | ) | (2,915,200 | ) | ||||||||||
Net Transactions in Fund Shares | 200,000 | $ | 6,844,300 | 350,000 | $ | 10,294,350 | ||||||||||
Beginning Shares | 600,000 | 250,000 | ||||||||||||||
Ending Shares | 800,000 | 600,000 |
The accompanying notes are an integral part of these financial statements.
20
Etho Climate Leadership U.S. ETF
For a capital share outstanding throughout the period
Six Months Ended March 31, 2018 (Unaudited) | Year Ended September 30, 2017 | Period Ended September 30, 20161 | ||||||||||
Net Asset Value, Beginning of Period | $ | 32.01 | $ | 27.00 | $ | 25.00 | ||||||
Income from Investment Operations: | ||||||||||||
Net investment income 2 | 0.15 | 0.31 | 0.23 | |||||||||
Net realized and unrealized gain on investments | 2.31 | 5.09 | 1.87 | |||||||||
Total from investment operations | 2.46 | 5.40 | 2.10 | |||||||||
Less Distributions: | ||||||||||||
Distributions from net investment income | (0.14 | ) | (0.25 | ) | (0.10 | ) | ||||||
Distributions from net realized gain | (0.02 | ) | (0.14 | ) | — | |||||||
Total distributions | (0.16 | ) | (0.39 | ) | (0.10 | ) | ||||||
Net asset value, end of period | $ | 34.31 | $ | 32.01 | $ | 27.00 | ||||||
Total Return | 7.66 | %3 | 20.14 | % | 8.43 | %3 | ||||||
Ratios/Supplemental Data: | ||||||||||||
Net assets at end of period (000’s) | $ | 27,447 | $ | 19,208 | $ | 6,751 | ||||||
Expenses to Average Net Assets | 0.45 | %4 | 0.45 | % | 0.50 | %4 | ||||||
Net Investment Income to Average Net Assets | 0.90 | %4 | 1.03 | % | 1.04 | %4 | ||||||
Portfolio Turnover Rate | 0 | %3 | 45 | % | 25 | %3 |
1 | Commencement of operations on November 18, 2015. |
2 | Calculated based on average shares outstanding during the period. |
3 | Not annualized. |
4 | Annualized. |
The accompanying notes are an integral part of these financial statements.
21
Etho Climate Leadership U.S. ETF
March 31, 2018 (Unaudited)
NOTE 1 – ORGANIZATION
Etho Climate Leadership U.S. ETF (the “Fund”) is a series of ETF Managers Trust (the “Trust”), an open-end management investment company consisting of multiple investment series, organized as a Delaware statutory trust on July 1, 2009. The Trust is registered with the SEC under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company and the offering of the Fund’s shares (“Shares”) is registered under the Securities Act of 1933, as amended (the “Securities Act”). The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Etho Climate Leadership Index™ Index (“the Index”). The Fund commenced operations on November 18, 2015.
The Fund currently offers one class of shares, which has no front end sales load, no deferred sales charges, and no redemption fees. The Fund may issue an unlimited number of shares of beneficial interest, with no par value. All shares of the Fund have equal rights and privileges.
Shares of the Fund are listed and traded on the NYSE Arca, Inc. Market prices for the Shares may be different from their net asset value (“NAV”). The Fund issues and redeems Shares on a continuous basis at NAV only in blocks of 50,000 shares, called “Creation Units.” Creation Units are issued and redeemed principally in-kind for securities included in the Index. Once created, Shares generally trade in the secondary market at market prices that change throughout the day in quantities less than a Creation Unit. Except when aggregated in Creation Units, Shares are not redeemable securities of the Fund. Shares of the Fund may only be purchased or redeemed by certain financial institutions (“Authorized Participants”). An Authorized Participant is either (i) a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a DTC participant and, in each case, must have executed a Participant Agreement with the Distributor. Most retail investors do not qualify as Authorized Participants nor have the resources to buy and sell whole Creation Units. Therefore, they are unable to purchase or redeem the Shares directly from the Fund. Rather, most retail investors may purchase Shares in the secondary market with the assistance of a broker and may be subject to customary brokerage commissions or fees.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946 Financial Services –Investment Companies.
The Fund may invest in certain other investment companies (underlying funds). For specific investments in underlying funds, please refer to the complete schedule of portfolio holdings on Form N-CSR(S) for this reporting period, which is filed with the U.S. Securities and Exchange Commission (SEC). For more information about the underlying Fund’s operations and policies, please refer to those Funds’ semiannual and annual reports, which are filed with the SEC.
A. | Security Valuation. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on NASDAQ), including securities traded over the counter, are valued at the last quoted sale price on the primary exchange or market (foreign or domestic) on which they are traded on the valuation date (or at approximately 4:00 pm Eastern Time if a security’s primary exchange is normally open at that time), or, if there is no such reported sale on the valuation date, at the most recent quoted bid price. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. |
22
Etho Climate Leadership U.S. ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
Securities for which quotations are not readily available are valued at their respective fair values as determined in good faith by the Board of Trustees (the “Board”). When a security is “fair valued,” consideration is given to the facts and circumstances relevant to the particular situation, including a review of various factors set forth in the pricing procedures adopted by the Fund’s Board. The use of fair value pricing by the Fund may cause the net asset value of its shares to differ significantly from the net asset value that would be calculated without regard to such considerations. As of March 31, 2018, the Fund did not hold any fair valued securities.
As described above, the Fund utilizes various methods to measure the fair value of its investments on a recurring basis. U.S. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are:
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access. |
Level 2 | Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 | Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
23
Etho Climate Leadership U.S. ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
The following table presents a summary of the Funds’ investments in securities, at fair value, as of March 31, 2018:
Etho Climate Leadership U.S. ETF | ||||||||||||||||
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 27,173,705 | $ | — | $ | — | $ | 27,173,705 | ||||||||
Short-Term Investments | 252,122 | — | — | 252,122 | ||||||||||||
Investments Purchased with Securities Lending | ||||||||||||||||
Collateral* | — | — | — | 2,404,178 | ||||||||||||
Total Investments in Securities | $ | 27,425,827 | $ | — | $ | — | $ | 29,830,005 |
^ See Schedule of Investments for classifications by sector or country.
* Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Schedule of Investments.
There were no transfers between Levels 1, 2 and 3 during the six months ended March 31, 2018. Transfers between levels are recognized at the end of the reporting period.
B. | Federal Income Taxes. The Fund has elected to be taxed as a “regulated investment company” and intends to distribute substantially all taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. Therefore, no provisions for federal income taxes or excise taxes have been made. |
To avoid imposition of the excise tax applicable to regulated investment companies, the Fund intends to declare each year as dividends, in each calendar year, at least 98.0% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts, if any, from prior years.
Net capital losses incurred after October 31, within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year.
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. The Fund has analyzed its tax position and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions expected to be taken in the Fund’s 2017 tax returns. The Fund identifies its major tax jurisdictions as U.S. Federal, the State of New Jersey, and the State of Delaware; however the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.
Management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the Fund, and has determined that no provision for income tax is required in the Fund’s financial statements.
C. | Security Transactions and Investment Income. Investment securities transactions are accounted for on the trade date. Gains and losses realized on sales of securities are determined on a specific identification basis. Discounts/premiums on debt securities purchased are accreted/amortized over the life of the respective securities using the effective interest method. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Income, including gains, from investments in foreign securities received by the Fund may be subject to income, withholding or other taxes imposed by foreign countries. |
24
Etho Climate Leadership U.S. ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
D. | Foreign Currency Translations and Transactions. The Fund may engage in foreign currency transactions. Foreign currency transactions are translated into U.S. dollars on the following basis: (i) market value of investment securities, assets and liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. For financial reporting purposes, the Fund does not isolate changes in the exchange rate of investment securities from the fluctuations arising from changes in the market prices of securities for unrealized gains and losses. However, for federal income tax purposes, the Fund does isolate and treat as ordinary income the effect of changes in foreign exchange rates on realized gains or losses from the sale of investment securities and payables and receivables arising from trade-date and settlement-date differences. |
E. | Distributions to Shareholders. Distributions to shareholders from net investment income, if any, are declared and paid by the Fund on a quarterly basis. Distributions to shareholders from net realized gains on securities of the Fund normally are declared and paid on an annual basis. Distributions are recorded on the ex-dividend date. |
F. | Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. |
G. | Share Valuation. The net asset value (“NAV”) per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding by the Fund, rounded to the nearest cent. The Fund’s shares will not be priced on the days on which the NYSE is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund’s net asset value per share. |
H. | Guarantees and Indemnifications. In the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote. |
NOTE 3 – RISK FACTORS
Investing in the Etho Climate Leadership U.S. ETF may involve certain risks, as discussed in the Fund’s prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.
Market Risk. Financial markets rise and fall in response to a variety of factors, sometimes rapidly and unpredictably. As with any investment whose performance is tied to these markets, the value of an investment in a fund will fluctuate, which means that an investor could lose money over short or long periods.
25
Etho Climate Leadership U.S. ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
Investment Style Risk. The Fund is not actively managed. Therefore, the Fund follows the securities included in its respective index during upturns as well as downturns. Because of its indexing strategy, the Fund does not take steps to reduce market exposure or to lessen the effects of a declining market. In addition, because of the Fund’s expenses, the Fund’s performance may be below that of its index.
Equity Risk. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles which may cause stock prices to fall over short or extended periods of time.
Securities Lending Risk. Securities lending involves the risk of loss of rights in, or delay in recovery of, the loaned securities if the borrower fails to return the security loaned or becomes insolvent.
Concentration Risk. To the extent that the Fund’s or its underlying index’s portfolio is concentrated in the securities of issuers in a particular market, industry, group of industries, sector or asset class, the Fund may be adversely affected by the performance of those securities, may be subject to increased price volatility and may be more vulnerable to adverse economic, market, political or regulatory occurrences affecting that market, industry, group of industries, sector or asset class.
NOTE 4 – COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS.
ETF Managers Group, LLC (the “Advisor”), serves as the investment advisor to the Fund. Pursuant to an Investment Advisory Agreement (“Advisory Agreement”) between the Trust, on behalf of the Fund, and the Advisor, the Advisor provides investment advice to the Fund and oversees the day-today operations of the Fund, subject to the direction and control of the Board and the officers of the Trust. Under the Advisory Agreement, the Advisor is also responsible for arranging transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Fund to operate.
Under the Investment Advisory Agreement with the Fund, the Advisor has overall responsibility for the general management and administration of the Fund and arranges for sub-advisory, transfer agency, custody, fund administration, securities lending, and all other non-distribution related services necessary for the Fund to operate. The Advisor bears the costs of all advisory and non-advisory services required to operate the Fund, in exchange for a single unitary fee. For services provided the Fund pays the Advisor at an annual rate of 0.45% of the Fund’s average daily net assets. The Advisor has an agreement with, and is dependent on, a third party to pay the Fund’s expenses in excess of 0.45% of the Fund’s average daily net assets. Additionally, under the Investment Advisory Agreement, the Advisor has agreed to pay all expenses of the Fund, except for: the fee paid to the Advisor pursuant to the Investment Advisory Agreement, interest charges on any borrowings, taxes, brokerage commissions and other expenses incurred in placing orders for the Purchase and sale of securities and other investment instruments, acquired fund fees and expenses, accrued deferred tax liability, extraordinary expenses, and distribution (12b-1) fees and expenses (collectively, “Excluded Expenses”). The Advisor has entered into an Agreement with Etho Climate Leadership U.S. (the “Sponsor”), under which the Sponsor agrees to sublicense the use of the Underlying Index to the Advisor. The Sponsor also provides marketing support for the Fund, including distributing marketing materials related to the Fund. Etho Climate Leadership U.S. is a privately held business focused on bringing exchange-traded investment products to investors in the U.S. The Sponsor does not make investment decisions, provide investment advice, or otherwise act in the capacity of an investment adviser to the Fund. Additionally, the Sponsor is not involved in the maintenance of the Underlying Index and does not otherwise act in the capacity of an index provider.
26
Etho Climate Leadership U.S. ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
U.S. Bancorp Fund Services, LLC (the “Administrator”) provides fund accounting, fund administration, and transfer agency services to the Fund. The Advisor compensates the Administrator for these services under an administration agreement between the two parties.
The Advisor pays each independent Trustee a quarterly fee for service to the Fund. Each Trustee is also reimbursed by the Advisor for all reasonable out-of-pocket expenses incurred in connection with his duties as Trustee, including travel and related expenses incurred in attending Board meetings.
NOTE 5 – DISTRIBUTION PLAN
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may pay compensation to the Distributor or any other distributor or financial institution with which the Trust has an agreement with respect to the Fund, with the amount of such compensation not to exceed an annual rate of 0.25% of each Fund’s average daily net assets. For the six months ended March 31, 2018, the Fund did not incur any 12b-1 expenses.
NOTE 6 - PURCHASES AND SALES OF SECURITIES
The costs of purchases and sales of securities, excluding short-term securities and in-kind transactions, for the six months ended March 31, 2018:
Purchases | Sales | |||||||
Etho Climate Leadership U.S. ETF | $ | 5,849 | $ | 19,490 |
The costs of purchases and sales of in-kind transactions associated with creations and redemptions for the six months ended March 31, 2018:
Purchases In-Kind | Sales In-Kind | |||||||
Etho Climate Leadership U.S. ETF | $ | 6,749,644 | $ | — |
Purchases in-kind are the aggregate of all in-kind purchases and sales in-kind are the aggregate of all proceeds from in-kind sales. Net capital gains or losses resulting from in-kind redemptions are excluded from the determination of the Fund’s taxable gains and are not distributed to shareholders.
There were no purchases or sales of U.S. Government obligations for the six months ended March 31, 2018.
NOTE 7 — SECURITIES LENDING
The Fund may lend up to 33 1/3% of the value of the securities in its portfolio to brokers, dealers and financial institutions (but not individuals) under terms of participation in a securities lending program administered by U.S. Bank N.A. (“the Custodian”). The securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 102% of the value of any loaned securities at the time of the loan, plus accrued interest. The Fund receives compensation in the form of fees and earn interest on the cash collateral. The amount of fees depends on a number of factors including the type of security and length of the loan. The Fund continues to receive interest payments or dividends on the securities loaned during the borrowing period. Gain or loss in the fair value of securities loaned that may occur during the term of the loan will be for the account of the Fund. The Fund has the right under the terms of the securities lending agreement to recall the securities from the borrower on demand. As of March 31, 2018, the Fund had loaned securities and received cash collateral for the loans. The cash collateral is invested by the Custodian in accordance with approved investment guidelines. Those guidelines require the cash collateral to be invested in readily marketable, high quality, short-term obligations; however, such investments are subject to risk of payment delays or default on the part of the issuer or counterparty or otherwise may not generate sufficient interest to support the costs associated with securities lending. The Fund could also experience delays in recovering its securities and possible loss of income or value if the borrower fails to return the borrowed securities, although the Fund is indemnified from this risk by contract with the securities lending agent.
27
Etho Climate Leadership U.S. ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
As of March 31, 2018, the value of the securities on loan and payable for collateral due to broker were as follows:
Value of Securities on Loan Collateral Received
Fund | Values of Securities on Loan | Fund Collateral Received* | ||||||
Etho Climate Leadership U.S. ETF | $ | 2,384,709 | $ | 2,404,178 |
* The cash collateral received was invested in the Mount Vernon Securities Lending Prime Portfolio as shown on the Schedule of Investments, an investment with an overnight and continuous maturity.
Interest income earned on collateral investments (including applicable fees) and recognized by the Fund during the six months ended March 31, 2018, aggregated $10,412.
NOTE 8 – FEDERAL INCOME TAXES
The components of distributable earnings (losses) and cost basis of investments for federal income tax purposes at September 30, 2017 were as follows:
Cost | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | |||||||||||||
Etho Climate Leadership U.S. ETF | $ | 20,030,574 | $ | 2,438,061 | $ | (534,890 | ) | $ | 1,903,171 |
Undistributed Ordinary Income | Undistributed Long-term Gain | Total Distributable Earnings | Other Accumulated Loss | Total Accumulated Gain | ||||||||||||||||
Etho Climate Leadership U.S. ETF | $ | 36,715 | $ | — | $ | 36,715 | $ | — | $ | 1,939,886 |
The difference between the tax cost of investments and the cost of investments for GAAP purposes is primarily due to the tax treatment of wash sale losses.
28
Etho Climate Leadership U.S. ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
As of September 30, 2017, the Fund had accumulated capital loss carryovers of:
Capital Loss Carryover | Expires | ||
Etho Climate Leadership U.S. ETF | None | Indefinite |
Under current tax law, capital and currency losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The Fund had deferred post-October capital and currency losses, which will be treated as arising on the first business day of the year ended September 30, 2017.
Late Year Ordinary Loss | Post-October Capital Loss | ||
Etho Climate Leadership U.S. ETF | None | None |
U.S. GAAP requires that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the fiscal year ended September 30, 2017, the following table shows the reclassifications made:
Undistributed Accumulated Net Investment Loss | Accumulated Net Realized Loss | Paid-In Capital | |||||||||||
Etho Climate Leadership U.S. ETF | $ | (408 | ) | $ | (474,494 | ) | $ | 474,902 |
NOTE 9 – DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid by the Fund during the fiscal years ended September 30, 2017 and September 30, 2016 are as follows:
Year Ended September 30, 2017 | Year Ended September 30, 2016 | |||||||||||||||
From Ordinary Income | From Capital Gains | From Ordinary Income | From Capital Gains | |||||||||||||
Etho Climate Leadership U.S. ETF | $ | 109,859 | $ | 40,845 | $ | 22,000 | $ | — |
NOTE 10 – SUBSEQUENT EVENTS
In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
29
Etho Climate Leadership U.S. ETF
For the Period Ended March 31, 2018 (Unaudited)
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on March 28, 2018, the Board of Trustees (the “Board”) of ETF Managers Trust (the “Trust”) considered the renewal of the Investment Advisory Agreement (the “Advisory Agreement”) between ETF Managers Group LLC (the “Adviser”) and the Trust, on behalf of Etho Climate Leadership U.S. ETF (the “Fund”).
Pursuant to Section 15(c) of the 1940 Act, the Board must annually review and approve the Advisory Agreement after its initial two-year term: (i) by the vote of the Trustees or by a vote of the shareholders of the Fund; and (ii) by the vote of a majority of the Trustees who are not parties to the Advisory Agreement or “interested persons” of any party thereto, as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. Each year, the Board calls and holds a meeting to decide whether to renew the Advisory Agreement for an additional one-year term. In preparation for such meeting, the Board requests and reviews a wide variety of information from the Adviser.
In reaching its decision, the Board, including the Independent Trustees, considered all factors it believed relevant, including: (i) the nature, extent and quality of the services provided to the Fund’s shareholders by the Adviser; (ii) the investment performance of the Fund; (iii) the Adviser’s costs and profits realized in providing services to the Fund, including any fall-out benefits enjoyed by the Adviser; (iv) comparative fee and expense data for the Fund in relation to other similar investment companies; (v) the extent to which economies of scale would be realized as the Fund grows and whether the advisory fees for the Fund reflects these economies of scale for the benefit of the Fund; and (vi) other financial benefits to the Adviser and its affiliates resulting from services rendered to the Fund. The Board’s review included written and oral information furnished to the Board prior to and at the meeting held on March 28, 2018, and throughout the year. Among other things, the Adviser provided responses to a detailed series of questions, which included information about the Adviser’s operations, service offerings, personnel, compliance program and financial condition. The Board then discussed the written and oral information that it received before the meeting and throughout the year, and the Adviser’s oral presentations and any other information that the Board received at the meeting, and deliberated on the renewal of the Advisory Agreement in light of this information.
The Independent Trustees were assisted throughout the contract review process by independent legal counsel. The Independent Trustees relied upon the advice of such counsel and their own business judgment in determining the material factors to be considered in evaluating the renewal of the Advisory Agreement, and the weight to be given to each such factor. The conclusions reached with respect to the Advisory Agreement were based on a comprehensive evaluation of all the information provided and not any single factor. Moreover, each Trustee may have placed varying emphasis on particular factors in reaching conclusions with respect to the Fund. The matters discussed were also considered separately by the Independent Trustees in executive session with independent legal counsel, at which no representatives of management were present.
Nature, Extent and Quality of Services Provided by the Adviser
The Trustees considered the scope of services provided under the Advisory Agreement, noting that the Adviser provides investment management services to the Fund. The Board discussed the responsibilities of the Adviser, including: responsibility for the general management of the day-to-day investment and reinvestment of the assets of the Fund; determining the daily baskets of deposit securities and cash components; executing portfolio security trades for purchases and redemptions of Fund shares conducted on a cash-in-lieu basis; responsibility for daily monitoring of tracking error and quarterly reporting to the Board; and implementation of Board directives as they relate to the Fund. In considering the nature, extent and quality of the services provided by the Adviser, the Board considered the qualifications, experience and responsibilities of the Adviser’s investment personnel, the quality of the Adviser’s compliance infrastructure, and the determination of the Trust’s Chief Compliance Officer that the Adviser has appropriate compliance policies and procedures in place. The Board also considered the Adviser’s experience managing exchange-traded funds (“ETFs”).
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Etho Climate Leadership U.S. ETF
APPROVAL OF ADVISORY AGREEMENT AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2018 (Unaudited) (Continued)
The Board also considered other services provided to the Fund, such as overseeing the Fund’s service providers, monitoring adherence to the Fund’s investment restrictions, and monitoring compliance with various policies and procedures and with applicable securities laws.
Based on the factors above, as well as those discussed below, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by the Adviser.
Historical Performance
The Board then considered the past performance of the Fund. The Board reviewed information regarding the performance history of the Fund over various time periods, including the year-to-date period, the most recent one-year period and the period since the Fund’s inception. The Board noted management’s explanation that analysis of investment performance, in absolute terms, is less relevant for the Fund than it is for actively managed funds, given the Fund’s index-based investment objectives. The Board also noted management’s further explanation that it is more relevant to review the performance of the Fund by focusing on the extent to which the Fund tracked its underlying index. The Board reviewed information regarding the Fund’s index tracking during the time it was managed by the Adviser, discussing, as applicable, factors which contributed to the Fund’s tracking error over certain periods of time. The Board noted that the Fund’s performance was generally in line with that of its underlying index. The Board concluded that the Fund satisfactorily tracked its underlying index. The Board further noted that it had received and would continue to receive regular reports regarding the Fund’s performance at its quarterly meetings.
Cost of Services Provided and Economies of Scale
The Board reviewed the advisory fee for the Fund and compared it to the total operating expenses of comparable ETFs, as determined by an independent third party. Among other information, the Board further noted that the expense ratio of the Fund was lower than the average and median advisory fee of its comparable ETFs. The Board took into consideration management’s discussion of the fees, including that the Fund has a niche investment strategy and limited comparable ETFs.
The Board also noted the importance of the fact that the advisory fee for the Fund is a “unified fee,” meaning that the shareholders of the Fund pay no expenses other than the advisory fee and certain other costs such as interest, brokerage and extraordinary expenses and, to the extent it is implemented, fees pursuant to a Distribution and/or Shareholder Servicing (12b-1) Plan. The Board further noted that the Adviser was responsible for compensating the Trust’s other service providers and paying the Fund’s other expenses out of its own fees and resources. The Board also evaluated the compensation and benefits received by the Adviser from its relationship with the Fund, taking into account an analysis of the Adviser’s profitability provided at the meeting. The Board concluded that the advisory fee for the Fund was reasonable in light of the factors considered.
In addition, the Board considered whether economies of scale may be realized for the Fund. The Board noted that the Adviser regularly considers whether fee reductions are appropriate as the Fund grows in size. The Board noted that a unitary fee provides a level of certainty in expenses for the Fund. The Trustees concluded that the flat advisory fee was reasonable.
31
Etho Climate Leadership U.S. ETF
APPROVAL OF ADVISORY AGREEMENT AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2018 (Unaudited) (Continued)
Based on the Board’s deliberations and its evaluation of the information described above, the Board, including the Independent Trustees, unanimously: (a) concluded that the terms of the Advisory Agreement are fair and reasonable; (b) concluded that the Adviser’s fees are reasonable in light of the services that the Adviser provides to the Fund; and (c) approved the renewal of the Advisory Agreement for another year.
32
Etho Climate Leadership U.S. ETF
Six Months Ended March 31, 2018 (Unaudited)
As a shareholder of Etho Climate Leadership U.S. ETF (the “Fund”) you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares, and (2) ongoing costs, including Unitary fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (October 1, 2017 to March 31, 2018).
Actual Expenses
The first line of the table provides information about actual account values based on actual returns and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then, multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table provides information about hypothetical account values based on a hypothetical return and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
Etho Climate Leadership U.S. ETF
Beginning Account Value October 1, 2017 | Ending Account Value March 31, 2018 | Expenses Paid During the Period^ | ||||||||||
Actual | $ | 1,000.00 | $ | 1,076.60 | $ | 2.33 | ||||||
Hypothetical (5% annual) | $ | 1,000.00 | $ | 1,022.69 | $ | 2.27 |
^ The dollar amounts shown as expenses paid during the period are equal to the annualized six-month expense ratio multiplied by the average account value during the period, multiplied by 182/365 (to reflect the period from October 1, 2017 to March 31, 2018).
33
Etho Climate Leadership U.S. ETF
March 31, 2018 (Unaudited)
INFORMATION ABOUT PORTFOLIO HOLDINGS
The Fund files a Form N-Q with the Securities and Exchange Commission (the ‘‘SEC’’) no more than sixty days after the Fund’s first and third fiscal quarters. For the Fund, this would be for the fiscal quarters ending June 30 and December 31. Form N-Q includes a complete schedule of the Funds’ portfolio holdings as of the end of those fiscal quarters. The Fund’s N-Q filings can be found free of charge on the SEC’s website at http://www.sec.gov, or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (call 800-SEC-0330 for information on the operation of the Public Reference Room). The Fund’s portfolio holdings are posted on the Fund’s website at www.ethoetf.com daily.
INFORMATION ABOUT PROXY VOTING
A description of the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is provided in the Statement of Additional Information (“SAI”). The SAI is available without charge upon request by calling toll-free at 1-844-ETF-MGRS (1-844-383-6477), by accessing the SEC’s website at www.sec.gov, or by accessing the Fund’s website at www.ethoetf.com.
Information regarding how the Fund voted proxies relating to portfolio securities during the period ending June 30 is available by calling toll-free at 1-844-ETF-MGRS (1-844-383-6477) or by accessing the SEC’s website at www.sec.gov.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477) or by visiting www.ethoetf.com. Read the prospectus carefully before investing.
34
Advisor
ETF Managers Group, LLC
30 Maple Street, Suite 2, Summit, NJ 07901
Distributor
ETFMG Financial, Inc.
30 Maple Street, Suite 2, Summit, NJ 07901
Custodian
U.S. Bank National Association
Custody Operations
1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212
Transfer Agent
U.S. Bancorp Fund Services, LLC
615 East Michigan Street, Milwaukee, Wisconsin 53202
Securities Lending Agent
U.S. Bank, National Association
Securities Lending
800 Nicolet Mall
Minneapolis, MN 55402-7020
Independent Registered Public Accounting Firm
WithumSmith + Brown, PC
1411 Broadway, 9th Floor, New York, NY 10018
Legal Counsel
Sullivan & Worcester LLP
1666 K Street NW, Washington, DC 20006
Semi-Annual Report
March 31, 2018
March 31, 2018
The Spirited Funds/ETFMG Whiskey & Spirits ETF Ticker: WSKY
The fund is a series of ETF Managers Trust.
Spirited Funds/ETFMG Whiskey & Spirits ETF
TABLE OF CONTENTS
March 31, 2018
Page | |
Shareholders’ Letter | 2 |
Growth of $10,000 Investment | 3 |
Top Ten Holdings | 4 |
Important Disclosures and Key Risk Factors | 5 |
Portfolio Allocations | 6 |
Schedule of Investments | 7 |
Statement of Assets and Liabilities | 9 |
Statement of Operations | 10 |
Statements of Changes in Net Assets | 11 |
Financial Highlights | 12 |
Notes to Financial Statements | 13 |
Approval of Advisory Agreement and Board Considerations | 21 |
Expense Example | 24 |
Supplementary Information | 25 |
On behalf of the entire team, we want to express our appreciation for the confidence you have placed in the Spirited Funds/ETFMG Whiskey & Spirits Exchange-Traded Fund (“WSKY” or the “Fund”). The following information pertains to the fiscal period from October 1, 2017 to March 31, 2018.
The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Spirited Funds/ETFMG Whiskey & Spirits Index (the “Index”).
For the 6-month period ended March 31, 2018, the Fund NAV increased 11.87% while the Index increased 13.16%. The difference was primarily attributable to Fund expenses that are not a part of the Index.
The best performing securities in the Fund were Radico Khaitan (up 99.61%) and MGP Ingredients (up 47.99%). The worst performing securities in the Fund were Marie Brizard (down - 35.06%) and Ginebra San Miguel (down - 11.13%).
You can find further details about WSKY by visiting www.spiritedfunds.com, or by calling 1-844-ETF-MGRS (1-844-383-6477).
Sincerely,
Samuel Masucci III
Chairman of the Board
Samuel Masucci III is a registered representative of ETFMG Financial, LLC.
2
Average Annual Returns Period Ended March 31, 2018 | 6 Months Return1 | 1 Year Return | Since Inception (10/12/2016) | |||||||||
Spirited Funds/ ETFMG Whiskey & Spirits ETF (NAV) | 11.87 | % | 25.77 | % | 20.96 | % | ||||||
Spirited Funds/ ETFMG Whiskey & Spirits ETF (Market) | 8.91 | % | 26.25 | % | 21.65 | % | ||||||
S&P 500 Index2 | 5.84 | % | 14.07 | % | 17.93 | % | ||||||
Spirited Funds/ETFMG Whiskey & Spirits Index2 | 13.16 | % | 29.38 | % | 23.28 | % | ||||||
Total Fund Operating Expenses3 | 0.60 | % |
1. Not annualized.
2. The return reflects the actual performance through March 29, 2018 (the last day of the New York Stock Exchange was open) to maintain consistency with the Fund’s net asset value calculations used for shareholder transactions.
3. The expense ratio is taken from the Fund’s most recent prospectus dated January 31, 2018.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on October 12, 2016, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the sale of Fund shares. The chart assumes reinvestment of capital gains and dividends, if any. The unmanaged indices do not reflect fees and are not available for direct investment.
3
Spirited Funds/ETFMG Whiskey & Spirits ETF
Security | % of Total Investments† | ||
1 | Diageo PLC | 16.79% | |
2 | Pernod Ricard SA | 8.91% | |
3 | MGP Ingredients, Inc. | 5.59% | |
4 | Brown-Forman Corp. | 5.26% | |
5 | Remy Cointreau SA | 4.96% | |
6 | LVMH Moet Hennessy Louis Vuitton SE | 4.96% | |
7 | Davide Campari-Milano SpA | 4.89% | |
8 | Marie Brizard Wine & Spirits SA | 4.80% | |
9 | Thai Beverage PLC | 4.68% | |
10 | Corby Spirit and Wine Ltd. | 4.68% |
Top Ten Holdings = 65.52% of Total Investments†
* Current portfolio holdings may not be indicative of future fund holdings.
† Percentage of total investments less cash.
4
Spirited Funds/ETFMG Whiskey & Spirits ETF
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility. The fund is new with limited operating history.
The Spirited Funds/ETFMG Whiskey & Spirits ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the Spirited Funds/ETFMG Whiskey & Spirits Index (the “Index”). The Index is comprised of core companies that are principally engaged in the production, distillation, storage, or aging of whiskey and non-core companies that derive a portion of their revenue from whiskey and spirits.
The industries in which Bourbon and Whiskey Economy Companies operate are very competitive and companies in such industries are subject to a number of risks. Demographic and product trends, changing consumer preferences, nutritional and health-related concerns, competitive pricing, marketing campaigns, environmental factors, adverse changes in general economic conditions, government regulation, food inspection and processing control, consumer boycotts, risks of product tampering, product liability claims, and the availability and expense of liability insurance can affect the demand for, and success of, such companies’ products in the marketplace. Such companies also face risks associated with changing market prices as a result of, among other things, changes in government support and trading policies and agricultural conditions influencing the growth and harvest seasons.
ETF shares are not individually redeemable and owners of the shares may acquire those shares from the Fund and tender those shares for redemption to the Fund in Creation Units only, typically consisting of aggregations of 50,000 shares.
5
Spirited Funds/ETFMG Whiskey & Spirits ETF
As of March 31, 2018 (Unaudited)
Spirited Funds/ETFMG Whiskey & Spirits ETF | ||||
As a percent of Net Assets: | ||||
Canada | 5.8 | % | ||
Chile | 1.0 | |||
France | 24.0 | |||
India | 10.2 | |||
Ireland | 0.9 | |||
Italy | 4.9 | |||
Japan | 4.6 | |||
Mexico | 1.0 | |||
Philippines | 4.5 | |||
Republic of Korea | 1.0 | |||
South Africa | 4.6 | |||
Thailand | 4.7 | |||
United Kingdom | 18.1 | |||
United States | 14.3 | |||
Short-Term and other Net Assets (Liabilities) | 0.4 | |||
100.0 | % |
6
Spirited Funds/ETFMG Whiskey & Spirits ETF
March 31, 2018 (Unaudited)
Shares | Fair Value | |||||||
COMMON STOCKS - 99.6% | ||||||||
Canada - 5.8% | ||||||||
Beverages - 5.8% | ||||||||
Brick Brewing Co. Ltd. (a) | 43,207 | $ | 152,592 | |||||
Corby Spirit and Wine Ltd. (a) | 45,970 | 693,644 | ||||||
Total Beverages | 846,236 | |||||||
Chile -1.0% | ||||||||
Beverages -1.0% | ||||||||
Cia Cervecerias Unidas SA - ADR | 5,115 | 150,432 | ||||||
France - 24.0% | ||||||||
Beverages -19.0% | ||||||||
Marie Brizard Wine & Spirits SA (a) | 65,259 | 710,637 | ||||||
Pernod Ricard SA | 7,932 | 1,320,033 | ||||||
Remy Cointreau SA | 5,162 | 735,514 | ||||||
Total Beverages | 2,766,184 | |||||||
Textiles, Apparel & Luxury Goods - 5.0% | ||||||||
LVMH Moet Hennessy Louis Vuitton SE | 2,386 | 734,551 | ||||||
Total France | 3,500,735 | |||||||
India -10.2% | ||||||||
Beverages -10.2% | ||||||||
Radico Khaitan Ltd. | 128,323 | 653,698 | ||||||
SOM Distilleries And Breweries Ltd. | 43,953 | 152,201 | ||||||
United Spirits Ltd. (a) | 14,394 | 690,693 | ||||||
Total Beverages | 1,496,592 | |||||||
Ireland - 0.9% | ||||||||
Beverages - 0.9% | ||||||||
C&C Group PLC | 42,474 | 139,017 | ||||||
Italy - 4.9% | ||||||||
Beverages - 4.9% | ||||||||
Davide Campari-Milano SpA | 95,737 | 724,468 | ||||||
Japan - 4.6% | ||||||||
Beverages - 4.6% | ||||||||
Asahi Group Holdings Ltd. | 5,300 | 282,271 | ||||||
Kirin Holdings Co. Ltd. | 10,000 | 266,200 | ||||||
Takara Holdings, Inc. | 12,504 | 138,783 | ||||||
Total Beverages | 687,254 | |||||||
Mexico -1.0% | ||||||||
Beverages -1.0% | ||||||||
Becle SAB de CV (a) | 74,544 | 151,302 |
The accompanying notes are an integral part of these financial statements.
7
Spirited Funds/ETFMG Whiskey & Spirits ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Fair Value | |||||||
Philippines - 4.5% | ||||||||
Beverages - 4.5% | ||||||||
Ginebra San Miguel, Inc. (a) | 1,344,000 | $ | 656,835 | |||||
Republic of Korea - 1.0% | ||||||||
Beverages - 1.0% | ||||||||
Hite Jinro Co. Ltd. | 6,724 | 141,621 | ||||||
South Africa - 4.6% | ||||||||
Beverages - 4.6% | ||||||||
Distell Group Ltd. | 58,172 | 673,176 | ||||||
Thailand - 4.7% | ||||||||
Beverages - 4.7% | ||||||||
Thai Beverage PLC | 1,166,749 | 694,096 | ||||||
United Kingdom - 18.1% | ||||||||
Beverages - 18.1% | ||||||||
Diageo PLC | 73,523 | 2,488,040 | ||||||
Stock Spirits Group PLC | 41,485 | 144,635 | ||||||
Total Beverages | 2,632,675 | |||||||
United States - 14.3% | ||||||||
Beverages - 14.3% | ||||||||
Brown-Forman Corp. | 14,317 | 778,831 | ||||||
Constellation Brands, Inc. | 2,126 | 484,558 | ||||||
MGP Ingredients, Inc. ˄ | 9,249 | 828,619 | ||||||
Total Beverages | 2,092,008 | |||||||
TOTAL COMMON STOCKS (Cost $13,761,167) | 14,586,447 | |||||||
SHORT-TERM INVESTMENTS - 0.0% | ||||||||
Money Market Funds - 0.0% | ||||||||
Invesco Advisers, Inc. STIT - Treasury Portfolio - Institutional Class, 1.57% (b) | 2,495 | $ | 2,495 | |||||
TOTAL SHORT-TERM INVESTMENTS (Cost $2,495) | 2,495 | |||||||
INVESTMENTS PURCHASED WITH SECURITIES LENDING | ||||||||
COLLATERAL - 1.6% | ||||||||
Investment Companies - 1.6% | ||||||||
Mount Vernon Liquid Assets Portfolio, LLC, 1.89% (b) + | 227,970 | |||||||
TOTAL INVESTMENTS PURCHASED WITH SECURITIES LENDING | ||||||||
COLLATERAL (Cost $227,970) | 227,970 | |||||||
Total Investments (Cost $13,991,632) - 101.2% | 14,816,912 | |||||||
Liabilities in Excess of Other Assets - (1.2)% | (174,781 | ) | ||||||
TOTAL NET ASSETS -100.0% | $ | 14,642,131 |
Percentages are stated as a percent of net assets.
ADR American Depositary Receipt
(a) | Non-income producing security. |
(b) | The rate quoted is the annualized seven-day yield at March 31, 2018. |
+ Investments purchased with cash proceeds from securities lending. Total cash collateral has a value of $227,970 as of March 31, 2018.
˄ All or a portion of this security is out on loan as of March 31, 2018. Total value of securities out on loan is $226,931.
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
8
Spirited Funds/ETFMG Whiskey & Spirits ETF
As of March 31, 2018 (Unaudited)
Spirited Funds/ ETFMG Whiskey & Spirits ETF | ||||
ASSETS | ||||
Investments in securities, at fair value* | $ | 14,816,912 | ||
Cash | 1,825 | |||
Foreign currency | 250 | |||
Receivables: | ||||
Dividends and interest receivable | 58,546 | |||
Securities lending income receivable | 49 | |||
Total Assets | 14,877,582 | |||
LIABILITIES | ||||
Collateral received for securities loaned (Note 7) | 227,970 | |||
Payables: | ||||
Unitary fees payable | 7,481 | |||
Total Liabilities | 235,451 | |||
Net Assets | $ | 14,642,131 | ||
NET ASSETS CONSIST OF: | ||||
Paid-in Capital | $ | 13,751,323 | ||
Undistributed net investment income | 10,042 | |||
Accumulated net realized gain on investments | 54,875 | |||
Net unrealized appreciation on: | ||||
Investments in securities | 825,280 | |||
Foreign currency and translation of other assets and liabilities in foreign currency | 611 | |||
Net Assets | $ | 14,642,131 | ||
* Identified Cost: | ||||
Investments in securities | $ | 13,991,632 | ||
Foreign currency | 249 | |||
Shares Outstanding^ | 450,000 | |||
Net Asset Value, Offering and Redemption Price per Share | $ | 32.54 | 1 |
^ No par value, unlimited number of shares authorized
1 The stated NAV per share may differ from a recalculation of the NAV per share due to certain foreign markets open on March 30, 2018, while US markets were closed. The stated NAV per share was calculated on the last business day markets were open for this fund. (See Note 2).
The accompanying notes are an integral part of these financial statements.
9
Spirited Funds/ETFMG Whiskey & Spirits ETF
Six Months ended March 31, 2018 (Unaudited)
Spirited Funds/ ETFMG Whiskey & Spirits ETF | ||||
INVESTMENT INCOME | ||||
Income: | ||||
Dividends from unaffiliated securities (net of foreign withholdings tax of $7,419) | $ | 91,769 | ||
Interest | 103 | |||
Securities lending income | 494 | |||
Total Investment Income | 92,366 | |||
Expenses: | ||||
Unitary fees | 32,087 | |||
Net Investment Income | 60,279 | |||
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||
Net Realized Gain (Loss) on: | ||||
Unaffiliated investments | (73,655 | ) | ||
In-Kind redemptions | 230,689 | |||
Foreign currency and foreign currency translation | (46,999 | ) | ||
Net Realized Gain on Investments and Foreign Currency | 110,035 | |||
Net Change in Unrealized Appreciation of: | ||||
Unaffiliated investments | 521,727 | |||
Foreign currency and foreign currency translation | 39 | |||
Net Change in Unrealized Appreciation of Investments and Foreign Currency | 521,766 | |||
Net Realized and Unrealized Gain on Investments | 631,801 | |||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 692,080 |
The accompanying notes are an integral part of these financial statements.
10
Spirited Funds/ETFMG Whiskey & Spirits ETF
Six Months Ended March 31, 2018 (Unaudited) | Period Ended September 30, 2017* | |||||||
OPERATIONS | ||||||||
Net investment income | $ | 60,279 | $ | 42,082 | ||||
Net realized gain on investments | 110,035 | 178,501 | ||||||
Net change in unrealized appreciation of investments | 521,766 | 304,125 | ||||||
Net increase in net assets resulting from operations | 692,080 | 524,708 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income | (59,003 | ) | (22,801 | ) | ||||
From net realized gain | (63,027 | ) | — | |||||
Total Distributions to Shareholders | (122,030 | ) | (22,801 | ) | ||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase in net assets derived from net change in outstanding | ||||||||
shares (a) | 8,181,595 | 5,373,635 | ||||||
Transaction Fees (Note 1) | 10,091 | 4,853 | ||||||
Net increase in net assets from capital chare transactions | 8,191,686 | 5,378,488 | ||||||
Net increase in net assets | 8,761,736 | 5,880,395 | ||||||
NET ASSETS | ||||||||
Beginning of Period | 5,880,395 | — | ||||||
End of Period | $ | 14,642,131 | $ | 5,880,395 | ||||
Undistributed net investment income | $ | 10,042 | $ | 8,766 |
(a) Summary of share transactions is as follows:
Six Months Ended March 31, 2018 (Unaudited) | Period Ended September 30, 2017* | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 350,000 | $ | 11,441,730 | 350,000 | $ | 9,624,840 | ||||||||||
Transaction Fees (Note 1) | — | 10,091 | — | 4,853 | ||||||||||||
Shares Redeemed | (100,000 | ) | (3,260,135 | ) | (150,000 | ) | (4,251,205 | ) | ||||||||
250,000 | $ | 8,191,686 | 200,000 | $ | 5,378,488 | |||||||||||
Beginning Shares | 200,000 | — | ||||||||||||||
Ending Shares | 450,000 | 200,000 |
* Fund commenced operations on October 12, 2016. The information presented is for the period from October 12, 2016 to September 30, 2017.
The accompanying notes are an integral part of these financial statements.
11
Spirited Funds/ETFMG Whiskey & Spirits ETF
Six Months Ended March 31, 2018 (Unaudited) | Period Ended September 30, 20171 | |||||||
Net Asset Value, Beginning of Period | $ | 29.40 | $ | 25.00 | ||||
Income from Investment Operations: | ||||||||
Net investment income 2 | 0.18 | 0.36 | ||||||
Net realized and unrealized gain on investments | 3.29 | 4.06 | ||||||
Total from investment operations | 3.47 | 4.42 | ||||||
Less Distributions: | ||||||||
Distributions from net investment income | (0.15 | ) | (0.02 | ) | ||||
Distributions from net realized gain | (0.21 | ) | — | |||||
Total distributions | (0.36 | ) | (0.02 | ) | ||||
Capital Share Transactions: | ||||||||
Transaction fees added to paid-in capital | 0.03 | — | ||||||
Net asset value, end of period | 32.54 | 29.40 | ||||||
Total Return3 | 11.87 | % | 18.22 | % | ||||
Ratios/Supplemental Data: | ||||||||
Net assets at end of period (000’s) | $ | 14,642 | $ | 5,880 | ||||
Expenses to Average Net Assets4 | 0.60 | % | 0.67 | % | ||||
Net Investment Income to Average Net Assets4 | 1.13 | % | 1.40 | % | ||||
Portfolio Turnover Rate3 | 28 | % | 96 | % |
1 | Commencement of operations on October 12, 2016. |
2 | Calculated based on average shares outstanding during the period. |
3 | Not annualized. |
4 | Annualized. |
The accompanying notes are an integral part of these financial statements.
12
Spirited Funds/ETFMG Whiskey & Spirits ETF
March 31, 2018 (Unaudited)
NOTE 1 – ORGANIZATION
Spirited Funds/ETFMG Whiskey & Spirits ETF (the “Fund”) is a series of ETF Managers Trust (the “Trust”), an open-end management investment company consisting of multiple investment series, organized as a Delaware statutory trust on July 1, 2009. The Trust is registered with the SEC under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company and the offering of the Fund’s shares (“Shares”) is registered under the Securities Act of 1933, as amended (the “Securities Act”). The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the Spirited Funds/ETFMG Whiskey & Spirits Index. The Fund commenced operations on October 12, 2016.
The Fund currently offers one class of shares, which has no front end sales load, no deferred sales charges, and no redemption fees. The Fund may issue an unlimited number of shares of beneficial interest, with no par value. All shares of the Fund have equal rights and privileges.
Shares of the Fund are listed and traded on the NYSE Arca, Inc. Market prices for the Shares may be different from their net asset value (“NAV”). The Fund issues and redeems Shares on a continuous basis at NAV only in blocks of 50,000 shares, called “Creation Units.” Creation Units are issued and redeemed principally in-kind for securities included in a specified Index. Once created, Shares generally trade in the secondary market at market prices that change throughout the day in quantities less than a Creation Unit. Except when aggregated in Creation Units, Shares are not redeemable securities of a Fund. Shares of a Fund may only be purchased or redeemed by certain financial institutions (“Authorized Participants”). An Authorized Participant is either (i) a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a DTC participant and, in each case, must have executed a Participant Agreement with the Distributor. Most retail investors do not qualify as Authorized Participants nor have the resources to buy and sell whole Creation Units. Therefore, they are unable to purchase or redeem the Shares directly from a Fund. Rather, most retail investors may purchase Shares in the secondary market with the assistance of a broker and are subject to customary brokerage commissions or fees.
Authorized Participants transacting in Creation Units for cash may pay an additional variable charge to compensate the relevant Fund for certain transaction costs (i.e., brokerage costs) and market impact expenses relating to investing in portfolio securities. Such variable charges, if any, are included in “Transaction Fees” in the statements of changes in net assets.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946 Financial Services – Investment Companies.
The Fund may invest in certain other investment companies (underlying funds). For specific investments in underlying funds, please refer to the complete schedule of portfolio holdings on Form N-CSR(S) for this reporting period, which is filed with the U.S. Securities and Exchange Commission (SEC). For more information about the underlying Fund’s operations and policies, please refer to those Funds’ semiannual and annual reports, which are filed with the SEC.
13
Spirited Funds/ETFMG Whiskey & Spirits ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
A. | Security Valuation. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on NASDAQ), including securities traded over the counter, are valued at the last quoted sale price on the primary exchange or market (foreign or domestic) on which they are traded on the valuation date (or at approximately 4:00 pm Eastern Time if a security’s primary exchange is normally open at that time), or, if there is no such reported sale on the valuation date, at the most recent quoted bid price. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. |
Securities for which quotations are not readily available are valued at their respective fair values as determined in good faith by the Board of Trustees (the “Board”). When a security is “fair valued,” consideration is given to the facts and circumstances relevant to the particular situation, including a review of various factors set forth in the pricing procedures adopted by the Fund’s Board. The use of fair value pricing by a fund may cause the net asset value of its shares to differ significantly from the net asset value that would be calculated without regard to such considerations. As of March 31, 2018, the Fund did not hold any fair valued securities.
As described above, the Fund utilizes various methods to measure the fair value of its investments on a recurring basis. U.S. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are:
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access. |
Level 2 | Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 | Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The following is a table that presents a summary of the Fund’s investments in securities, at fair value as of March 31, 2018:
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Spirited Funds/ETFMG Whiskey & Spirits ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
Spirited Funds/ETFMG Whiskey & Spirits ETF+
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 14,586,447 | $ | — | $ | — | $ | 14,586,447 | ||||||||
Short-Term Investments | 2,495 | — | — | 2,495 | ||||||||||||
Investments Purchased with Securities Lending Collateral* | — | — | — | 227,970 | ||||||||||||
Total Investments in Securities | $ | 14,588,942 | $ | — | $ | — | $ | 14,816,912 |
+ On March 30, 2018, US and certain other financial markets were closed, while some foreign markets were open. The Fund was re-priced for financial reporting purposes to reflect in the valuation, the transactions related to open foreign market activities called at the official closing price on the primary market of exchange on which the securities trade.
^ See Schedule of Investments for classifications by sector or country.
* Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Schedule of Investments.
There were no transfers between Levels 1, 2 and 3 during the six months ended March 31, 2018. Transfers between levels are recognized at the end of the reporting period.
B. | Federal Income Taxes. The Fund has elected to be taxed as a “regulated investment company” and intends to distribute substantially all taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. Therefore, no provisions for federal income taxes or excise taxes have been made. |
To avoid imposition of the excise tax applicable to regulated investment companies, the Fund intends to declare each year as dividends, in each calendar year, at least 98.0% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts, if any, from prior years.
Net capital losses incurred after October 31, within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year.
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. The Fund has analyzed its tax position and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions expected to be taken in the Fund’s 2017 tax returns. The Fund identifies its major tax jurisdictions as U.S. Federal, the State of New Jersey, and the State of Delaware; however the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.
Management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the Fund and has determined that no provision for income tax is required in the Fund’s financial statements.
15
Spirited Funds/ETFMG Whiskey & Spirits ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
C. | Security Transactions and Investment Income. Investment securities transactions are accounted for on the trade date. Gains and losses realized on sales of securities are determined on a specific identification basis. Discounts/premiums on debt securities purchased are accreted/amortized over the life of the respective securities using the effective interest method. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Income, including gains, from investments in foreign securities received by the Fund may be subject to income, withholding or other taxes imposed by foreign countries. |
D. | Foreign Currency Translations and Transactions. The Fund may engage in foreign currency transactions. Foreign currency transactions are translated into U.S. dollars on the following basis: (i) market value of investment securities, assets and liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. For financial reporting purposes, the Fund does not isolate changes in the exchange rate of investment securities from the fluctuations arising from changes in the market prices of securities for unrealized gains and losses. However, for federal income tax purposes, the Fund does isolate and treat as ordinary income the effect of changes in foreign exchange rates on realized gains or losses from the sale of investment securities and payables and receivables arising from trade-date and settlement-date differences. |
E. | Distributions to Shareholders. Distributions to shareholders from net investment income are declared and paid for the Fund on a quarterly basis. Net realized gains on securities for the Fund normally are declared and paid on an annual basis. Distributions are recorded on the ex-dividend date. |
F. | Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. |
G. | Share Valuation. The net asset value (“NAV”) per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding for the Fund, rounded to the nearest cent. The Fund’s shares will not be priced on the days on which the NYSE is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund’s net asset value per share. |
H. | Guarantees and Indemnifications. In the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote. |
NOTE 3 – RISK FACTORS
Investing in Spirited Funds/ETFMG Whiskey & Spirits ETF may involve certain risks, as discussed in the Fund’s prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.
16
Spirited Funds/ETFMG Whiskey & Spirits ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
Market Risk. Financial markets rise and fall in response to a variety of factors, sometimes rapidly and unpredictably. As with any investment whose performance is tied to these markets, the value of an investment in the Fund will fluctuate, which means that an investor could lose money over short or long periods.
Investment Style Risk. The Fund is not actively managed. Therefore, the Fund follows the securities included in its respective index during upturns as well as downturns. Because of its indexing strategy, the Fund does not take steps to reduce market exposure or to lessen the effects of a declining market. In addition, because of the Fund’s expenses, the Fund’s performance may be below that of its respective index.
Equity Risk. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles which may cause stock prices to fall over short or extended periods of time.
Concentration Risk. To the extent that the Fund or its working index’s portfolio is concentrated in the securities of issuers in a particular market, industry, group of industries, sector or asset class, the Fund may be adversely affected by the performance of those securities, may be subject to increased price volatility and may be more vulnerable to adverse economic, market, political or regulatory occurrences affecting that market, industry, group of industries, sector or asset class.
NOTE 4 – COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS.
ETF Managers Group, LLC (the “Advisor”), serves as the investment advisor to the Fund. Pursuant to an Investment Advisory Agreement (“Advisory Agreement”) between the Trust, on behalf of the Fund, and the Advisor, the Advisor provides investment advice to the Fund and oversees the day-to-day operations of the Fund, subject to the direction and control of the Board and the officers of the Trust. Under the Advisory Agreement, the Advisor is also responsible for arranging transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Fund to operate.
Under the Investment Advisory Agreement with the Fund, the Advisor has overall responsibility for the general management and administration of the Fund and arranges for sub-advisory, transfer agency, custody, fund administration, securities lending, and all other non-distribution related services necessary for the Fund to operate. The Advisor bears the costs of all advisory and non-advisory services required to operate the Fund, in exchange for a single unitary fee. For services provided the Fund pays the Advisor at an annual rate of 0.60% of the Fund’s average daily net assets. The Advisor has an agreement with, and is dependent on, a third party to pay the Fund’s expenses in excess of 0.60% of the Fund’s average daily net assets. Additionally, under the Investment Advisory Agreement, the Advisor has agreed to pay all expenses of the Fund, except for: the fee paid to the Advisor pursuant to the Investment Advisory Agreement, interest charges on any borrowings, taxes, brokerage commissions and other expenses incurred in placing orders for the purchase and sale of securities and other investment instruments, acquired fund fees and expenses, accrued deferred tax liability, extraordinary expenses, and distribution (12b-1) fees and expenses (collectively, “Excluded Expenses”). The Advisor has entered into an Agreement with Spirited Funds, LLC (the “Sponsor”), under which the Sponsor agrees to sublicense the use of the Underlying Index to the Advisor. The Sponsor also provides marketing support for the Fund, including distributing marketing materials related to the Fund. Spirited Funds, LLC is a privately held business focused on bringing exchange-traded investment products to investors in the U.S. The Sponsor does not make investment decisions, provide investment advice, or otherwise act in the capacity of an investment adviser to the Fund. Additionally, the Sponsor is not involved in the maintenance of the Underlying Index and does not otherwise act in the capacity of an index provider.
17
Spirited Funds/ETFMG Whiskey & Spirits ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
US Bancorp Fund Services, LLC (the “Administrator”) provides fund accounting, fund administration, and transfer agency services to the Fund. The Advisor compensates the Administrator for these services under an administration agreement between the two entities.
The Advisor pays each independent Trustee a quarterly fee for service to the Fund. Each Trustee is also reimbursed by the Advisor for all reasonable out-of-pocket expenses incurred in connection with his duties as Trustee, including travel and related expenses incurred in attending Board meetings.
NOTE 5 – DISTRIBUTION PLAN
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may pay compensation to the Distributor or any other distributor or financial institution with which the Trust has an agreement with respect to the Fund, with the amount of such compensation not to exceed an annual rate of 0.25% of each Fund’s daily average net assets. For the six months ended March 31, 2018, the Fund did not incur any 12b-1 expenses.
NOTE 6 - PURCHASES AND SALES OF SECURITIES
The costs of purchases and sales of securities, excluding short-term securities and in-kind transactions, for the six months ended March 31, 2018:
Purchases | Sales | |||||||
Spirited Funds/ETFMG Whiskey & Spirits ETF | $ | 2,946,329 | $ | 4,212,057 |
The costs of purchases and sales of in-kind transactions associated with creations and redemptions for the six months ended March 31, 2018:
Purchases | Sales | |||||||
In-Kind | In-Kind | |||||||
Spirited Funds/ETFMG Whiskey & Spirits ETF | $ | 9,932,111 | $ | 805,637 |
Purchases in-kind are the aggregate of all in-kind purchases and sales in-kind are the aggregate of all proceeds from in-kind sales. Net capital gains or losses resulting from in-kind redemptions are excluded from the Fund’s taxable gains and are not distributed to shareholders.
There were no purchases or sales of U.S. Government obligations for the six months ended March 31, 2018.
NOTE 7 — SECURITIES LENDING
The Fund may lend up to 331⁄3% of the value of the securities in its portfolio to brokers, dealers and financial institutions (but not individuals) under terms of participation in a securities lending program administered by U.S. Bank N.A. (“the Custodian”). The securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 102% of the value of any loaned securities at the time of the loan, plus accrued interest. The Fund receives compensation in the form of fees and earn interest on the cash collateral. The amount of fees depends on a number of factors including the type of security and length of the loan. The Fund continues to receive interest payments or dividends on the securities loaned during the borrowing period. Gain or loss in the fair value of securities loaned that may occur during the term of the loan will be for the account of the Fund. The Fund has the right under the terms of the securities lending agreement to recall the securities from the borrower on demand. The cash collateral is invested by the Custodian in accordance with approved investment guidelines. Those guidelines require the cash collateral to be invested in readily marketable, high quality, short-term obligations; however, such investments are subject to risk of payment delays or default on the part of the issuer or counterparty or otherwise may not generate sufficient interest to support the costs associated with securities lending. The Fund could also experience delays in recovering its securities and possible loss of income or value if the borrower fails to return the borrowed securities, although the Fund is indemnified from this risk by contract with the securities lending agent.
18
Spirited Funds/ETFMG Whiskey & Spirits ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
As of March 31, 2018, the value of the securities on loan and payable for collateral due to broker were as follows:
Values of | Fund | |||||||
Securities | Collateral | |||||||
Fund | on Loan | Received* | ||||||
Spirited Funds/ETFMG Whiskey & Spirits ETF | $ | 226,931 | $ | 227,970 |
* The cash collateral received was invested in the Mount Vernon Securities Lending Prime Portfolio as shown on the Schedule of Investments, an investment with an overnight and continuous maturity, as shown on the Schedule of Investments.
Interest income earned on collateral investments (including applicable fees) and recognized by the Fund during the six months ended March 31, 2018 aggregated $494.
NOTE 8 – FEDERAL INCOME TAXES
The components of distributable earnings (losses) and cost basis of investments for federal income tax purposes at September 30, 2017 were as follows:
Cost | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | |||||||||||||
Spirited Funds/ETFMG Whiskey & Spirits ETF | $ | 5,603,751 | $ | 460,979 | $ | (208,708 | ) | $ | 252,271 |
Undistributed Ordinary Income | Undistributed Long-term Gain | Total Distributable Earnings | Other Accumulated Loss | Total Accumulated Gain | ||||||||||||||||
Spirited Funds/ETFMG Whiskey & Spirits ETF | $ | 68,487 | $ | — | $ | 68,487 | $ | — | $ | 320,758 |
19
Spirited Funds/ETFMG Whiskey & Spirits ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited) (Continued)
As of September 30, 2017, the Fund had accumulated capital loss carryovers of:
Capital Loss Carryover | Expires | ||
Spirited Funds/ETFMG Whiskey & Spirits ETF | None | Indefinite |
Under current tax law, capital and currency losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The following Funds had deferred post-October capital and currency losses, which will be treated as arising on the first business day of the year ended September 30, 2017.
Late Year Ordinary Loss | Post-October Capital Loss | ||
Spirited Funds/ETFMG Whiskey & Spirits ETF | None | None |
U.S. GAAP requires that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the fiscal year ended September 30, 2017, the following table shows the reclassifications made:
Undistributed Accumulated Net Investment Loss | Accumulated Net Realized Loss | Paid-In Capital | ||||||||||
Spirited Funds/ETFMG Whiskey & Spirits ETF | $ | (10,515 | ) | $ | (170,634 | ) | $ | 181,149 |
NOTE 9 – DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid by the Fund during the fiscal year ended September 30, 2017 are as follows:
Year Ended September 30, 2017 | ||||||||
From Ordinary Income | From Capital Gains | |||||||
Spirited Funds/ETFMG Whiskey & Spirits ETF | $ | 22,801 | $ | — |
NOTE 10 – SUBSEQUENT EVENTS
In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
20
Spirited Funds/ETFMG Whiskey & Spirits ETF
For the Period Ended March 31, 2018 (Unaudited)
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on March 28, 2018, the Board of Trustees (the “Board”) of ETF Managers Trust (the “Trust”) considered the renewal of the Investment Advisory Agreement (the “Advisory Agreement”) between ETF Managers Group LLC (the “Adviser”) and the Trust, on behalf of Spirited Funds/ETFMG Whiskey & Spirits ETF (the “Fund”).
Pursuant to Section 15(c) of the 1940 Act, the Board must annually review and approve the Advisory Agreement after its initial two-year term: (i) by the vote of the Trustees or by a vote of the shareholders of the Fund; and (ii) by the vote of a majority of the Trustees who are not parties to the Advisory Agreement or “interested persons” of any party thereto, as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. Each year, the Board calls and holds a meeting to decide whether to renew the Advisory Agreement for an additional one-year term. In preparation for such meeting, the Board requests and reviews a wide variety of information from the Adviser.
In reaching its decision, the Board, including the Independent Trustees, considered all factors it believed relevant, including: (i) the nature, extent and quality of the services provided to the Fund’s shareholders by the Adviser; (ii) the investment performance of the Fund; (iii) the Adviser’s costs and profits realized in providing services to the Fund, including any fall-out benefits enjoyed by the Adviser; (iv) comparative fee and expense data for the Fund in relation to other similar investment companies; (v) the extent to which economies of scale would be realized as the Fund grows and whether the advisory fees for the Fund reflects these economies of scale for the benefit of the Fund; and (vi) other financial benefits to the Adviser and its affiliates resulting from services rendered to the Fund. The Board’s review included written and oral information furnished to the Board prior to and at the meeting held on March 28, 2018, and throughout the year. Among other things, the Adviser provided responses to a detailed series of questions, which included information about the Adviser’s operations, service offerings, personnel, compliance program and financial condition. The Board then discussed the written and oral information that it received before the meeting and throughout the year, and the Adviser’s oral presentations and any other information that the Board received at the meeting, and deliberated on the renewal of the Advisory Agreement in light of this information.
The Independent Trustees were assisted throughout the contract review process by independent legal counsel. The Independent Trustees relied upon the advice of such counsel and their own business judgment in determining the material factors to be considered in evaluating the renewal of the Advisory Agreement, and the weight to be given to each such factor. The conclusions reached with respect to the Advisory Agreement were based on a comprehensive evaluation of all the information provided and not any single factor. Moreover, each Trustee may have placed varying emphasis on particular factors in reaching conclusions with respect to the Fund. The matters discussed were also considered separately by the Independent Trustees in executive session with independent legal counsel, at which no representatives of management were present.
Nature, Extent and Quality of Services Provided by the Adviser
The Trustees considered the scope of services provided under the Advisory Agreement, noting that the Adviser provides investment management services to the Fund. The Board discussed the responsibilities of the Adviser, including: responsibility for the general management of the day-to-day investment and reinvestment of the assets of the Fund; determining the daily baskets of deposit securities and cash components; executing portfolio security trades for purchases and redemptions of Fund shares conducted on a cash-in-lieu basis; responsibility for daily monitoring of tracking error and quarterly reporting to the Board; and implementation of Board directives as they relate to the Fund. In considering the nature, extent and quality of the services provided by the Adviser, the Board considered the qualifications, experience and responsibilities of the Adviser’s investment personnel, the quality of the Adviser’s compliance infrastructure, and the determination of the Trust’s Chief Compliance Officer that the Adviser has appropriate compliance policies and procedures in place. The Board also considered the Adviser’s experience managing exchange-traded funds (“ETFs”).21
Spirited Funds/ETFMG Whiskey & Spirits ETF
APPROVAL OF ADVISORY AGREEMENT AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2018 (Unaudited) (Continued)
The Board also considered other services provided to the Fund, such as overseeing the Fund’s service providers, monitoring adherence to the Fund’s investment restrictions, and monitoring compliance with various policies and procedures and with applicable securities laws.
Based on the factors above, as well as those discussed below, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by the Adviser.
Historical Performance
The Board then considered the past performance of the Fund. The Board reviewed information regarding the performance history of the Fund over various time periods, including the year-to-date period, the most recent one-year period and the period since the Fund’s inception. The Board noted management’s explanation that analysis of investment performance, in absolute terms, is less relevant for the Fund than it is for actively managed funds, given the Fund’s index-based investment objectives. The Board also noted management’s further explanation that it is more relevant to review the performance of the Fund by focusing on the extent to which the Fund tracked its underlying index. The Board reviewed information regarding the Fund’s index tracking during the time it was managed by the Adviser, discussing, as applicable, factors which contributed to the Fund’s tracking error over certain periods of time. The Board noted that the Fund had underperformed its underlying index over certain periods, but that such underperformance was largely a result of costs incurred by the Fund not incurred by its underlying index. The Board noted that the Fund’s performance was nonetheless generally in line with that of its underlying index. The Board concluded that, after taking these factors into account, the Fund satisfactorily tracked its underlying index. The Board further noted that it had received and would continue to receive regular reports regarding the Fund’s performance at its quarterly meetings.
Cost of Services Provided and Economies of Scale
The Board reviewed the advisory fee for the Fund and compared it to the total operating expenses of comparable ETFs, as determined by an independent third party. Among other information, the Board noted that the advisory fee for the Fund was higher than the average and median expense ratios for its comparable ETFs. The Board took into consideration management’s discussion of the fees, including that the Fund has a niche investment strategy and limited comparable ETFs.
The Board also noted the importance of the fact that the advisory fee for the Fund is a “unified fee,” meaning that the shareholders of the Fund pay no expenses other than the advisory fee and certain other costs such as interest, brokerage and extraordinary expenses and, to the extent it is implemented, fees pursuant to a Distribution and/or Shareholder Servicing (12b-1) Plan. The Board further noted that the Adviser was responsible for compensating the Trust’s other service providers and paying the Fund’s other expenses out of its own fees and resources. The Board also evaluated the compensation and benefits received by the Adviser from its relationship with the Fund, taking into account an analysis of the Adviser’s profitability provided at the meeting. The Board concluded that the advisory fee for the Fund was reasonable in light of the factors considered.
In addition, the Board considered whether economies of scale may be realized for the Fund. The Board noted that the Adviser regularly considers whether fee reductions are appropriate as the Fund grows in size. The Board noted that a unitary fee provides a level of certainty in expenses for the Fund. The Trustees concluded that the flat advisory fee was reasonable.
22
Spirited Funds/ETFMG Whiskey & Spirits ETF
APPROVAL OF ADVISORY AGREEMENT AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2018 (Unaudited) (Continued)
Based on the Board’s deliberations and its evaluation of the information described above, the Board, including the Independent Trustees, unanimously: (a) concluded that the terms of the Advisory Agreement are fair and reasonable; (b) concluded that the Adviser’s fees are reasonable in light of the services that the Adviser provides to the Fund; and (c) approved the renewal of the Advisory Agreement for another year.
23
Six Months Ended March 31, 2018 (Unaudited)
As a shareholder of Spirited Funds/ETFMG Whiskey & Spirits ETF (the “Fund”) you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares, and (2) ongoing costs, including unitary fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (October 1, 2017 to March 31, 2018).
Actual Expenses
The first line of the table provides information about actual account values based on actual returns and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then, multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table provides information about hypothetical account values based on a hypothetical return and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
Spirited Funds/ETFMG Whiskey & Spirits ETF
Beginning Account Value October 1, 2017 | Ending Account Value March 31, 2018 | Expenses Paid During the Period^ | ||||||||||
Actual | $ | 1,000.00 | $ | 1,118.70 | $ | 3.54 | ||||||
Hypothetical (5% annual) | $ | 1,000.00 | $ | 1,021.59 | $ | 3.38 |
^ The dollar amounts shown as expenses paid during the period are equal to the annualized expense ratio for the period since inception multiplied by the average account value during the period, multiplied by 182/365 (to reflect the period from October 1, 2017 to March 31, 2018).
24
March 31, 2018 (Unaudited)
INFORMATION ABOUT PORTFOLIO HOLDINGS
The Fund files a Form N-Q with the Securities and Exchange Commission (the ‘‘SEC’’) no more than sixty days after the Fund’s first and third fiscal quarters. For the Fund, this would be for the fiscal quarters ending June 30 and December 31. Form N-Q includes a complete schedule of the Funds’ portfolio holdings as of the end of those fiscal quarters. The Fund’s N-Q filings can be found free of charge on the SEC’s website at http://www.sec.gov, or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (call 800-SEC-0330 for information on the operation of the Public Reference Room). The Fund’s portfolio holdings are posted on the Fund’s website at www.spiritedfunds.com daily.
INFORMATION ABOUT PROXY VOTING
A description of the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is provided in the Statement of Additional Information (“SAI”). The SAI is available without charge upon request by calling toll-free at 1-844-ETF-MGRS (1-844-383-6477), by accessing the SEC’s website at www.sec.gov, or by accessing the Fund’s website at www.spiritedfunds.com.
Information regarding how the Fund voted proxies relating to portfolio securities during the period ending June 30 is available by calling toll-free at 1-844-ETF-MGRS (1-844-383-6477) or by accessing the SEC’s website at www.sec.gov.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477) or by visiting www.spiritedfunds.com. Read the prospectus carefully before investing.
25
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Advisor
ETF Managers Group, LLC
30 Maple Street, Suite 2, Summit, NJ 07901
Distributor
ETFMG Financial, Inc.
30 Maple Street, Suite 2, Summit, NJ 07901
Custodian
U.S. Bank National Association
Custody Operations
1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212
Transfer Agent
U.S. Bancorp Fund Services, LLC
615 East Michigan Street, Milwaukee, Wisconsin 53202
Securities Lending Agent
U.S. Bank, National Association
Securities Lending
800 Nicolet Mall
Minneapolis, MN 55402-7020
Independent Registered Public Accounting Firm
WithumSmith + Brown, PC
1411 Broadway, 9th Floor, New York, NY 10018
Legal Counsel
Sullivan & Worcester LLP
1666 K Street NW, Washington, DC 20006
Semi-Annual Report
March 31, 2018
March 31, 2018
AI Powered Equity ETF
Ticker: AIEQ
The fund is a series of ETF Managers Trust.
AI Powered Equity ETF
TABLE OF CONTENTS
March 31, 2018
March 31, 2018
Page | |
Shareholders’ Letter | 2 |
Growth of $10,000 Investment | 3 |
Top Ten Holdings | 4 |
Important Disclosures and Key Risk Factors | 5 |
Portfolio Allocations | 6 |
Schedule of Investments | 7 |
Statement of Assets and Liabilities | 11 |
Statement of Operations | 12 |
Statement of Changes in Net Assets | 13 |
Financial Highlights | 14 |
Notes to Financial Statements | 15 |
Approval of Advisory Agreement and Board Considerations | 23 |
Expense Example | 26 |
Supplementary Information | 27 |
AI Powered Equity ETF
On behalf of the entire team, we want to express our appreciation for the confidence you have placed in the AI Powered Equity Exchange-Traded Fund (“AIEQ” or the “Fund”). The following information pertains to the fiscal period from the Fund’s inception, October 18, 2017, to March 31, 2018.
The Fund is actively managed and seeks capital appreciation. Over the fiscal period, the Fund saw positive performance. The NAV price for the Fund increased by 4.47%.
AIEQ invests primarily in equity securities listed on a U.S. exchange based on the results of a proprietary, quantitative model developed by EquBot, Inc. that runs on the Watson™ platform. Each day, the EquBot Model ranks each company based on the probability of the company benefiting from current economic conditions, trends, and world events and identifies approximately 30 to 70 companies with the greatest potential over the next twelve months for appreciation and weights those companies to seek a level of volatility comparable to that of the broader U.S. equity market. EquBot, the Fund’s sub-adviser, is a technology based company focused on applying artificial intelligence (“AI”) based solutions to investment analyses.
You can find further details about AIEQ by visiting www.aieqetf.com, or by calling 1-844-ETF-MGRS (1-844-383-6477).
Sincerely,
Samuel Masucci III
Chairman of the Board
Chairman of the Board
Samuel Masucci III is a registered representative of ETFMG Financial, LLC.
2
Cumulative Returns | Since Inception | |||
Period Ended March 31, 2018 | (10/18/2017) | |||
AI Powered Equity ETF (NAV) | 4.47 | % | ||
AI Powered Equity ETF (Market) | 4.51 | % | ||
S&P 500 Index 1 | 4.02 | % | ||
Total Fund Operating Expenses2 | 0.75 | % |
1. The return reflects the actual performance through March 29, 2018 (the last day of the New York Stock Exchange was open) to maintain consistency with the Fund’s net asset value calculations used for shareholder transactions.
2. The expense ratio is taken from the Fund’s most recent prospectus dated October 18, 2017.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477).
The chart illustrates the performance of a hypothetical $10,000 investment made on October 18, 2017, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the sales of Fund shares. The chart assumes reinvestment of capital gains and dividends. The chart assumes reinvestment of capital gains and dividends, if any. The unmanaged indices do not reflect fees and are not available for direct investment.
3
AI Powered Equity ETF
Security | % of Total Investments† | ||
1 | S&P Global, Inc. | 3.29% | |
2 | NVIDIA Corp. | 3.08% | |
3 | Alphabet, Inc. | 3.07% | |
4 | Amazon.com, Inc. | 2.98% | |
5 | Penn National Gaming, Inc. | 2.79% | |
6 | Radian Group, Inc. | 2.70% | |
7 | Nasdaq, Inc. | 2.58% | |
8 | salesforce.com, Inc. | 2.54% | |
9 | Forest City Realty Trust, Inc. | 2.53% | |
10 | Capital One Financial Corp. | 2.31% |
Top Ten Holdings = 27.87% of Total Investments†
* Current Fund holdings may not be indicative of future Fund holdings.
† Percentage of total investments less cash.
4
AI Powered Equity ETF
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility. The equity securities held in the Fund’s portfolio may experience sudden, unpredictable drops in value or long periods of decline in value. This may occur because of factors that affect securities markets generally or factors affecting specific issuers, industries, or sectors in which the Fund invests such as political, market and economic developments, as well as events that impact specific issuers.
Past performance is no indicative of future return. A Fund’s performance for very short time periods may not be indicative of future performance.
The Fund issues and redeems shares on a continuous basis, at NAV, only in blocks of 25,000 shares (“Creation Units”), principally in-kind for securities included in the Fund’s portfolio, and only Authorized Participants (typically, broker-dealers) may purchase or redeem Creation Units.
The Fund is actively-managed and may not meet its investment objective based on the success or failure of the Equbot Model to identify investment opportunities.
The portfolio managers may actively and frequently trade securities or other instruments in the Fund’s portfolio to carry out its investment strategies. A high portfolio turnover rate increases transaction costs, which may increase the Fund’s expenses.
Some of the models used by the Adviser for the Fund are predictive in nature. The use of predictive models has inherent risks. When Models and Data prove to be incorrect or incomplete, any decisions made in reliance thereon expose the Fund to potential risks. For example, by relying on Models and Data, the Adviser may be induced to buy certain investments at prices that are too high, to sell certain other investments at prices that are too low, or to miss favorable opportunities altogether. Similarly, any hedging based on faulty Models and Data may prove to be unsuccessful.
5
AI Powered Equity ETF
As of March 31, 2018 (Unaudited)
AI Powered Equity ETF | ||||
As a percent of Net Assets: | ||||
Puerto Rico | 1.8 | % | ||
Singapore | 1.2 | |||
United States | 96.9 | |||
Short-Term and other Net Assets (Liabilities) | 0.1 | |||
100 | % |
6
AI Powered Equity ETF
March 31, 2018 (Unaudited)
Shares | Value | |||||||
COMMON STOCKS - 99.9% | ||||||||
Puerto Rico - 1.8% | ||||||||
Banks - 1.8% | ||||||||
Popular, Inc. | 57,025 | $ | 2,373,381 | |||||
Singapore - 1.2% | ||||||||
Semiconductors & Semiconductor Equipment - 1.2% | ||||||||
Broadcom Ltd. | 6,710 | 1,581,212 | ||||||
United States - 96.9% | ||||||||
Automobiles - 1.1% | ||||||||
Thor Industries, Inc. | 13,147 | 1,514,140 | ||||||
Banks - 4.9% | ||||||||
BankUnited, Inc. | 29,519 | 1,180,170 | ||||||
Hancock Holding Co. | 50,169 | 2,593,737 | ||||||
Hilltop Holdings, Inc. ^ | 12,214 | 286,540 | ||||||
Investors Bancorp, Inc. | 43,310 | 590,748 | ||||||
Texas Capital Bancshares, Inc. (a) | 18,241 | 1,639,866 | ||||||
Wintrust Financial Corp. | 5,052 | 434,725 | ||||||
Total Banks | 6,725,786 | |||||||
Biotechnology - 1.1% | ||||||||
AbbVie, Inc. | 15,922 | 1,507,017 | ||||||
Building Products - 1.3% | ||||||||
Owens Corning | 21,342 | 1,715,896 | ||||||
Capital Markets - 17.7% | ||||||||
Ameriprise Financial, Inc. | 16,149 | 2,389,083 | ||||||
Apollo Global Management, LLC. | 103,123 | 3,054,503 | ||||||
BGC Partners, Inc. | 162,227 | 2,181,953 | ||||||
Intercontinental Exchange, Inc. | 8,682 | 629,619 | ||||||
LPL Financial Holdings, Inc. ^ | 30,723 | 1,876,254 | ||||||
Nasdaq, Inc. | 44,422 | 3,830,065 | ||||||
S&P Global, Inc. | 25,552 | 4,881,964 | ||||||
SEI Investments Co. | 40,987 | 3,070,336 | ||||||
T. Rowe Price Group, Inc. ^ | 12,462 | 1,345,522 | ||||||
TD Ameritrade Holding Corp. | 11,360 | 672,853 | ||||||
Total Capital Markets | 23,932,152 | |||||||
Chemicals - 3.0% | ||||||||
LSB Industries, Inc. (a) | 65,256 | 400,019 | ||||||
Platform Specialty Products Corp. (a) | 192,320 | 1,852,042 | ||||||
Valvoline, Inc. | 80,831 | 1,788,790 | ||||||
Total Chemicals | 4,040,851 | |||||||
Communications Equipment - 1.6% | ||||||||
Ciena Corp. (a) | 37,403 | 968,738 | ||||||
InterDigital, Inc. | 15,778 | 1,161,261 | ||||||
Total Communications Equipment | 2,129,999 | |||||||
Construction & Engineering - 0.1% | ||||||||
Orion Group Holdings, Inc. (a) | 20,922 | 137,876 |
The accompanying notes are an integral part of these financial statements.
7
AI Powered Equity ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Value | |||||||
Consumer Finance - 4.2% | ||||||||
Ally Financial, Inc. | 84,873 | $ | 2,304,302 | |||||
Capital One Financial Corp. | 35,683 | 3,419,145 | ||||||
Total Consumer Finance | 5,723,447 | |||||||
Diversified Telecommunication Services - 0.6% | ||||||||
Verizon Communications, Inc. | 16,963 | 811,171 | ||||||
Electrical Equipment - 0.5% | ||||||||
Sunrun, Inc. (a) | 74,733 | 667,366 | ||||||
Electronic Equipment, Instruments & Components - 2.6% | ||||||||
CDW Corp. | 10,184 | 716,037 | ||||||
Systemax, Inc. | 23,711 | 676,949 | ||||||
Tech Data Corp. (a) | 24,062 | 2,048,398 | ||||||
Total Electronic Equipment, Instruments & Components | 3,441,384 | |||||||
Equity Real Estate Investment Trusts (REITs) - 2.8% | ||||||||
Forest City Realty Trust, Inc. | 184,856 | 3,745,183 | ||||||
Food & Staples Retailing - 3.3% | ||||||||
Costco Wholesale Corp. ^ | 14,644 | 2,759,369 | ||||||
Walmart, Inc. ^ | 19,067 | 1,696,391 | ||||||
Total Food & Staples Retailing | 4,455,760 | |||||||
Food Products - 1.5% | ||||||||
Pinnacle Foods, Inc. | 37,259 | 2,015,712 | ||||||
Health Care Equipment & Supplies - 1.6% | ||||||||
Baxter International, Inc. | 33,520 | 2,180,141 | ||||||
Health Care Providers & Services - 6.2% | ||||||||
Centene Corp. (a) | 9,528 | 1,018,257 | ||||||
Encompass Health Corp. | 10,860 | 620,866 | ||||||
Premier, Inc. (a) ^ | 73,989 | 2,316,596 | ||||||
UnitedHealth Group, Inc. | 14,008 | 2,997,712 | ||||||
WellCare Health Plans, Inc. (a) | 7,085 | 1,371,869 | ||||||
Total Health Care Providers & Services | 8,325,300 | |||||||
Hotels, Restaurants & Leisure - 4.7% | ||||||||
Boyd Gaming Corp. | 69,288 | 2,207,516 | ||||||
Penn National Gaming, Inc. (a) | 157,318 | 4,131,171 | ||||||
Total Hotels, Restaurants & Leisure | 6,338,687 | |||||||
Household Durables - 0.7% | ||||||||
Mohawk Industries, Inc. (a) | 4,006 | 930,273 | ||||||
Insurance - 0.2% | ||||||||
Allstate Corp. | 2,413 | 228,752 | ||||||
Internet & Direct Marketing Retail - 3.3% | ||||||||
Amazon.com, Inc. (a) | 3,057 | 4,424,518 | ||||||
Internet Software & Services - 5.7% | ||||||||
Alphabet, Inc. (a) | 4,384 | 4,546,822 | ||||||
Facebook, Inc. (a) ^ | 20,093 | 3,210,660 | ||||||
Total Internet Software & Services | 7,757,482 | |||||||
IT Services - 0.7% | ||||||||
Gartner, Inc. (a) | 8,092 | 951,781 | ||||||
Machinery - 0.4% | ||||||||
Greenbrier Cos., Inc. ^ | 9,986 | 501,797 |
The accompanying notes are an integral part of these financial statements.
8
AI Powered Equity ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Value | |||||||
Media - 3.6% | ||||||||
CBS Corp. | 32,519 | $ | 1,671,151 | |||||
Charter Communications, Inc. (a) | 6,496 | 2,021,686 | ||||||
TEGNA, Inc. | 103,973 | 1,184,252 | ||||||
Total Media | 4,877,089 | |||||||
Oil, Gas & Consumable Fuels - 7.8% | ||||||||
Andeavor | 19,734 | 1,984,451 | ||||||
Noble Energy, Inc. | 81,369 | 2,465,481 | ||||||
Penn Virginia Corp. (a) | 73,420 | 2,572,637 | ||||||
Pioneer Natural Resources Co. | 8,092 | 1,390,044 | ||||||
Targa Resources Corp. | 37,754 | 1,661,176 | ||||||
Williams Cos., Inc. | 19,054 | 473,682 | ||||||
Total Oil, Gas & Consumable Fuels | 10,547,471 | |||||||
Pharmaceuticals - 0.4% | ||||||||
Intra-Cellular Therapies, Inc. (a) | 23,765 | 500,253 | ||||||
Professional Services - 0.2% | ||||||||
RPX Corp. | 26,895 | 287,508 | ||||||
Semiconductors & Semiconductor Equipment - 3.8% | ||||||||
Microchip Technology, Inc. ^ | 7,438 | 679,536 | ||||||
NVIDIA Corp. | 19,709 | 4,564,406 | ||||||
Total Semiconductors & Semiconductor Equipment | 5,243,942 | |||||||
Software - 4.1% | ||||||||
salesforce.com, Inc. (a) | 32,391 | 3,767,074 | ||||||
Tableau Software, Inc. (a) | 3,337 | 269,696 | ||||||
Zynga, Inc. (a) | 391,778 | 1,433,907 | ||||||
Total Software | 5,470,677 | |||||||
Specialty Retail - 0.5% | ||||||||
O’Reilly Automotive, Inc. (a) | 2,651 | 655,804 | ||||||
Technology Hardware, Storage & Peripherals - 3.2% | ||||||||
Apple, Inc. | 11,514 | 1,931,819 | ||||||
Xerox Corp. | 80,598 | 2,319,610 | ||||||
Total Technology Hardware, Storage & Peripherals | 4,251,429 | |||||||
Thrifts & Mortgage Finance - 3.5% | ||||||||
Clifton Bancorp, Inc. | 44,354 | 694,140 | ||||||
Radian Group, Inc. | 209,915 | 3,996,782 | ||||||
Total Thrifts & Mortgage Finance | 4,690,922 | |||||||
Total United States | 130,727,566 | |||||||
TOTAL COMMON STOCKS (Cost $137,211,013) | 134,682,159 | |||||||
RIGHTS - 0.0% | ||||||||
NewStar Financial, Inc. (a)(c) | 115,783 | — | ||||||
TOTAL RIGHTS (Cost $0) | — |
The accompanying notes are an integral part of these financial statements.
9
AI Powered Equity ETF
Schedule of Investments
March 31, 2018 (Unaudited) (Continued)
Shares | Value | |||||||
INVESTMENTS PURCHASED WITH SECURITIES LENDING | ||||||||
COLLATERAL - 10.1% | ||||||||
Investment Companies - 10.1% | ||||||||
Mount Vernon Liquid Assets Portfolio, LLC, 1.89% (b) + | $ | 13,551,223 | ||||||
TOTAL INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL (Cost $13,551,223) | 13,551,223 | |||||||
Total Investments (Cost $150,762,236) - 110.0% | 148,233,382 | |||||||
Liabilities in Excess of Other Assets - (10.0)% | (13,416,528 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 134,816,854 |
Percentages are stated as a percent of net assets.
(a) | Non-income producing security. |
(b) | The rate quoted is the annualized seven-day yield at March 31, 2018. |
(c) | Includes a security that is categorized as Level 3 per the Trust’s fair value hierarchy. This security represents $0 or 0.00% of the Fund’s net assets and is classified as a Level 3 security. |
+ | Investments purchased with cash proceeds from securities lending. Total cash collateral has a value of $13,551,223 as of March 31, 2018. |
^ | All or a portion of this security is out on loan as of March 31, 2018. Total value of securities out on loan is $13,569,002. |
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
10
AI Powered Equity ETF
As of March 31, 2018 (Unaudited)
AI Powered Equity ETF | ||||
ASSETS | ||||
Investments in securities, at fair value* | $ | 148,233,382 | ||
Cash | 220,466 | |||
Receivables: | ||||
Dividends and interest receivable | 79,213 | |||
Securities lending income receivable | 1,928 | |||
Receivable for investments sold | 2,205,056 | |||
Total Assets | 150,740,045 | |||
LIABILITIES | ||||
Collateral received for securities loaned (Note 7) | 13,551,223 | |||
Payables: | ||||
Payable for investments purchased | 2,283,316 | |||
Unitary fees payable | 88,652 | |||
Total Liabilities | 15,923,191 | |||
Net Assets | $ | 134,816,854 | ||
NET ASSETS CONSIST OF: | ||||
Paid-in Capital | $ | 134,723,138 | ||
Undistributed net investment income | 138,017 | |||
Accumulated net realized gain on investments | 2,484,553 | |||
Net unrealized depreciation on: | ||||
Investments in securities | (2,528,854 | ) | ||
Net Assets | $ | 134,816,854 | ||
*Identified Cost: | ||||
Investments in securities | $ | 150,762,236 | ||
Shares Outstanding^ | 5,175,000 | |||
Net Asset Value, Offering and Redemption Price per Share | $ | 26.05 |
^ | No par value, unlimited number of shares authorized |
The accompanying notes are an integral part of these financial statements.
11
AI Powered Equity ETF
Period Ended March 31, 2018 (Unaudited)
AI Powered Equity ETF 1 | ||||
INVESTMENT INCOME | ||||
Income: | ||||
Dividends from unaffiliated securities (net of foreign withholdings tax of $1,927) | $ | 731,458 | ||
Securities lending income | 5,676 | |||
Total Investment Income | 737,134 | |||
Expenses: | ||||
Unitary fees | 350,476 | |||
Net Investment Income | 386,658 | |||
REALIZED & UNREALIZED GAIN ON INVESTMENTS | ||||
Net Realized Gain on: | ||||
Unaffiliated investments | 1,464,702 | |||
In-Kind redemptions | 1,041,485 | |||
Net Realized Gain on Investments and Foreign Currency | 2,506,187 | |||
Net Change in Unrealized Depreciation of: | ||||
Unaffiliated investments | (2,528,854 | ) | ||
Net Change in Unrealized Depreciation of Investments and Foreign Currency | (2,528,854 | ) | ||
Net Realized and Unrealized Loss on Investments | (22,667 | ) | ||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 363,991 |
1 | Fund commenced operations on October 18, 2017. The information presented is for the period from October 18, 2017 to March 31, 2018. |
The accompanying notes are an integral part of these financial statements.
12
AI Powered Equity ETF
Period Ended March 31, 2018 (Unaudited) * | ||||
OPERATIONS | ||||
Net investment income | $ | 386,658 | ||
Net realized gain on investments | 2,506,187 | |||
Net change in unrealized depreciation of investments | (2,528,854 | ) | ||
Net increase in net assets resulting from operations | 363,991 | |||
DISTRIBUTIONS TO SHAREHOLDERS | ||||
From net investment income | (248,641 | ) | ||
From Net Realized Gain | (21,634 | ) | ||
Total Distributions to Shareholders | (270,275 | ) | ||
CAPITAL SHARE TRANSACTIONS | ||||
Net increase in net assets derived from net change in outstanding shares (a) | 134,723,138 | |||
Transaction Fees (Note 1) | — | |||
Net increase in net assets from capital chare transactions | 134,723,138 | |||
Net increase in net assets | 134,816,854 | |||
NET ASSETS | ||||
Beginning of Period | — | |||
End of Period | $ | 134,816,854 | ||
Undistributed net investment income | $ | 138,017 |
(a) | Summary of share transactions is as follows: |
Period Ended March 31, 2018 (Unaudited) * | ||||||||
Shares | Amount | |||||||
Shares Sold | 6,225,000 | $ | 161,540,043 | |||||
Transaction Fees (Note 1) | — | — | ||||||
Shares Redeemed | (1,050,000 | ) | (26,816,905 | ) | ||||
5,175,000 | $ | 134,723,138 | ||||||
Beginning Shares | — | |||||||
Ending Shares | 5,175,000 |
* | Fund commenced operations on October 18, 2017. The information presented is for the period from October 18, 2017 to March 31, 2018. |
The accompanying notes are an integral part of these financial statements.
13
AI Powered Equity ETF
For a capital share outstanding throughout the period
Period Ended March 31, 2018 (Unaudited) 1 | ||||
Net Asset Value, Beginning of Period | $ | 25.00 | ||
Income from Investment Operations: | ||||
Net investment income 2 | 0.10 | |||
Net realized and unrealized gain on investments | 1.02 | |||
Total from investment operations | 1.12 | |||
Less Distributions: | ||||
Distributions from net investment income | (0.06 | ) | ||
Distributions from net realized gain | (0.01 | ) | ||
Total distributions | (0.07 | ) | ||
Net asset value, end of period | 26.05 | |||
Total Return | 4.47 | %3 | ||
Ratios/Supplemental Data: | ||||
Net assets at end of period (000’s) | $ | 134,817 | ||
Expenses to Average Net Assets | 0.75 | %4 | ||
Net Investment Income to Average Net Assets | 0.83 | %4 | ||
Portfolio Turnover Rate | 144 | %3 |
1 | Commencement of operations on October 18, 2017. |
2 | Calculated based on average shares outstanding during the period. |
3 | Not annualized. |
4 | Annualized. |
The accompanying notes are an integral part of these financial statements.
14
AI Powered Equity ETF
March 31, 2018 (Unaudited)
NOTE 1 – ORGANIZATION
AI Powered Equity ETF (the “Fund”) is a series of ETF Managers Trust (the “Trust”), an open-end management investment company consisting of multiple investment series, organized as a Delaware statutory trust on July 1, 2009. The Trust is registered with the SEC under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company and the offering of the Fund’s shares (“Shares”) is registered under the Securities Act of 1933, as amended (the “Securities Act”). The investment objective of the Fund is capital appreciation. The Fund commenced operations on October 18, 2017.
The Fund currently offers one class of shares, which has no front end sales load, no deferred sales charges, and no redemption fees. The Fund may issue an unlimited number of shares of beneficial interest, with no par value. All shares of the Fund have equal rights and privileges.
Shares of the Fund are listed and traded on the NYSE Arca, Inc. Market prices for the Shares may be different from their net asset value (“NAV”). The Fund issues and redeems Shares on a continuous basis at NAV only in blocks of 25,000 shares, called “Creation Units.” Creation Units are issued and redeemed principally in-kind for securities included in a specified Index. Once created, Shares generally trade in the secondary market at market prices that change throughout the day in quantities less than a Creation Unit. Except when aggregated in Creation Units, Shares are not redeemable securities of a Fund. Shares of a Fund may only be purchased or redeemed by certain financial institutions (“Authorized Participants”). An Authorized Participant is either (i) a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a DTC participant and, in each case, must have executed a Participant Agreement with the Distributor. Most retail investors do not qualify as Authorized Participants nor have the resources to buy and sell whole Creation Units. Therefore, they are unable to purchase or redeem the Shares directly from a Fund. Rather, most retail investors may purchase Shares in the secondary market with the assistance of a broker and are subject to customary brokerage commissions or fees.
Authorized Participants transacting in Creation Units for cash may pay an additional variable charge to compensate the relevant Fund for certain transaction costs (i.e., brokerage costs) and market impact expenses relating to investing in portfolio securities. Such variable charges, if any, are included in “Transaction Fees” in the statements of changes in net assets.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946 Financial Services – Investment Companies.
The Fund may invest in certain other investment companies (underlying funds). For specific investments in underlying funds, please refer to the complete schedule of portfolio holdings on Form N-CSR(S) for this reporting period, which is filed with the U.S. Securities and Exchange Commission (SEC). For more information about the underlying Fund’s operations and policies, please refer to those Fund’s semiannual and annual reports, which are filed with the SEC.
15
AI Powered Equity ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited)
March 31, 2018 (Unaudited)
A. | Security Valuation. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on NASDAQ), including securities traded over the counter, are valued at the last quoted sale price on the primary exchange or market (foreign or domestic) on which they are traded on the valuation date (or at approximately 4:00 pm Eastern Time if a security’s primary exchange is normally open at that time), or, if there is no such reported sale on the valuation date, at the most recent quoted bid price. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. |
Securities for which quotations are not readily available are valued at their respective fair values as determined in good faith by the Board of Trustees (the “Board”). When a security is “fair valued,” consideration is given to the facts and circumstances relevant to the particular situation, including a review of various factors set forth in the pricing procedures adopted by the Fund’s Board. The use of fair value pricing by a fund may cause the net asset value of its shares to differ significantly from the net asset value that would be calculated without regard to such considerations. As of March 31, 2018, the Fund held one fair valued security. More detail about this security can be found in the Schedule of Investments.
As described above, the Fund utilizes various methods to measure the fair value of its investments on a recurring basis. U.S. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are:
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access. |
Level 2 | Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
Level 3 | Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
16
AI Powered Equity ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited)
The following table presents a summary of the Funds’ investments in securities, at fair value, as of March 31, 2018:
AI Powered Equity ETF
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 134,682,159 | $ | — | $ | — | $ | 134,682,159 | ||||||||
Rights | — | — | — | (1) | — | |||||||||||
Investments Purchased with Securities | ||||||||||||||||
Lending Collateral* | — | — | — | 13,551,223 | ||||||||||||
Total Investments in Securities | $ | 134,682,159 | $ | — | $ | — | $ | 148,233,382 |
^ | See Schedule of Investments for classifications by sector or country. |
(1) | Includes a security valued at $0. |
The AI Powered Equity ETF held a Level 3 security at the end of the period. The security classified as Level 3 is deemed immaterial. There were no transfers between Levels 1, 2 and 3 during the period ended March 31, 2018. Transfers between levels are recognized at the end of the reporting period.
* Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Schedule of Investments.
B. | Federal Income Taxes. The Fund has elected to be taxed as a “regulated investment company” and intends to distribute substantially all taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. Therefore, no provisions for federal income taxes or excise taxes have been made. |
To avoid imposition of the excise tax applicable to regulated investment companies, the Fund intends to declare each year as dividends, in each calendar year, at least 98.0% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts, if any, from prior years.
Net capital losses incurred after October 31, within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year.
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. The Fund has analyzed its tax position and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions expected to be taken in the Fund’s 2017 tax returns. The Fund identifies its major tax jurisdictions as U.S. Federal, the State of New Jersey, and the State of Delaware; however the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.
17
AI Powered Equity ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited)
March 31, 2018 (Unaudited)
C. | Security Transactions and Investment Income. Investment securities transactions are accounted for on the trade date. Gains and losses realized on sales of securities are determined on a specific identification basis. Discounts/premiums on debt securities purchased are accreted/amortized over the life of the respective securities using the effective interest method. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Income, including gains, from investments in foreign securities received by the Fund may be subject to income, withholding or other taxes imposed by foreign countries. |
D. | Foreign Currency Translations and Transactions. The Fund may engage in foreign currency transactions. Foreign currency transactions are translated into U.S. dollars on the following basis: (i) market value of investment securities, assets and liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. For financial reporting purposes, the Fund does not isolate changes in the exchange rate of investment securities from the fluctuations arising from changes in the market prices of securities for unrealized gains and losses. However, for federal income tax purposes, the Fund does isolate and treat as ordinary income the effect of changes in foreign exchange rates on realized gains or losses from the sale of investment securities and payables and receivables arising from trade-date and settlement-date differences. |
E. | Distributions to Shareholders. Distributions to shareholders from net investment income are declared and paid for the Fund on a quarterly basis. Net realized gains on securities for the Fund normally are declared and paid on an annual basis. Distributions are recorded on the ex-dividend date. |
F. | Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. |
G. | Share Valuation. The net asset value (“NAV”) per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding for the Fund, rounded to the nearest cent. The Fund’s shares will not be priced on the days on which the NYSE is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund’s net asset value per share. |
H. | Guarantees and Indemnifications. In the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote. |
NOTE 3 – RISK FACTORS
Investing in the AI Powered Equity ETF may involve certain risks, as discussed in the Fund’s prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.
18
AI Powered Equity ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited)
March 31, 2018 (Unaudited)
Equity Market Risk. The equity securities held in the Fund’s portfolio may experience sudden, unpredictable drops in value or long periods of decline in value. This may occur because of factors that affect securities markets generally or factors affecting specific issuers, industries, or sectors in which the Fund invests such as political, market and economic developments, as well as events that impact specific issuers.
Management Risk. The Fund is subject to management risk as an actively-managed investment portfolio. The Adviser’s investment approach may fail to produce the intended results. If the Adviser’s implementation of the EquBot Model is inaccurate or incomplete, the Fund may not perform as expected and your investment could lose value over short or long-term periods. Additionally, the Adviser has not previously managed a Fund whose strategy relies on the use of AI, which may create additional risks for the Fund.
Market Trading Risk. An investment in the Fund faces numerous market trading risks, including the potential lack of an active market for Fund shares, losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Any of these factors, among others, may lead to the Fund’s shares trading at a premium or discount to NAV.
Models and Data Risk. The Fund relies heavily on proprietary quantitative models as well as information and data supplied by third parties (“Models and Data”). When Models and Data prove to be incorrect or incomplete, any decisions made in reliance thereon expose the Fund to potential risks.
New Fund Risk. There can be no assurance that the Fund will grow to or maintain an economically viable size.
Non-Diversification Risk. Because the Fund is “non-diversified,” it may invest a greater percentage of its assets in the securities of a single issuer or a small number of issuers than if it was a diversified fund. As a result, a decline in the value of an investment in a single issuer or a small number of issuers could cause the Fund’s overall value to decline to a greater degree than if the Fund held a more diversified portfolio. This may increase the Fund’s volatility and have a greater impact on the Fund’s performance.
Portfolio Turnover Risk. The portfolio managers may actively and frequently trade securities or other instruments in the Fund’s portfolio to carry out its investment strategies. A high portfolio turnover rate increases transaction costs, which may increase the Fund’s expenses.
REIT Investment Risk. Investments in REITs involve unique risks. REITs may have limited financial resources, may trade less frequently and in limited volume, and may be more volatile than other securities. REITs may be affected by changes in the value of their underlying properties or mortgages or by defaults by their borrowers or tenants. Furthermore, these entities depend upon specialized management skills, have limited diversification and are, therefore, subject to risks inherent in financing a limited number of projects. In addition, the performance of a REIT may be affected by changes in the tax laws or by its failure to qualify for tax-free pass-through of income.
Sector Risk. To the extent the Fund invests more heavily in particular sectors of the economy, its performance will be especially sensitive to developments that significantly affect those sectors.
Smaller Companies Risk. Smaller companies in which the Fund may invest may be more vulnerable to adverse business or economic events than larger, more established companies, and may underperform other segments of the market or the equity market as a whole. The securities of smaller companies also tend to be bought and sold less frequently and at significantly lower trading volumes than the securities of larger companies. As a result, it may be more difficult for the Fund to buy or sell a significant amount of the securities of a smaller company without an adverse impact on the price of the company’s securities, or the Fund may have to sell such securities in smaller quantities over a longer period of time, which may increase the Fund’s tracking error.
19
AI Powered Equity ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited)
March 31, 2018 (Unaudited)
NOTE 4 – COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS.
ETF Managers Group, LLC (the “Advisor”), serves as the investment advisor to the Fund. Pursuant to an Investment Advisory Agreement (“Advisory Agreement”) between the Trust, on behalf of the Fund, and the Advisor, the Advisor provides investment advice to the Fund and oversees the day-today operations of the Fund, subject to the direction and control of the Board and the officers of the Trust. Under the Advisory Agreement, the Advisor is also responsible for arranging transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Fund to operate.
Under the Investment Advisory Agreement with the Fund, the Advisor has overall responsibility for the general management and administration of the Fund and arranges for sub-advisory, transfer agency, custody, fund administration, securities lending, and all other non-distribution related services necessary for the Fund to operate. The Advisor bears the costs of all advisory and non-advisory services required to operate the Fund, in exchange for a single unitary fee. For services provided the Fund pays the Advisor at an annual rate of 0.75% of the Fund’s average daily net assets. The Advisor has an agreement with, and is dependent on, a third party to pay the Fund’s expenses in excess of 0.75% of the Fund’s average daily net assets. Additionally, under the Investment Advisory Agreement, the Advisor has agreed to pay all expenses of the Fund, except for: the fee paid to the Advisor pursuant to the Investment Advisory Agreement, interest charges on any borrowings, taxes, brokerage commissions and other expenses incurred in placing orders for the purchase and sale of securities and other investment instruments, acquired fund fees and expenses, accrued deferred tax liability, extraordinary expenses, and distribution (12b-1) fees and expenses (collectively, “Excluded Expenses”). The Advisor has entered into an Agreement with EquBot, Inc. (the “Sub-Advisor”), under which the Sub-Advisor agrees to provide marketing support for the Fund, including distributing marketing materials related to the Fund. EquBot, Inc. is a privately held business focused on bringing exchange-traded investment products to investors in the U.S. The Fund’s investment adviser utilizes the recommendations of the EquBot Model to decide which securities to purchase and sell, while complying with the 1940 Act and its rules and regulations. The Fund’s investment advisor anticipates primarily making purchase and sale decisions based on information from the EquBot Model. The Fund may frequently and actively purchase and sell securities.
US Bancorp Fund Services, LLC (the “Administrator”) provides fund accounting, fund administration, and transfer agency services to the Fund. The Advisor compensates the Administrator for these services under an administration agreement between the two entities.
The Advisor pays each independent Trustee a quarterly fee for service to the Fund. Each Trustee is also reimbursed by the Advisor for all reasonable out-of-pocket expenses incurred in connection with his duties as Trustee, including travel and related expenses incurred in attending Board meetings.
NOTE 5 – DISTRIBUTION PLAN
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may pay compensation to the Distributor or any other distributor or financial institution with which the Trust has an agreement with respect to the Fund, with the amount of such compensation not to exceed an annual rate of 0.25% of each Fund’s daily average net assets. For the period ended March 31, 2018, the Fund did not incur any 12b-1 expenses.
20
AI Powered Equity ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited)
March 31, 2018 (Unaudited)
NOTE 6 - PURCHASES AND SALES OF SECURITIES
The costs of purchases and sales of securities, excluding short-term securities and in-kind transactions, for the period ended March 31, 2018:
Purchases | Sales | |||||||
AI Powered Equity ETF | $ | 161,209,795 | $ | 159,282,897 |
The costs of purchases and sales of in-kind transactions associated with creations and redemptions for the period ended March 31, 2018:
Purchases In-Kind | Sales In-Kind | |||||||
AI Powered Equity ETF | $ | 160,673,285 | $ | 26,509,376 |
Purchases in-kind are the aggregate of all in-kind purchases and sales in-kind are the aggregate of all proceeds from in-kind sales. Net capital gains or losses resulting from in-kind redemptions are excluded from the Fund’s taxable gains and are not distributed to shareholders.
There were no purchases or sales of U.S. Government obligations for the period ended March 31, 2018.
NOTE 7 — SECURITIES LENDING
The Fund may lend up to 331/3% of the value of the securities in its portfolio to brokers, dealers and financial institutions (but not individuals) under terms of participation in a securities lending program administered by U.S. Bank N.A. (“the Custodian”). The securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 102% of the value of any loaned securities at the time of the loan, plus accrued interest. The Fund receives compensation in the form of fees and earn interest on the cash collateral. The amount of fees depends on a number of factors including the type of security and length of the loan. The Fund continues to receive interest payments or dividends on the securities loaned during the borrowing period. Gain or loss in the fair value of securities loaned that may occur during the term of the loan will be for the account of the Fund. The Fund has the right under the terms of the securities lending agreement to recall the securities from the borrower on demand. The cash collateral is invested by the Custodian in accordance with approved investment guidelines. Those guidelines require the cash collateral to be invested in readily marketable, high quality, short-term obligations; however, such investments are subject to risk of payment delays or default on the part of the issuer or counterparty or otherwise may not generate sufficient interest to support the costs associated with securities lending. The Fund could also experience delays in recovering its securities and possible loss of income or value if the borrower fails to return the borrowed securities, although the Fund is indemnified from this risk by contract with the securities lending agent.
21
AI Powered Equity ETF
NOTES TO FINANCIAL STATEMENTS
March 31, 2018 (Unaudited)
March 31, 2018 (Unaudited)
As of March 31, 2018, the value of the securities on loan and payable for collateral due to broker were as follows:
Value of Securities on Loan Collateral Received
Fund | Values of Securities on Loan | Fund Collateral Received* | ||||||
AI Powered Equity ETF | $ | 13,569,002 | $ | 13,551,223 |
* The cash collateral received was invested in the Mount Vernon Securities Lending Prime Portfolio as shown on the Schedule of Investments, an investment with an overnight and continuous maturity, as shown on the Schedule of Investments.
Interest income earned on collateral investments (including applicable fees) and recognized by the Fund during the period ended March 31, 2018, aggregated $5,676.
NOTE 8 – SUBSEQUENT EVENTS
In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
22
AI Powered Equity ETF
For the Period Ended March 31, 2018 (Unaudited)
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on September 21, 2017, the Board of Trustees (the “Board”) of ETF Managers Trust (the “Trust”) considered the approval of the following agreements:
● | an Investment Advisory Agreement between ETF Managers Group, LLC (the “Adviser”) and the Trust, on behalf of AI Powered Equity ETF (the “Fund”) (the “Advisory Agreement”); and |
● | a Sub-Advisory Agreement between the Adviser and Equbot LLC (the “Sub-Adviser”) with respect to the Fund (the “Sub-Advisory Agreement” and, together with the Advisory Agreement, the “Agreements”). |
The Agreements must be approved: (i) by the vote of the Trustees or by a vote of the shareholders of the Fund; and (ii) by the vote of a majority of the Trustees who are not parties to the Agreements or “interested persons” of any party thereto, as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. Each year after the initial two-year term, the Board will call and hold a meeting to decide whether to renew each Agreement for an additional one-year term. In preparation for such meeting, the Board requests and reviews a wide variety of information from the Adviser and Sub-Adviser.
In reaching its decision, the Board, including the Independent Trustees, considered all factors it believed relevant, including: (i) the nature, extent and quality of the services to be provided to the Fund’s shareholders by the Adviser and Sub-Adviser; (ii) comparative fee and expense data for the Fund and other similar investment companies; (iii) the extent to which economies of scale may be realized as the Fund grows and whether the proposed advisory fee for the Fund reflects these expected economies of scale for the benefit of the Fund; and (iv) other financial benefits to the Adviser or Sub-Adviser or their affiliates resulting from services to be rendered to the Fund. The Board’s review included written and oral information furnished to the Board prior to and at the meeting held on September 21, 2017, and throughout the year. Among other things, each of the Adviser and Sub-adviser provided responses to detailed series of questions, which included information about the Adviser’s and Sub-adviser’s operations, service offerings, personnel, compliance program and financial condition. Representatives of the Adviser and the Sub-Adviser discussed the services to be provided to the Fund, the rationale for launching the Fund, and the Fund’s proposed fees in comparison to the fees of comparable investment companies. The Board then discussed the written and oral information that it received before the meeting and throughout the year, and the Adviser’s and Sub-Adviser’s oral presentations and any other information that the Board received at the meeting, and deliberated on the approval of the Agreements in light of this information.
The Independent Trustees were assisted throughout the contract review process by independent legal counsel. The Independent Trustees relied upon the advice of such counsel and their own business judgment in determining the material factors to be considered in evaluating the approval of the Agreements, and the weight to be given to each such factor. The conclusions reached with respect to the Agreements were based on a comprehensive evaluation of all the information provided and not any single factor. Moreover, each Trustee may have placed varying emphasis on particular factors in reaching conclusions with respect to the Fund. The matters discussed were also considered separately by the Independent Trustees in executive session with independent legal counsel, at which no representatives of management were present.
Nature, Extent and Quality of Services Provided by the Adviser
The Trustees considered the scope of services to be provided under the Advisory Agreement, noting that the Adviser will be providing investment management services to the Fund. The Board discussed the responsibilities of the Adviser, including: responsibility for the general management of the day-to-day investment and reinvestment of the assets of the Fund, based on recommendations provided by the Sub-Adviser; determining the daily baskets of deposit securities and cash components; executing portfolio security trades for purchases and redemptions of Fund shares conducted on a cash-in-lieu basis; and implementation of Board directives as they relate to the Funds. In considering the nature, extent and quality of the services to be provided by the Adviser, the Board considered the quality of the Adviser’s compliance program. The Board also considered the Adviser’s experience managing exchange-traded funds (“ETFs”). The Board considered the experience of the portfolio managers of the Fund.
23
AI Powered Equity ETF
APPROVAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2018 (Unaudited) (Continued)
The Board further considered other services to be provided to the Fund, such as overseeing the activities of the Sub-Adviser, as well as the Fund’s other service providers, monitoring adherence to the Fund’s investment restrictions, and monitoring compliance with various policies and procedures and with applicable securities laws.
The Board then considered the scope of services to be provided under the Sub-Advisory Agreement, noting that the Sub-Adviser will be providing investment sub-advisory services to the Adviser in the form of recommendations based on the Sub-Adviser’s quantitative model. The Board noted that the responsibility for trading the Fund’s portfolio securities would rest with the Adviser. In considering the nature, extent and quality of the services to be provided by the Sub-Adviser, the Board noted that it had received a copy of the Sub-Adviser’s Form ADV, as well as the response of the Sub-Adviser to a detailed series of questions which included, among other things, information about the background and experience of the Sub-Adviser’s personnel. The Board considered the experience of the Sub-Adviser’s personnel in the financial services and artificial intelligence businesses. The Board also considered the quality of the Sub-Adviser’s compliance program and Code of Ethics.
Based on the factors above, as well as those discussed below, the Board concluded that it was satisfied with the nature, extent and quality of the services to be provided to the Fund by the Adviser and Sub-Adviser.
Cost of Services Provided and Economies of Scale
The Board reviewed the proposed investment advisory fee for the Fund and compared it to the total operating expenses of comparable ETFs. The Board noted that the expense ratio for the Fund was lower than the average and median expense ratios for its peer ETFs. The Board considered management’s explanation that an actively managed strategy would justify a higher management fee than an index based strategy because of the additional effort required to manage an active fund.
The Board noted the importance of the fact that the proposed advisory fee for the Fund is a “unified fee,” meaning that the shareholders of the Fund would pay no expenses other than the advisory fee and certain other costs such as interest, brokerage and extraordinary expenses and, to the extent it is implemented, fees pursuant to a Distribution and/or Shareholder Servicing (12b-1) Plan. The Board also noted that the Adviser would be responsible for compensating the Fund’s other service providers (including the Sub-Adviser) and paying the Fund’s other expenses out of its own fee and resources. The Board further noted that because the Fund was new, it was difficult to estimate the profitability of the Fund to the Adviser. The Board, however, evaluated other compensation and benefits expected to be received by the Adviser from its relationship with the Fund.
The Board noted that because the Fund was new, it also was difficult to estimate whether the Fund would experience economies of scale. The Board noted that the Adviser will review expenses as Fund assets grow, and the Board determined to evaluate economies of scale on an ongoing basis if the Fund achieved asset growth.
24
AI Powered Equity ETF
APPROVAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2018 (Unaudited)
The Board also reviewed the proposed sub-advisory fee to be paid to the Sub-Adviser for its services to the Fund under the Sub-Advisory Agreement. The Board considered this fee in light of the services the Sub-Adviser would provide as investment sub-adviser to the Fund. The Board also considered that the sub-advisory fee to be paid to the Sub-Adviser was to be paid out of the Adviser’s unified fee and represented an arm’s-length negotiation between the Adviser and the Sub-Adviser. In considering the proposed sub-advisory fee, the Board considered other compensation to be received by the Sub-Adviser in its role as the Fund’s sponsor. The Board determined that the fee reflected an appropriate allocation of the advisory fee to be paid to the Adviser and the Sub-Adviser given the work performed by each firm. The Board concluded that the proposed sub-advisory fee was reasonable in light of the services to be rendered. The Board considered that, because the proposed sub-advisory fee would be paid by the Adviser out of its unified fee, any economies of scale would not benefit shareholders and, thus, were not relevant for the consideration of the approval of the sub-advisory fee.
Based on the Board’s deliberations and its evaluation of the information described above, the Board, including the Independent Trustees, unanimously: (a) concluded that the terms of the Agreements are fair and reasonable; (b) concluded that the Adviser’s and Sub-Adviser’s fee is reasonable in light of the services that the Adviser and Sub-Adviser will each provide to the Fund; and (c) approved the Agreements for an initial term of two years.
25
AI Powered Equity ETF
For the Period Ended March 31, 2018 (Unaudited)
As a shareholder of AI Powered Equity ETF (the “Fund”) you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares, and (2) ongoing costs, including Unitary fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (October 1, 2017 to March 31, 2018).
Actual Expenses
The first line of the table provides information about actual account values based on actual returns and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then, multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table provides information about hypothetical account values based on a hypothetical return and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
AI Powered Equity ETF
Beginning Account Value October 1, 2017 | Ending Account Value March 31, 2018 | Expenses Paid During the Period | ||||||||||
Actual | $ | 1,000.00 | $ | 1,044.70 | $ | 3.45 | ^ | |||||
Hypothetical (5% annual) | $ | 1,000.00 | $ | 1,619.10 | $ | 3.78 | + |
^ The dollar amounts shown as expenses paid during the period are equal to the annualized six-month expense ratio multiplied by the average account value during the period, multiplied by 165/365 (to reflect the period from October 18, 2017 to March 31, 2018).
+ The dollar amounts shown as expenses paid during the period are equal to the annualized six-month expense ratio multiplied by 182/365 (to reflect the period from October 1, 2017 to March 31, 2018).
26
AI Powered Equity ETF
March 31, 2018 (Unaudited)
INFORMATION ABOUT PORTFOLIO HOLDINGS
The Fund files a Form N-Q with the Securities and Exchange Commission (the ‘‘SEC’’) no more than sixty days after the Fund’s first and third fiscal quarters. For the Fund, this would be for the fiscal quarters ending June 30 and December 31. Form N-Q includes a complete schedule of the Funds’ portfolio holdings as of the end of those fiscal quarters. The Fund’s N-Q filings can be found free of charge on the SEC’s website at http://www.sec.gov, or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (call 800-SEC-0330 for information on the operation of the Public Reference Room). The Fund’s portfolio holdings are posted on the Fund’s website at www.AIEQetf.com daily.
INFORMATION ABOUT PROXY VOTING
A description of the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is provided in the Statement of Additional Information (“SAI”). The SAI is available without charge upon request by calling toll-free at 1-844-ETF-MGRS (1-844-383-6477), by accessing the SEC’s website at www.sec.gov, or by accessing the Fund’s website at www.AIEQetf.com.
Information regarding how the Fund voted proxies relating to portfolio securities during the period ending June 30 is available by calling toll-free at 1-844-ETF-MGRS (1-844-383-6477) or by accessing the SEC’s website at www.sec.gov.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477) or by visiting www.AIEQetf.com. Read the prospectus carefully before investing.
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Advisor
ETF Managers Group, LLC
30 Maple Street, Suite 2, Summit, NJ 07901
30 Maple Street, Suite 2, Summit, NJ 07901
Sub-Advisor
Equbot, Inc.
450 Townsend St.
San Francisco, CA 94107
450 Townsend St.
San Francisco, CA 94107
Distributor
ETFMG Financial, Inc.
30 Maple Street, Suite 2, Summit, NJ 07901
Custodian
U.S. Bank National Association
Custody Operations
Custody Operations
1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212
Transfer Agent
U.S. Bancorp Fund Services, LLC
615 East Michigan Street, Milwaukee, Wisconsin 53202
Securities Lending Agent
U.S. Bank, National Association
Securities Lending
800 Nicolet Mall
Minneapolis, MN 55402-7020
Securities Lending
800 Nicolet Mall
Minneapolis, MN 55402-7020
Independent Registered Public Accounting Firm
WithumSmith + Brown, PC
1411 Broadway, 9th Floor, New York, NY 10018
Legal Counsel
Sullivan & Worcester LLP
1666 K Street NW, Washington, DC 20006
1666 K Street NW, Washington, DC 20006
28
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
Item 6. Investments.
(a) | Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form. |
(b) | Not applicable. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 9. Purchases of Equity Securities by Closed‑End Management Investment Company and Affiliated Purchasers.
Not applicable to open-end investment companies.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) | The Registrant’s Principal Executive Officer and Principal Financial Officer/Treasurer have reviewed the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as of a date within 90 days of the filing of this report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d‑15(b) under the Securities Exchange Act of 1934. Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized and reported and made known to them by others within the Registrant and by the Registrant’s service provider. |
(b) | There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies
Not applicable to open-end investment companies.
Item 13. Exhibits.
(a) | (1) Any code of ethics or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Not applicable for semi-annual reports. |
(2) A separate certification for each principal executive and Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
(3) Any written solicitation to purchase securities under Rule 23c‑1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable to open-end investment companies.
(b) | Certifications pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002. Furnished herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) ETF Managers Trust
By (Signature and Title /s/ Samuel Masucci III
Samuel Masucci III, Principal Executive Officer
Date May 31, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* /s/ Samuel Masucci III
Samuel Masucci III, Principal Executive Officer
Date May 31, 2018
By (Signature and Title)* /s/ John A. Flanagan
John A. Flanagan, Principal Financial Officer/Treasurer
Date May 31, 2018
* Print the name and title of each signing officer under his or her signature.