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
(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)
(Address of principal executive offices)
U.S. Bank Global Fund Services, LLC
811 E Wisconsin Ave
Milwaukee, WI 53202
(Name and address of agent for service)
(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: September 30, 2018
Item 1. Reports to Stockholders.
Annual Report
September 30, 2018
September 30, 2018
ETFMG Prime Junior Silver ETF
Ticker: SILJ
Ticker: SILJ
ETFMG Prime Cyber Security ETF
Ticker: HACK
Ticker: HACK
ETFMG Prime Mobile Payments ETF
Ticker: IPAY
Ticker: IPAY
ETFMG Drone Economy Strategy ETF
Ticker: IFLY
Ticker: IFLY
ETFMG Video Game Tech ETF
Ticker: GAMR
Ticker: GAMR
The funds are a series of ETF Managers Trust.
ETFMG™ ETFs
TABLE OF CONTENTS
September 30, 2018
September 30, 2018
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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. The following information pertains to the fiscal period from October 1, 2017 to September 30, 2018.
Performance Overview
During the 12-month period ended September 30, 2018, the S&P 500 Information Technology Sector Index, a broad measure of US listed technology companies, returned 31.49%. During the same period, the S&P Global 1200 Information Technology Sector Index, a broad measure of global technology companies, returned 24.92%. Below is a performance overview for each Fund for the same 12-month period. 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 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 total return for the Fund was 33.16%, while the total return for the Index was 33.51%. The best performers in the Fund on the basis of contribution to return were Fortinet, CyberArk, and Splunk, while the worst performers were Symantec, Sophos Group, and Gigamon.
ETFMG Prime Junior Silver ETF (SILJ)
The ETFMG Prime 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”).
Over the period, the total return for the Fund was -26.50%, while the total return for the Index was -26.35%. The best performers in the Fund on the basis of contribution to return were Arizona Mining, SilverCrest Metals, and Maya Gold & Silver, while the worst performers were Hecla Mining, Coeur Mining, and Hochschild Mining.
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 total return for the Fund was 31.62%, while the total return for the Index was 32.25%. The best performers in the Fund on the basis of contribution to return were Square, Wirecard, and Mastercard, while the worst performers were Cielo S.A., NCR Corporation, and Qiwi.
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”).
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Over the period, the total return for the Fund was 9.03%, while the total return for the Index was 8.93%. The best performers in the Fund on the basis of contribution to return were Aeroenvironment, Boeing, and Nvidia, while the worst performers Parrot S.A., GoPro, and Ambarella.
ETFMG Video Game Tech ETF (GAMR)
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 total return for the Fund was 8.38%, while the total return for the Index was 8.98%. The best performers in the Fund on the basis of contribution to return were Capcom, Glu Mobile, and Advanced Micro Devices, while the worst performers were Changyou, Razer Inc., and Rovio Entertainment.
You can find further details about GAMR, HACK, IFLY, IPAY and SILJ by visiting www.etfmgfunds.com, or by calling 1-844-ETF-MGRS.
Sincerely,
Samuel Masucci III
Chairman of the Board
Chairman of the Board
Samuel Masucci III is a registered representative of ETFMG Financial, LLC.
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Average Annual Returns Period Ended September 30, 2018 | 1 Year Return | 5 Year Return | Since Inception (11/29/12) | Value of $10,000 (9/30/18) | ||||||||||||
ETFMG Prime Junior Silver ETF (NAV) | -26.50 | % | -5.19 | % | -12.83 | % | $ | 4,485 | ||||||||
ETFMG Prime Junior Silver ETF (Market) | -26.64 | % | -5.36 | % | -12.85 | % | $ | 4,481 | ||||||||
S&P 500 Index | 17.91 | % | 13.95 | % | 15.62 | % | $ | 23,329 | ||||||||
Prime Junior Silver Miners & Explorers Index | -26.35 | % | -3.86 | % | -11.58 | % | $ | 4,878 | ||||||||
Total Fund Operating Expenses(1) | 0.69 | % |
(1) 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 index returns do not reflect fees or expenses and are not available for direct investment.
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ETFMG Prime Junior Silver ETF
Top Ten Holdings* (Unaudited) | |||
Security | % of Total Investments | ||
1 | Pan American Silver Corp. | 12.13% | |
2 | Hochschild Mining PLC | 12.12% | |
3 | First Majestic Silver Corp. | 11.97% | |
4 | Hecla Mining Co. | 11.44% | |
5 | MAG Silver Corp. | 4.60% | |
6 | Yamana Gold, Inc. | 4.51% | |
7 | Coeur Mining, Inc. | 4.27% | |
8 | Silvercorp Metals, Inc. | 3.93% | |
9 | Hudbay Minerals, Inc. | 3.69% | |
10 | SSR Mining, Inc. | 3.30% | |
Top Ten Holdings = 71.96% of Total Investments† | |||
* Current portfolio holdings may not be indicative of future fund holdings. |
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ETFMG Prime Cyber Security ETF
Growth of $10,000 (Unaudited)
Growth of $10,000 (Unaudited)
Average Annual Returns Period Ended September 30, 2018 | 1 Year Return | Since Inception (11/11/14) | Value of $10,000 (9/30/18) | |||||||||
ETFMG Prime Cyber Security ETF (NAV) | 33.16 | % | 13.29 | % | $ | 16,236 | ||||||
ETFMG Prime Cyber Security ETF (Market) | 33.34 | % | 13.32 | % | $ | 16,253 | ||||||
S&P 500 Index | 17.91 | % | 11.91 | % | $ | 15,481 | ||||||
Prime Cyber Defense Index | 33.51 | % | 15.08 | % | $ | 15,659 | ||||||
Total Fund Operating Expenses1 | 0.60 | % |
1. 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 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 index returns do not reflect fees or expenses and are not available for direct investment.
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ETFMG Prime Cyber Security ETF
Top Ten Holdings* (Unaudited) | |||
Security | % of Total Investments | ||
1 | Cisco Systems, Inc. | 3.82% | |
2 | Tenable Holdings, Inc. | 3.74% | |
3 | SailPoint Technologies Holding, Inc. | 3.62% | |
4 | Splunk, Inc. | 3.38% | |
5 | CyberArk Software Ltd. | 3.31% | |
6 | Science Applications International Corp. | 3.25% | |
7 | Symantec Corp. | 3.25% | |
8 | Fortinet, Inc. | 3.25% | |
9 | Proofpoint, Inc. | 3.23% | |
10 | Sophos Group PLC | 3.20% | |
Top Ten Holdings = 34.04% of Total Investments | |||
* Current portfolio holdings may not be indicative of future Fund holdings. |
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ETFMG Prime Mobile Payments ETF
Growth of $10,000 (Unaudited)
Growth of $10,000 (Unaudited)
Average Annual Returns Period Ended September 30, 2018 | 1 Year Return | Since Inception (7/15/15) | Value of $10,000 (9/30/18) | |||||||||
ETFMG Prime Mobile Payments ETF (NAV) | 31.62 | % | 18.48 | % | $ | 17,235 | ||||||
ETFMG Prime Mobile Payments ETF (Market) | 31.38 | % | 18.52 | % | $ | 17,255 | ||||||
S&P 500 Index | 17.91 | % | 12.93 | % | $ | 14,776 | ||||||
Prime Mobile Payments Index | 32.25 | % | 19.25 | % | $ | 17,593 | ||||||
Total Fund Operating Expenses1 | 0.75 | % |
1. 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 index returns do not reflect fees or expenses and are not available for direct investment.
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ETFMG Prime Mobile Payments ETF
Top Ten Holdings* (Unaudited) | |||
Security | % of Total Investments | ||
1 | MasterCard, Inc. | 5.36% | |
2 | Visa, Inc. | 5.35% | |
3 | PayPal Holdings, Inc. | 5.17% | |
4 | American Express Co. | 5.08% | |
5 | Square, Inc. | 4.99% | |
6 | Fidelity National Information Services, Inc. | 4.25% | |
7 | Fiserv, Inc. | 4.13% | |
8 | Worldpay, Inc. | 3.99% | |
9 | Wirecard AG | 3.68% | |
10 | Discover Financial Services | 3.38% | |
Top Ten Holdings 45.39% of Total Investments | |||
* Current Fund holdings may not be indicative of future Fund holdings. |
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ETFMG Drone Economy Strategy ETF
Growth of $10,000 (Unaudited)
Growth of $10,000 (Unaudited)
Average Annual Returns Period Ended September 30, 2018 | 1 Year Return | Since Inception (3/8/2016) | Value of $10,000 (9/30/18) | |||||||||
ETMFG Drone Economy Strategy ETF (NAV) | 9.03 | % | 19.92 | % | $ | 15,933 | ||||||
ETFMG Drone Economy Strategy ETF (Market) | 8.80 | % | 19.87 | % | $ | 15,916 | ||||||
S&P 500 Index | 17.91 | % | 18.65 | % | $ | 15,504 | ||||||
Reality Shares DroneTM Index | 8.93 | % | 19.28 | % | $ | 15,717 | ||||||
Total Fund Operating Expenses1 | 0.75 | % |
1. 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 index returns do not reflect fees or expenses and are not available for direct investment.
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ETFMG Drone Economy Strategy ETF
Top Ten Holdings* (Unaudited) | |||
Security | % of Total Investments | ||
1 | Aerovironment, Inc. | 16.58% | |
2 | Parrot SA | 7.67% | |
3 | Boeing Co. | 3.60% | |
4 | Ambarella, Inc. | 2.77% | |
5 | Kratos Defense & Security Solutions, Inc. | 2.09% | |
6 | Leonardo SpA | 1.96% | |
7 | Thales SA | 1.87% | |
8 | Honeywell International, Inc. | 1.82% | |
9 | L3 Technologies, Inc. | 1.74% | |
10 | BAE Systems PLC | 1.67% | |
Top Ten Holdings =41.75% of Total Investments | |||
* Current Fund holdings may not be indicative of future Fund holdings. |
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ETFMG Video Game Tech ETF
Growth of $10,000 (Unaudited)
Growth of $10,000 (Unaudited)
Average Annual Returns Period Ended September 30, 2018 | 1 Year Return | Since Inception (3/8/2016) | Value of $10,000 (9/30/18) | |||||||||
ETFMG Video Game Tech ETF (NAV) | 8.38 | % | 30.11 | % | $ | 19,639 | ||||||
ETFMG Video Game Tech ETF (Market) | 7.83 | % | 29.91 | % | $ | 19,561 | ||||||
S&P 500 Index | 17.91 | % | 18.65 | % | $ | 15,504 | ||||||
EEFund Video Game Tech Index | 8.98 | % | 31.03 | % | $ | 19,966 | ||||||
Total Fund Operating Expenses1 | 0.75 | % |
1. 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 index returns do not reflect fees or expenses and are not available for direct investment.
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ETFMG Video Game Tech ETF
Top Ten Holdings* (Unaudited) | |||
Security | % of Total Investments | ||
1 | Glu Mobile, Inc. | 2.73% | |
2 | Advanced Micro Devices, Inc. | 2.68% | |
3 | NCSoft Corp. | 2.54% | |
4 | Take-Two Interactive Software, Inc. | 2.51% | |
5 | Activision Blizzard, Inc. | 2.31% | |
6 | Capcom Co., Ltd. | 2.28% | |
7 | GameStop Corp. | 2.18% | |
8 | Nintendo Co., Ltd. | 2.14% | |
9 | Ubisoft Entertainment SA | 2.09% | |
10 | Pearl Abyss Corp. | 1.99% | |
Top Ten Holdings = 23.44% of Total Investments | |||
* Current Fund holdings may not be indicative of future Fund holdings. |
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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 not 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 operate. 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.
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ETFMG™ ETFs
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 fund is concentrated in technology-related companies that 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 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. 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.
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.
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ETFMG™ ETFs
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 DroneTM Index (the “Index”).
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. An investment cannot be made 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. An investment cannot be made directly in an index.
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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 | ||||||||||||||||
As a percent of Net Assets: | ||||||||||||||||||||
Brazil | — | % | — | % | 4.5 | % | — | % | — | % | ||||||||||
Canada | 67.6 | — | — | 1.6 | ||||||||||||||||
China | — | — | — | — | 9.7 | |||||||||||||||
Cyprus | — | — | 0.6 | — | — | |||||||||||||||
Finland | — | 0.1 | — | — | 0.6 | |||||||||||||||
France | — | — | 4.5 | 12.1 | 2.3 | |||||||||||||||
Germany | — | — | 4.1 | 1.0 | 1.4 | |||||||||||||||
Hong Kong | — | — | 0.7 | — | — | |||||||||||||||
Israel | — | 8.2 | — | 1.3 | — | |||||||||||||||
Italy | — | — | — | 2.2 | — | |||||||||||||||
Japan | — | 4.5 | 6.4 | 8.3 | 22.0 | |||||||||||||||
Netherlands | — | 0.8 | — | 1.6 | 0.7 | |||||||||||||||
Norway | — | — | — | — | 1.0 | |||||||||||||||
Republic of Korea | — | 0.5 | — | 1.2 | 12.7 | |||||||||||||||
Singapore | — | — | — | — | 1.9 | |||||||||||||||
South Africa | — | — | 0.4 | — | — | |||||||||||||||
Spain | — | — | — | 1.3 | — | |||||||||||||||
Sweden | — | — | — | 2.8 | 7.9 | |||||||||||||||
Switzerland | — | — | — | — | 1.5 | |||||||||||||||
Taiwan, Province of China | — | — | — | — | 5.9 | |||||||||||||||
Turkey | — | — | — | 2.3 | — | |||||||||||||||
United Kingdom | 12.1 | 7.3 | 0.6 | 5.2 | 1.0 | |||||||||||||||
United States | 19.9 | 77.9 | 77.7 | 58.8 | 30.9 | |||||||||||||||
Short-Term and other Net Assets (Liabilities) | 0.4 | 0.7 | 0.5 | 0.3 | 0.5 | |||||||||||||||
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
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ETFMG™ ETFs
ETFMG Prime Junior Silver ETF
Shares | Value | |||||||
COMMON STOCKS - 99.6% | ||||||||
Metals & Mining - 99.6% | ||||||||
Canada – 67.6% | ||||||||
Alexco Resource Corp. (a) | 582,384 | $ | 599,856 | |||||
Americas Silver Corp. (a) | 257,537 | 608,128 | ||||||
Bear Creek Mining Corp. (a) | 640,866 | 659,894 | ||||||
Cautivo Mining, Inc. (a) | 18,395 | — | ||||||
Endeavour Silver Corp. (a) | 582,207 | 1,344,898 | ||||||
Excellon Resources, Inc. (a) | 666,814 | 495,600 | ||||||
First Majestic Silver Corp. (a) | 955,795 | 5,428,916 | ||||||
Fortuna Silver Mines, Inc. (a) | 243,527 | 1,063,363 | ||||||
Great Panther Silver Ltd. (a) | 406,548 | 345,647 | ||||||
Hudbay Minerals, Inc. | 330,822 | 1,675,048 | ||||||
Kootenay Silver, Inc. (a) | 1,027,195 | 99,407 | ||||||
MAG Silver Corp. (a) | 258,184 | 2,086,820 | ||||||
Mandalay Resources Corp. (a) | 1,896,011 | 212,845 | ||||||
Maya Gold & Silver, Inc. (a) | 430,628 | 783,475 | ||||||
McEwen Mining, Inc. | 555,985 | 1,078,611 | ||||||
Minco Silver Corp. (a) | 257,443 | 113,609 | ||||||
Mirasol Resources Ltd. (a) | 261,017 | 272,808 | ||||||
Pan American Silver Corp. | 373,338 | 5,503,314 | ||||||
Sabina Gold & Silver Corp. (a) | 571,818 | 531,244 | ||||||
Sierra Metals, Inc. (a) | 292,720 | 722,933 | ||||||
Silvercorp Metals, Inc. | 728,111 | 1,781,311 | ||||||
SilverCrest Metals, Inc. (a) | 342,413 | 835,057 | ||||||
SSR Mining, Inc. (a) | 172,258 | 1,497,664 | ||||||
Trevali Mining Corp. (a) | 1,418,462 | 801,670 | ||||||
Yamana Gold, Inc. | 822,160 | 2,047,178 | ||||||
Total Canada | 30,589,296 | |||||||
United Kingdom - 12.1% | ||||||||
Hochschild Mining PLC | 2,576,494 | 5,499,086 | ||||||
United States - 19.9% | ||||||||
Coeur Mining, Inc. (a) | 363,707 | 1,938,558 | ||||||
Gold Resource Corp. | 110,698 | 568,988 | ||||||
Golden Minerals Co. (a) | 322,905 | 66,163 | ||||||
Hecla Mining Co. | 1,859,352 | 5,187,592 | ||||||
Tahoe Resources, Inc. (a) | 449,697 | 1,254,655 | ||||||
Total United States | 9,015,956 | |||||||
Total Metals & Mining | 45,104,338 | |||||||
TOTAL COMMON STOCKS (Cost $60,761,231) | 45,104,338 |
The accompanying notes are an integral part of these financial statements.
18
ETFMG™ ETFs
ETFMG Prime Junior Silver ETF
Schedule of Investments
September 30, 2018 (Continued)
September 30, 2018 (Continued)
Shares | Value | |||||||
SHORT-TERM INVESTMENTS - 0.6% | ||||||||
Money Market Funds - 0.6% | ||||||||
Invesco Advisers, Inc. STIT - Treasury Portfolio - Institutional Class, 1.90% (b) | 259,393 | $ | 259,393 | |||||
TOTAL SHORT-TERM INVESTMENTS (Cost $259,393) | 259,393 | |||||||
Total Investments (Cost $61,020,624) - 100.2% | 45,363,731 | |||||||
Liabilities in Excess of Other Assets - (0.2)% | (98,262 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 45,265,469 |
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 September 30, 2018. |
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, doing business as U.S. Bank Global Fund Services (“Fund Services”).
The accompanying notes are an integral part of these financial statements.
19
ETFMG™ ETFs
ETFMG Prime Cyber Security ETF
Schedule of Investments
September 30, 2018
September 30, 2018
Shares | Value | |||||||
COMMON STOCKS - 99.3% | ||||||||
Finland - 0.1% | ||||||||
Software - 0.1% | ||||||||
F-Secure OYJ | 661,845 | $ | 2,389,831 | |||||
Israel - 8.2% | ||||||||
Communications Equipment - 0.9% | ||||||||
Radware Ltd. (a) | 596,166 | 15,780,514 | ||||||
Software - 7.3% | ||||||||
Check Point Software Technologies Ltd. (a)(d) | 545,728 | 64,215,814 | ||||||
CyberArk Software Ltd. (a) | 868,067 | 69,306,469 | ||||||
Total Software | 133,522,283 | |||||||
Total Israel | 149,302,797 | |||||||
Japan - 4.5% | ||||||||
Software - 4.5% | ||||||||
Digital Arts, Inc. | 293,618 | 13,799,684 | ||||||
FFRI, Inc. (a)(d) | 313,486 | 8,829,037 | ||||||
Trend Micro, Inc. | 919,777 | 59,175,936 | ||||||
Total Software | 81,804,657 | |||||||
Netherlands - 0.8% | ||||||||
Software - 0.8% | ||||||||
Gemalto NV | 260,416 | 15,178,259 | ||||||
Republic of Korea - 0.5% | ||||||||
Software - 0.5% | ||||||||
Ahnlab, Inc. | 193,975 | 9,285,619 | ||||||
United Kingdom - 7.3% | ||||||||
Aerospace & Defense - 2.5% | ||||||||
BAE Systems PLC | 2,064,032 | 16,943,345 | ||||||
QinetiQ Group PLC | 3,901,145 | 14,552,641 | ||||||
Ultra Electronics Holdings PLC | 674,448 | 13,959,795 | ||||||
Total Aerospace & Defense | 45,455,781 | |||||||
IT Services - 0.4% | ||||||||
NCC Group PLC | 2,606,430 | 6,794,479 | ||||||
Software - 4.4% | ||||||||
Mimecast Ltd. (a) | 358,460 | 15,012,305 | ||||||
Sophos Group PLC | 10,534,178 | 67,003,974 | ||||||
Total Software | 82,016,279 | |||||||
Total United Kingdom | 134,266,539 |
The accompanying notes are an integral part of these financial statements.
20
ETFMG™ ETFs
ETFMG Prime Cyber Security ETF
Schedule of Investments
September 30, 2018 (Continued)
September 30, 2018 (Continued)
Shares | Value | |||||||
United States - 77.9% | ||||||||
Aerospace & Defense - 0.5% | ||||||||
The KEYW Holding Corp. (a)(d) | 1,039,900 | $ | 9,005,534 | |||||
Communications Equipment - 13.2% | ||||||||
Cisco Systems, Inc. | 1,644,106 | 79,985,757 | ||||||
F5 Networks, Inc. (a) | 85,937 | 17,137,557 | ||||||
Juniper Networks, Inc. | 2,228,893 | 66,799,923 | ||||||
NetScout Systems, Inc. (a)(d) | 579,276 | 14,626,719 | ||||||
Palo Alto Networks, Inc. (a)(d) | 283,371 | 63,832,151 | ||||||
Total Communications Equipment | 242,382,107 | |||||||
Internet Software & Services - 0.4% | ||||||||
Zix Corp. (a)(d) | 1,354,931 | 7,519,867 | ||||||
IT Services - 18.1% | ||||||||
Akamai Technologies, Inc. (a) | 902,816 | 66,040,990 | ||||||
Booz Allen Hamilton Holding Corp. | 299,016 | 14,840,164 | ||||||
CACI International, Inc. - Class A (a) | 334,399 | 61,579,576 | ||||||
Carbonite, Inc. (d) | 1,630,202 | 58,116,701 | ||||||
Leidos Holdings, Inc. (d) | 221,293 | 15,304,624 | ||||||
ManTech International Corp. - Class A | 232,940 | 14,745,102 | ||||||
Okta, Inc. (a)(d) | 231,018 | 16,254,426 | ||||||
Science Applications International Corp. | 845,826 | 68,173,576 | ||||||
VeriSign, Inc. (a) | 104,804 | 16,781,216 | ||||||
Total IT Services | 331,836,375 | |||||||
Software - 45.7% | ||||||||
A10 Networks, Inc. (a) | 1,146,596 | 6,971,304 | ||||||
Carbon Black, Inc. (a)(d) | 655,499 | 13,883,469 | ||||||
CommVault Systems, Inc. (a) | 935,949 | 65,516,430 | ||||||
Everbridge, Inc. (a)(d) | 253,282 | 14,599,175 | ||||||
FireEye, Inc. (a) | 3,892,470 | 66,171,990 | ||||||
ForeScout Technologies, Inc. (a)(d) | 385,735 | 14,565,354 | ||||||
Fortinet, Inc. (a) | 737,049 | 68,007,511 | ||||||
Imperva, Inc. (a) | 1,378,211 | 64,017,901 | ||||||
MobileIron, Inc. (a) | 1,459,057 | 7,733,002 | ||||||
OneSpan, Inc. (a)(d) | 820,234 | 15,625,458 | ||||||
Proofpoint, Inc. (a)(d) | 635,297 | 67,551,130 | ||||||
Qualys, Inc. (a)(d) | 719,999 | 64,151,911 | ||||||
Rapid7, Inc. (a)(d) | 415,246 | 15,330,882 | ||||||
SailPoint Technologies Holding, Inc. (a)(d) | 2,229,789 | 75,857,422 | ||||||
SecureWorks Corp. - Class A (a)(d) | 941,329 | 13,790,470 | ||||||
Splunk, Inc. (a) | 584,784 | 70,706,233 | ||||||
Symantec Corp. | 3,200,578 | 68,108,300 | ||||||
Tenable Holdings, Inc. (a)(d) | 2,012,375 | 78,241,140 |
The accompanying notes are an integral part of these financial statements.
21
ETFMG™ ETFs
ETFMG Prime Cyber Security ETF
Schedule of Investments
September 30, 2018 (Continued)
September 30, 2018 (Continued)
Shares | Value | |||||||
Varonis Systems, Inc. (a) | 213,742 | $ | 15,656,602 | |||||
Verint Systems, Inc. (a)(d) | 314,332 | 15,748,033 | ||||||
Zscaler, Inc. (a)(d) | 406,617 | 16,581,841 | ||||||
Total Software | 838,815,558 | |||||||
Total United States | 1,429,559,441 | |||||||
TOTAL COMMON STOCKS (Cost $1,544,257,388) | 1,821,787,143 | |||||||
SHORT-TERM INVESTMENTS - 0.8% | ||||||||
Money Market Funds - 0.8% | ||||||||
Invesco Advisers, Inc. STIT - Treasury Portfolio -Institutional Class, 1.90% (b) | 14,970,191 | 14,970,191 | ||||||
TOTAL SHORT-TERM INVESTMENTS (Cost $14,970,191) | 14,970,191 | |||||||
INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL - 14.0% | ||||||||
Mount Vernon Liquid Assets Portfolio, LLC, 2.31% (b) | 257,747,708 | |||||||
TOTAL INVESTMENTS PURCHASED WITH PROCEEDS FROM SECURITIES LENDING (Cost 257,747,708) | 257,747,708 | |||||||
Total Investments (Cost $1,816,975,287) - 114.1% | 2,094,505,042 | |||||||
Liabilities in Excess of Other Assets - (14.1)% | (258,643,588 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 1,835,861,454 |
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 September 30, 2018. |
(c) | Affiliated security. Please refer to Note 9 of the Notes to Financial Statements. |
(d) | All or a portion of this security is out on loan as of September 30, 2018. |
The accompanying notes are an integral part of these financial statements.
22
ETFMG™ ETFs
ETFMG Prime Mobile Payments ETF
Schedule of Investments
September 30, 2018
September 30, 2018
Shares | Value | |||||||
COMMON STOCKS - 99.5% | ||||||||
Brazil – 4.5% | ||||||||
IT Services – 4.5% | ||||||||
Cielo SA | 3,813,560 | $ | 11,520,331 | |||||
Pagseguro Digital Ltd. - Class A (a)(d) | 440,261 | 12,182,022 | ||||||
Total Brazil | 23,702,353 | |||||||
Cyprus - 0.6% | ||||||||
IT Services - 0.6% | ||||||||
QIWI PLC – ADR (a) | 220,375 | 2,902,339 | ||||||
France - 4.5% | ||||||||
Electronic Equipment, Instruments & Components - 2.1% | ||||||||
Ingenico Group SA | 142,877 | 10,855,659 | ||||||
IT Services - 2.4% | ||||||||
Worldline SA (a) | 199,084 | 12,747,719 | ||||||
Total France | 23,603,378 | |||||||
Germany - 4.1% | ||||||||
IT Services - 4.1% | ||||||||
Wirecard AG | 99,760 | 21,624,763 | ||||||
Hong Kong - 0.7% | ||||||||
Electronic Equipment, Instruments & Components - 0.4% | ||||||||
PAX Global Technology Ltd. | 3,460,146 | 1,759,168 | ||||||
IT Services - 0.3% | ||||||||
Huifu Payment Ltd. (a) | 2,899,762 | 1,685,402 | ||||||
Total Hong Kong | 3,444,570 | |||||||
Japan - 6.4% | ||||||||
Consumer Finance - 0.6% | ||||||||
Jaccs Co., Ltd. | 149,721 | 3,163,881 | ||||||
Insurance - 3.6% | ||||||||
Dai-ichi Life Holdings, Inc. (c) | 915,626 | 19,062,782 | ||||||
IT Services - 2.0% | ||||||||
GMO Payment Gateway, Inc. | 167,398 | 10,372,134 | ||||||
Software - 0.2% | ||||||||
Intelligent Wave, Inc. (d) | 144,297 | 924,557 | ||||||
Total Japan | 33,523,354 |
The accompanying notes are an integral part of these financial statements.
23
ETFMG™ ETFs
ETFMG Prime Mobile Payments ETF
Schedule of Investments
September 30, 2018 (Continued)
September 30, 2018 (Continued)
Shares | Value | |||||||
South Africa – 0.4% | ||||||||
IT Services – 0.4% | ||||||||
Net 1 UEPS Technologies, Inc. (a) | 243,542 | $ | 1,948,336 | |||||
United Kingdom - 0.6% | ||||||||
Commercial Services & Supplies - 0.6% | ||||||||
PayPoint PLC | 259,408 | 3,137,700 | ||||||
United States – 77.7% | ||||||||
Consumer Finance - 11.6% | ||||||||
American Express Co. | 280,245 | 29,843,289 | ||||||
Discover Financial Services | 259,522 | 19,840,457 | ||||||
Green Dot Corp. - Class A (a) | 120,680 | 10,718,798 | ||||||
Total Consumer Finance | 60,402,544 | |||||||
IT Services – 62.0% | ||||||||
Euronet Worldwide, Inc. (a) | 105,431 | 10,566,295 | ||||||
EVERTEC, Inc. | 393,914 | 9,493,327 | ||||||
Evo Payments, Inc. - Class A (a)(d) | 369,323 | 8,826,820 | ||||||
Fidelity National Information Services, Inc. | 228,991 | 24,976,048 | ||||||
First Data Corp. - Class A (a) | 758,677 | 18,564,826 | ||||||
Fiserv, Inc. (a) | 294,144 | 24,231,583 | ||||||
FleetCor Technologies, Inc. (a) | 78,797 | 17,953,108 | ||||||
Global Payments, Inc. (d) | 139,972 | 17,832,433 | ||||||
I3 Verticals, Inc. - Class A (a) | 76,792 | 1,764,680 | ||||||
MasterCard, Inc. - Class A | 141,370 | 31,470,375 | ||||||
MoneyGram International, Inc. (a) | 274,387 | 1,467,970 | ||||||
PayPal Holdings, Inc. (a) | 345,669 | 30,363,565 | ||||||
Square, Inc. - Class A (a) (d) | 295,662 | 29,273,495 | ||||||
Total System Services, Inc. | 173,028 | 17,084,785 | ||||||
Visa, Inc. - Class A (d) | 209,263 | 31,408,284 | ||||||
Western Union Co. (d) | 660,696 | 12,592,866 | ||||||
WEX, Inc. (a) | 63,818 | 12,812,102 | ||||||
Worldpay, Inc. - Class A (a) | 231,401 | 23,433,979 | ||||||
Total IT Services | 324,116,541 | |||||||
Software - 1.9% | ||||||||
ACI Worldwide, Inc. (a) | 351,371 | 9,887,580 | ||||||
Technology Hardware, Storage & Peripherals - 2.2% | ||||||||
NCR Corp. (a) | 346,471 | 9,843,241 | ||||||
USA Technologies, Inc. (a) | 238,523 | 1,717,366 | ||||||
Total Technology Hardware, Storage & Peripherals | 11,560,607 | |||||||
Total United States | 405,967,212 | |||||||
TOTAL COMMON STOCKS (Cost $441,458,523) | 519,854,065 |
The accompanying notes are an integral part of these financial statements.
24
ETFMG™ ETFs
ETFMG Prime Mobile Payments ETF
Schedule of Investments
September 30, 2018 (Continued)
September 30, 2018 (Continued)
Shares | Value | |||||||
SHORT-TERM INVESTMENTS - 0.6% | ||||||||
Money Market Funds - 0.6% | ||||||||
Invesco Advisers, Inc. STIT - Treasury Portfolio - Institutional Class, 1.90% (b) | 3,300,136 | $ | 3,300,136 | |||||
TOTAL SHORT-TERM INVESTMENTS (Cost $3,300,136) | 3,300,136 | |||||||
IVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL - 12.2% | ||||||||
Mount Vernon Liquid Assets Portfolio, LLC, 2.31% (b) | 63,943,784 | |||||||
TOTAL INVESTMENTS PURCHASED WITH PROCEEDS FROM | ||||||||
SECURITIES LENDING (Cost 63,943,784) | 63,943,784 | |||||||
Total Investments (Cost $508,702,443) - 112.3% | 587,097,985 | |||||||
Liabilities in Excess of Other Assets - (12.3)% | (64,223,723 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 522,874,262 |
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 September 30, 2018. |
(c) | Affiliated security. Please refer to Note 9 of the Notes to Financial Statements. |
(d) | All or a portion of this security is out on loan as of September 30, 2018. |
The accompanying notes are an integral part of these financial statements.
25
ETFMG™ ETFs
ETFMG Drone Economy Strategy ETF
Schedule of Investments
September 30, 2018
September 30, 2018
Shares | Value | |||||||
COMMON STOCKS - 99.7% | ||||||||
Canada - 1.6% | ||||||||
Transportation - 1.6% | ||||||||
Drone Delivery Canada Corp. (a) | 712,698 | $ | 800,071 | |||||
France - 12.1% | ||||||||
Aerospace & Defense - 3.7% | ||||||||
Dassault Aviation SA | 438 | 810,612 | ||||||
Thales SA | 7,360 | 1,045,520 | ||||||
Total Aerospace & Defense | 1,856,132 | |||||||
Communications Equipment - 8.4% | ||||||||
Parrot SA (a) | 783,368 | 4,274,785 | ||||||
Total France | 6,130,917 | |||||||
Germany - 1.0% | ||||||||
Industrial Conglomerates - 1.0% | ||||||||
Rheinmetall AG | 4,894 | 511,737 | ||||||
Israel - 1.3% | ||||||||
Aerospace & Defense - 1.3% | ||||||||
Elbit Systems Ltd. | 5,060 | 641,577 | ||||||
Italy - 2.2% | ||||||||
Aerospace & Defense - 2.2% | ||||||||
Leonardo SpA | 90,627 | 1,092,209 | ||||||
Japan - 8.3% | ||||||||
Automobiles - 2.7% | ||||||||
Subaru Corp. | 22,692 | 695,020 | ||||||
Yamaha Motor Co., Ltd. | 24,062 | 674,507 | ||||||
Total Automobiles | 1,369,527 | |||||||
Electronic Equipment, Instruments & Components - 2.6% | ||||||||
Hitachi Ltd. | 17,849 | 606,389 | ||||||
TDK Corp. | 6,304 | 687,437 | ||||||
Total Electronic Equipment, Instruments & Components | 1,293,826 | |||||||
Household Durables - 1.5% | ||||||||
Sony Corp. - ADR | 12,583 | 763,159 | ||||||
Technology Hardware, Storage & Peripherals - 1.5% | ||||||||
NEC Corp. | 27,747 | 766,816 | ||||||
Total Japan | 4,193,328 |
The accompanying notes are an integral part of these financial statements.
26
ETFMG™ ETFs
ETFMG Drone Economy Strategy ETF
Schedule of Investments
September 30, 2018 (Continued)
September 30, 2018 (Continued)
Shares | Value | |||||||
Netherlands - 1.6% | ||||||||
Aerospace & Defense - 1.6% | ||||||||
Airbus SE | 6,406 | $ | 804,608 | |||||
Republic of Korea - 1.2% | ||||||||
Aerospace & Defense - 1.2% | ||||||||
Korea Aerospace Industries Ltd. (a) | 18,676 | 590,965 | ||||||
Spain - 1.3% | ||||||||
IT Services - 1.3% | ||||||||
Indra Sistemas SA (a) | 57,120 | 655,565 | ||||||
Sweden - 2.8% | ||||||||
Aerospace & Defense - 1.4% | ||||||||
Saab AB - Class B | 13,866 | 697,403 | ||||||
Electronic Equipment, Instruments & Components - 1.4% | ||||||||
Hexagon AB - B Shares | 12,733 | 746,438 | ||||||
Total Sweden | 1,443,841 | |||||||
Turkey - 2.3% | ||||||||
Aerospace & Defense - 1.3% | ||||||||
Aselsan Elektronik Sanayi Ve Ticaret AS | 149,274 | 682,172 | ||||||
Household Durables - 1.0% | ||||||||
Vestel Elektronik Sanayi Ve Ticaret AS (a) | 382,084 | 517,878 | ||||||
Total Turkey | 1,200,050 | |||||||
United Kingdom - 5.2% | ||||||||
Aerospace & Defense - 5.2% | ||||||||
BAE Systems PLC | 113,328 | 930,293 | ||||||
Cobham PLC (a) | 285,339 | 434,208 | ||||||
Meggitt PLC | 91,927 | 678,651 | ||||||
QinetiQ Group PLC | 165,556 | 617,582 | ||||||
Total Aerospace & Defense | 2,660,734 | |||||||
United States – 58.8% | ||||||||
Aerospace & Defense - 41.3% | ||||||||
Aerovironment, Inc. (a) | 82,430 | 9,246,173 | ||||||
Boeing Co. | 5,391 | 2,004,913 | ||||||
General Dynamics Corp. | 3,790 | 775,889 | ||||||
Harris Corp. | 3,586 | 606,787 | ||||||
HEICO Corp. | 6,372 | 590,111 | ||||||
Kratos Defense & Security Solutions, Inc. (a) | 78,716 | 1,163,422 | ||||||
L3 Technologies, Inc. | 4,574 | 972,524 | ||||||
Lockheed Martin Corp. | 2,395 | 828,574 | ||||||
Mercury Systems, Inc. (a)(c) | 7,579 | 419,270 |
The accompanying notes are an integral part of these financial statements.
27
ETFMG™ ETFs
ETFMG Drone Economy Strategy ETF
Schedule of Investments
September 30, 2018 (Continued)
September 30, 2018 (Continued)
Shares | Value | |||||||
Northrop Grumman Corp. | 2,392 | $ | 759,149 | |||||
Raytheon Co. | 3,854 | 796,468 | ||||||
Teledyne Technologies, Inc. (a) | 2,270 | 559,964 | ||||||
Textron, Inc. (c) | 12,419 | 887,586 | ||||||
TransDigm Group, Inc. (a)(c) | 1,669 | 621,369 | ||||||
United Technologies Corp. | 5,964 | 833,827 | ||||||
Total Aerospace & Defense | 21,066,026 | |||||||
Building Products - 0.8% | ||||||||
Griffon Corp. | 24,401 | 394,076 | ||||||
Electronic Equipment, Instruments & Components - 6.1% | ||||||||
FLIR Systems, Inc. | 8,698 | 534,666 | ||||||
II-VI, Inc. (a)(c) | 9,470 | 447,931 | ||||||
Jabil, Inc. (c) | 27,104 | 733,976 | ||||||
Littelfuse, Inc. | 2,760 | 546,176 | ||||||
Trimble, Inc. (a) | 19,506 | 847,730 | ||||||
Total Electronic Equipment, Instruments & Components | 3,110,479 | |||||||
Household Durables - 1.4% | ||||||||
GoPro, Inc. - Class A (a)(c) | 99,798 | 718,546 | ||||||
Industrial Conglomerates - 2.0% | ||||||||
Honeywell International, Inc. | 6,086 | 1,012,710 | ||||||
Semiconductors & Semiconductor Equipment – 7.2% | ||||||||
Ambarella, Inc. (a)(c) | 39,866 | 1,542,017 | ||||||
Intel Corp. | 12,213 | 577,553 | ||||||
NVIDIA Corp. (c) | 2,548 | 716,039 | ||||||
QUALCOMM, Inc. | 11,182 | 805,439 | ||||||
Total Semiconductors & Semiconductor Equipment | 3,641,048 | |||||||
Total United States | 29,942,885 | |||||||
TOTAL COMMON STOCKS (Cost $45,115,379) | 50,668,487 | |||||||
SHORT-TERM INVESTMENTS - 0.2% | ||||||||
Money Market Funds - 0.2% | ||||||||
Invesco Advisers, Inc. STIT - Treasury Portfolio - Institutional Class, 1.90% (b) | 88,779 | 88,779 | ||||||
TOTAL SHORT-TERM INVESTMENTS (Cost $88,779) | 88,779 |
The accompanying notes are an integral part of these financial statements.
28
ETFMG™ ETFs
ETFMG Drone Economy Strategy ETF
Schedule of Investments
September 30, 2018 (Continued)
September 30, 2018 (Continued)
Shares | Value | ||||||||
INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL - 9.9% | |||||||||
Mount Vernon Liquid Assets Portfolio, LLC, 2.31% (b) | $ | 5,008,188 | |||||||
TOTAL INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL (Cost $5,008,188) | 5,008,188 | ||||||||
Total Investments (Cost $50,212,346) - 109.8% | 55,765,454 | ||||||||
Liabilities in Excess of Other Assets - (9.8)% | (4,994,587 | ) | |||||||
TOTAL NET ASSETS - 100.0% | $ | 50,770,867 |
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 September 30, 2018. |
(c) | All or a portion of this security is out on loan as of September 30, 2018. |
The accompanying notes are an integral part of these financial statements.
29
ETFMG™ ETFs
ETFMG Video Game Tech ETF
Schedule of Investments
September 30, 2018
September 30, 2018
Shares | Value | |||||||
COMMON STOCKS - 99.5% | ||||||||
China - 9.7% | ||||||||
Entertainment - 4.1% | ||||||||
Changyou.com Ltd. - ADR | 175,076 | $ | 2,311,003 | |||||
NetDragon Websoft Holdings Ltd. | 765,795 | 1,602,346 | ||||||
NetEase, Inc. - ADR | 6,140 | 1,401,455 | ||||||
Total Entertainment | 5,314,804 | |||||||
Interactive Media & Services - 2.3% | ||||||||
Momo, Inc. - ADR (a) | 28,388 | 1,243,394 | ||||||
SINA Corp. (a)(c) | 15,140 | 1,051,927 | ||||||
Sohu.com Ltd. - ADR (a)(c) | 38,682 | 768,998 | ||||||
Total Interactive Media & Services | 3,064,319 | |||||||
Internet Software & Services - 1.7% | ||||||||
Tencent Holdings Ltd. | 28,516 | 1,177,307 | ||||||
YY, Inc. - ADR (a) | 13,670 | 1,024,156 | ||||||
Total Internet Software & Services | 2,201,463 | |||||||
Software - 1.6% | ||||||||
Cheetah Mobile, Inc. - ADR (a)(c) | 128,026 | 1,258,496 | ||||||
Kingsoft Corp. Ltd. | 450,570 | 858,738 | ||||||
Total Software | 2,117,234 | |||||||
Total China | 12,697,820 | |||||||
Finland - 0.6% | ||||||||
Software - 0.6% | ||||||||
Rovio Entertainment OYJ | 143,863 | 762,501 | ||||||
France - 2.3% | ||||||||
Software - 2.3% | ||||||||
Ubisoft Entertainment SA (a) | 28,335 | 3,073,362 | ||||||
Germany - 1.4% | ||||||||
Health Care Equipment & Supplies - 1.4% | ||||||||
Carl Zeiss Meditec AG | 21,483 | 1,808,354 | ||||||
Japan - 22.0% | ||||||||
Entertainment - 15.6% | ||||||||
Capcom Co., Ltd. | 132,146 | 3,353,080 | ||||||
Cyberstep, Inc. (a) | 48,328 | 912,371 | ||||||
DeNa Co., Ltd. | 78,579 | 1,388,031 | ||||||
GungHo Online Entertainment, Inc.(c) | 556,338 | 1,145,776 | ||||||
Koei Tecmo Holdings Co., Ltd. | 89,506 | 1,539,288 | ||||||
Konami Holdings Corp. | 64,035 | 2,507,972 |
The accompanying notes are an integral part of these financial statements.
30
ETFMG™ ETFs
ETFMG Video Game Tech ETF
Schedule of Investments
September 30, 2018 (Continued)
September 30, 2018 (Continued)
Shares | Value | |||||||
Marvelous, Inc. (c) | 117,606 | $ | 963,661 | |||||
Nexon Co., Ltd. (a) | 196,639 | 2,570,049 | ||||||
Nintendo Co., Ltd. | 8,626 | 3,147,632 | ||||||
Square Enix Holdings Co., Ltd. | 65,143 | 2,694,703 | ||||||
Total Entertainment | 20,222,563 | |||||||
Household Durables - 1.8% | ||||||||
Sony Corp. - ADR | 39,060 | 2,368,989 | ||||||
Interactive Media & Services - 1.9% | ||||||||
Gree, Inc. | 540,297 | 2,548,841 | ||||||
Leisure Products - 2.1% | ||||||||
Bandai Namco Holdings, Inc. | 36,274 | 1,409,520 | ||||||
Sega Sammy Holdings, Inc. | 91,889 | 1,354,639 | ||||||
Total Leisure Products | 2,764,159 | |||||||
Software - 0.6% | ||||||||
Gumi, Inc. (a)(c) | 125,669 | 718,930 | ||||||
Total Japan | 28,623,482 | |||||||
Netherlands - 0.7% | ||||||||
Entertainment - 0.7% | ||||||||
Funcom NV (a)(c) | 391,781 | 871,293 | ||||||
Norway - 1.0% | ||||||||
Semiconductors & Semiconductor Equipment - 1.0% | ||||||||
Nordic Semiconductor ASA (a) | 216,895 | 1,252,534 | ||||||
Republic of Korea - 12.7% | ||||||||
Entertainment - 6.4% | ||||||||
Gravity Co., Ltd. - ADR (a) | 26,226 | 469,445 | ||||||
Neowiz (a) | 59,034 | 827,567 | ||||||
Pearl Abyss Corp. (a) | 15,153 | 2,920,632 | ||||||
Webzen, Inc. (a) | 129,017 | 2,314,571 | ||||||
WeMade Entertainment Co. Ltd. | 64,211 | 1,794,493 | ||||||
Total Entertainment | 8,326,708 | |||||||
Software - 6.3% | ||||||||
Com2uS Corp. | 17,792 | 2,351,415 | ||||||
NCSoft Corp. | 9,384 | 3,743,448 | ||||||
Netmarble Corp. | 22,523 | 2,335,042 | ||||||
Total Software | 8,429,905 | |||||||
Total Republic of Korea | 16,756,613 | |||||||
Singapore - 1.9% | ||||||||
Entertainment - 1.9% | ||||||||
IGG, Inc. | 1,998,778 | 2,489,424 |
The accompanying notes are an integral part of these financial statements.
31
ETFMG™ ETFs
ETFMG Video Game Tech ETF
Schedule of Investments
September 30, 2018 (Continued)
September 30, 2018 (Continued)
Shares | Value | |||||||
Sweden - 7.9% | ||||||||
Entertainment - 6.0% | ||||||||
G5 Entertainment AB | 47,759 | $ | 1,639,005 | |||||
Paradox Interactive AB | 87,207 | 1,520,927 | ||||||
Starbreeze AB (a) | 1,087,947 | 1,094,998 | ||||||
Stillfront Group AB (a) | 53,227 | 1,119,951 | ||||||
THQ Nordic AB (a) | 103,690 | 2,333,416 | ||||||
Total Entertainment | 7,708,297 | |||||||
Media - 1.0% | ||||||||
Modern Times Group AB - B Shares | 35,232 | 1,292,350 | ||||||
Technology Hardware, Storage & Peripherals - 0.9% | ||||||||
Tobii AB (a) | 228,837 | 1,144,262 | ||||||
Total Sweden | 10,144,909 | |||||||
Switzerland - 1.5% | ||||||||
Technology Hardware, Storage & Peripherals - 1.5% | ||||||||
Logitech International SA (c) | 44,018 | 1,968,485 | ||||||
Taiwan, Province of China - 5.9% | ||||||||
Entertainment - 2.0% | ||||||||
Gamania Digital Entertainment Co., Ltd. | 373,000 | 847,811 | ||||||
Softstar Entertainment, Inc. (a) | 227,000 | 1,014,820 | ||||||
Userjoy Technology Co., Ltd. | 343,099 | 793,331 | ||||||
Total Entertainment | 2,655,962 | |||||||
Technology Hardware, Storage & Peripherals - 3.9% | ||||||||
Acer, Inc. | 1,637,000 | 1,353,757 | ||||||
Asustek Computer, Inc. | 166,621 | 1,440,669 | ||||||
Micro-Star International Co., Ltd. | 863,422 | 2,332,962 | ||||||
Total Technology Hardware, Storage & Peripherals | 5,127,388 | |||||||
Total Taiwan, Province of China | 7,783,350 | |||||||
United Kingdom - 1.0% | ||||||||
Entertainment - 1.0% | ||||||||
Frontier Developments PLC (a) | 71,432 | 1,242,951 | ||||||
United States - 30.9% | ||||||||
Entertainment - 12.6% | ||||||||
Activision Blizzard, Inc. | 40,792 | 3,393,486 | ||||||
Electronic Arts, Inc. (a) | 21,948 | 2,644,515 | ||||||
Glu Mobile, Inc. (a) | 538,085 | 4,008,734 | ||||||
Take-Two Interactive Software, Inc. (a) | 26,765 | 3,693,302 | ||||||
Zynga, Inc. - Class A (a) | 692,203 | 2,775,734 | ||||||
Total Entertainment | 16,515,771 |
The accompanying notes are an integral part of these financial statements.
32
ETFMG™ ETFs
ETFMG Video Game Tech ETF
Schedule of Investments
September 30, 2018 (Continued)
September 30, 2018 (Continued)
Shares | Value | |||||||
Household Durables - 1.5% | ||||||||
Turtle Beach Corp. (a)(c) | 49,723 | $ | 991,477 | |||||
Vuzix Corp. (a)(c) | 146,456 | 959,287 | ||||||
Total Household Durables | 1,950,764 | |||||||
Interactive Media & Services - 1.6% | ||||||||
Alphabet, Inc. - Class C (a) | 1,741 | 2,077,831 | ||||||
Semiconductors & Semiconductor Equipment - 7.7% | ||||||||
Advanced Micro Devices, Inc. (a)(c) | 127,646 | 3,942,985 | ||||||
Intel Corp. | 35,458 | 1,676,809 | ||||||
Kopin Corp. (a) | 272,918 | 660,462 | ||||||
NVIDIA Corp. (c) | 7,435 | 2,089,384 | ||||||
QUALCOMM, Inc. | 24,783 | 1,785,119 | ||||||
Total Semiconductors & Semiconductor Equipment | 10,154,759 | |||||||
Software - 1.7% | ||||||||
Microsoft Corp. | 19,219 | 2,198,077 | ||||||
Specialty Retail - 2.5% | ||||||||
GameStop Corp. - Class A (c) | 209,668 | 3,201,630 | ||||||
Technology Hardware, Storage & Peripherals - 3.3% | ||||||||
Apple, Inc. | 10,196 | 2,301,645 | ||||||
Immersion Corp. (a) | 61,190 | 646,778 | ||||||
Razer, Inc. (a) | 6,378,809 | 1,425,960 | ||||||
Total Technology Hardware, Storage & Peripherals | 4,374,383 | |||||||
Total United States | 40,473,215 | |||||||
TOTAL COMMON STOCKS (Cost $135,485,075) | 129,948,293 | |||||||
SHORT-TERM INVESTMENTS - 0.3% | ||||||||
Money Market Funds - 0.3% | ||||||||
Invesco Advisers, Inc. STIT - Treasury Portfolio - Institutional Class, 1.90% (b) | 446,814 | 446,814 | ||||||
TOTAL SHORT-TERM INVESTMENTS (Cost $446,814) | 446,814 |
The accompanying notes are an integral part of these financial statements.
33
ETFMG™ ETFs
ETFMG Video Game Tech ETF
Schedule of Investments
September 30, 2018 (Continued)
September 30, 2018 (Continued)
Shares | Value | |||||||
INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL - 12.8% | ||||||||
Mount Vernon Liquid Assets Portfolio, LLC, 2.31% (b) | $ | 16,713,426 | ||||||
TOTAL INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL (Cost 16,713,426) | 16,713,426 | |||||||
Total Investments (Cost $152,645,315) - 112.6% | 147,108,533 | |||||||
Liabilities in Excess of Other Assets - (12.6)% | (16,499,314 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 130,609,219 |
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 September 30, 2018. |
(c) | All or a portion of this security is out on loan as of September 30, 2018. |
The accompanying notes are an integral part of these financial statements.
34
ETFMG™ ETFs
As of September 30, 2018
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 value* | $ | 45,363,731 | $ | 2,080,714,572 | $ | 568,035,203 | $ | 55,765,454 | $ | 147,108,533 | ||||||||||
Investments in affiliated securities, at value* | — | 13,790,470 | 19,062,782 | — | — | |||||||||||||||
Cash | 2,469 | — | — | — | 45,229 | |||||||||||||||
Foreign currency* | — | 732,270 | 413,029 | — | — | |||||||||||||||
Receivables: | ||||||||||||||||||||
Receivable for fund shares issued | — | — | 5,909 | — | — | |||||||||||||||
Dividends and interest receivable | 3,955 | 515,191 | 193,152 | 42,966 | 198,853 | |||||||||||||||
Securities lending income receivable | — | 141,816 | 10,393 | 1,198 | 49,881 | |||||||||||||||
Receivable for investments sold | — | 57,385 | — | — | — | |||||||||||||||
Total Assets | 45,370,155 | 2,095,951,704 | 587,720,468 | 55,809,618 | 147,402,496 | |||||||||||||||
LIABILITIES | ||||||||||||||||||||
Collateral received for securities loaned (Note 7) | — | 257,747,708 | 63,943,784 | 5,008,188 | 16,713,426 | |||||||||||||||
Payables: | ||||||||||||||||||||
Payable for investments purchased | 10,567 | 1,446,457 | 597,668 | — | — | |||||||||||||||
Management fees payable | 26,099 | 896,085 | 304,754 | 30,563 | 79,851 | |||||||||||||||
Foreign currency | 68,020 | — | — | — | — | |||||||||||||||
Total Liabilities | 104,686 | 260,090,250 | 64,846,206 | 5,038,751 | 16,793,277 | |||||||||||||||
Net Assets | $ | 45,265,469 | $ | 1,835,861,454 | $ | 522,874,262 | $ | 50,770,867 | $ | 130,609,219 | ||||||||||
NET ASSETS CONSIST OF: | ||||||||||||||||||||
Paid-in Capital | $ | 89,748,120 | $ | 1,799,789,580 | $ | 445,154,192 | $ | 46,622,806 | $ | 140,102,708 | ||||||||||
Total Distributable Earnings | (44,482,651 | ) | 36,071,874 | 77,720,070 | 4,148,061 | (9,493,489 | ) | |||||||||||||
Net Assets | $ | 45,265,469 | $ | 1,835,861,454 | $ | 522,874,262 | $ | 50,770,867 | $ | 130,609,219 | ||||||||||
*Identified Cost: | ||||||||||||||||||||
Investments in unaffiliated securities | $ | 61,020,624 | $ | 1,806,047,557 | $ | 490,535,747 | $ | 50,212,346 | $ | 152,645,315 | ||||||||||
Investments in affiliated securities | — | 10,927,730 | 18,166,696 | — | — | |||||||||||||||
Foreign currency | (67,510 | ) | 740,359 | 417,540 | — | — | ||||||||||||||
Shares Outstanding^ | 5,200,000 | 45,800,000 | 12,200,000 | 1,300,000 | 2,750,000 | |||||||||||||||
Net Asset Value, Offering and Redemption Price per Share | $ | 8.70 | $ | 40.08 | $ | 42.86 | $ | 39.05 | $ | 47.49 |
^ No par value, unlimited number of shares authorized
The accompanying notes are an integral part of these financial statements.
35
ETFMG™ ETFs
For the Year ended September 30, 2018
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 $13,800, $143,709, $91,257, $24,000,$107,005) | $ | 193,631 | $ | 8,450,694 | $ | 2,792,640 | $ | 456,536 | $ | 1,721,563 | ||||||||||
Interest | 5,644 | 36,918 | 20,021 | 2,012 | 6,007 | |||||||||||||||
Securities lending income | — | 759,161 | 85,573 | 74,329 | 410,785 | |||||||||||||||
Total Investment Income | 199,275 | 9,246,773 | 2,898,234 | 532,877 | 2,138,355 | |||||||||||||||
Expenses: | ||||||||||||||||||||
Management fees | 369,288 | 8,278,826 | 2,379,425 | 343,020 | 717,647 | |||||||||||||||
Total Expenses | 369,288 | 8,278,826 | 2,379,425 | 343,020 | 717,647 | |||||||||||||||
Net Investment Income (Loss) | (170,013 | ) | 967,947 | 518,809 | 189,857 | 1,420,708 | ||||||||||||||
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||||||||||||||||||
Net Realized Gain (Loss) on: | ||||||||||||||||||||
Unaffiliated investments | (4,816,605 | ) | (15,314,061 | ) | (512,824 | ) | (1,220,452 | ) | (4,151,487 | ) | ||||||||||
Affiliated investments | — | (2,414,556 | ) | (111,011 | ) | — | — | |||||||||||||
In-Kind redemptions | 31,840 | 197,471,409 | 29,323,499 | 5,230,235 | 10,834,778 | |||||||||||||||
Foreign currency and foreign currency translation | (4,192 | ) | (47,597 | ) | (83,003 | ) | (18,706 | ) | (32,573 | ) | ||||||||||
Net Realized Gain (Loss) on Investments and In-Kind redemptions | (4,788,957 | ) | 179,695,195 | 28,616,661 | 3,991,077 | 6,650,718 | ||||||||||||||
Net Change in Unrealized Appreciation (Depreciation) of: | ||||||||||||||||||||
Unaffiliated Investments | (12,031,777 | ) | 193,803,923 | 55,482,237 | 3,893 | (8,637,904 | ) | |||||||||||||
Affiliated investments | — | 2,982,814 | 896,086 | — | — | |||||||||||||||
Foreign currency and foreign currency translation | (607 | ) | (9,431 | ) | (5,821 | ) | 612 | (1,199 | ) | |||||||||||
Net change in Unrealized Appreciation (Depreciation) of Investments | (12,032,384 | ) | 196,777,306 | 56,372,502 | 4,505 | (8,639,103 | ) | |||||||||||||
Net Realized and Unrealized Gain (Loss) on Investments | (16,821,341 | ) | 376,472,501 | 84,989,163 | 3,995,582 | (1,988,385 | ) | |||||||||||||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | (16,991,354 | ) | $ | 377,440,448 | $ | 85,507,972 | $ | 4,185,439 | $ | (567,677 | ) |
The accompanying notes are an integral part of these financial statements.
36
ETFMG Prime Junior Silver ETF
Year Ended September 30, | Year Ended September 30, | |||||||
2018 | 2017 | |||||||
OPERATIONS | ||||||||
Net investment loss | $ | (170,013 | ) | $ | (294,887 | ) | ||
Net realized loss on investments and In-Kind Redemptions | (4,788,957 | ) | (15,573,596 | ) | ||||
Net change in unrealized depreciation of investments and foreign currency and foreign currency translation | (12,032,384 | ) | (5,423,909 | ) | ||||
Net decrease in net assets resulting from operations | (16,991,354 | ) | (21,292,392 | ) | ||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
Total distributions from distributable earnings | — | (258,169 | )* | |||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase in net assets derived | ||||||||
from net change in outstanding shares | 4,224,315 | 2,518,035 | ||||||
Net decrease in net assets | $ | (12,767,039 | ) | $ | (19,032,526 | ) | ||
NET ASSETS | ||||||||
Beginning of Year | 58,032,508 | 77,065,034 | ||||||
End of Year | $ | 45,265,469 | $ | 58,032,508 | ** |
* | Includes net investment income distributions of $258,169. |
** | Includes undistributed (accumulated) net investment loss of $(384,887). |
Summary of share transactions is as follows:
Year Ended September 30, 2018 | Year Ended September 30, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 1,200,000 | $ | 13,405,115 | 2,400,000 | $ | 33,356,410 | ||||||||||
Shares Redeemed | (900,000 | ) | (9,180,800 | ) | (2,450,000 | ) | (30,838,375 | ) | ||||||||
Net Transactions in Fund Shares | 300,000 | $ | 4,224,315 | (50,000 | ) | $ | 2,518,035 | |||||||||
Beginning Shares | 4,900,000 | 4,950,000 | ||||||||||||||
Ending Shares | 5,200,000 | 4,900,000 |
The accompanying notes are an integral part of these financial statements.
37
ETFMG Prime Cyber Security ETF
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended September 30, | Year Ended September 30, | |||||||
2018 | 2017 | |||||||
OPERATIONS | ||||||||
Net investment income (loss) | $ | 967,947 | $ | (338,601 | ) | |||
Net realized gain (loss) on investments and In-Kind Redemptions | 179,695,195 | (55,182,766 | ) | |||||
Net change in unrealized appreciation of investments | 196,777,306 | 122,753,939 | ||||||
Net increase in net assets resulting from operations | 377,440,448 | 67,232,572 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
Total distributions from distributable earnings | (125,955 | ) | (3,740,625 | )* | ||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase in net assets derived from net change in outstanding shares (a) | 361,172,935 | 230,013,980 | ||||||
Transaction Fees (See Note 1) | 14,139 | 60,036 | ||||||
Net increase in net assets from capital share transactions | 361,187,074 | 230,074,016 | ||||||
Total increase in net assets | $ | 738,501,567 | $ | 293,565,963 | ||||
NET ASSETS | ||||||||
Beginning of Year | 1,097,359,887 | 803,793,924 | ||||||
End of Year | $ | 1,835,861,454 | $ | 1,097,359,887 | ** |
* | Includes net investment income distributions of $3,740,625. |
** | Includes undistributed (accumulated) net investment loss of $(933,484). |
Summary of share transactions is as follows:
Year Ended September 30, 2018 | Year Ended September 30, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 26,900,000 | $ | 997,959,795 | 17,650,000 | $ | 522,222,875 | ||||||||||
Transaction Fees (See Note 1) | — | 14,139 | — | 60,036 | ||||||||||||
Shares Redeemed | (17,550,000 | ) | (636,786,860 | ) | (10,000,000 | ) | (292,208,895 | ) | ||||||||
Net Transactions in Fund Shares | 9,350,000 | $ | 361,187,074 | 7,650,000 | $ | 230,074,016 | ||||||||||
Beginning Shares | 36,450,000 | 28,800,000 | ||||||||||||||
Ending Shares | 45,800,000 | 36,450,000 |
The accompanying notes are an integral part of these financial statements.
38
ETFMG Prime Mobile Payments ETF
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2018 | 2017 | |||||||
OPERATIONS | ||||||||
Net investment income | $ | 518,809 | $ | 104,929 | ||||
Net realized gain on investments and In-Kind Redemptions | 28,616,661 | 4,484,869 | ||||||
Net change in unrealized appreciation of investments | 56,372,502 | 21,832,697 | ||||||
Net increase in net assets resulting from operations | 85,507,972 | 26,422,495 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
Total distributions from distributable earnings | (61,070 | ) | (31,641 | )* | ||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase in net assets derived from net change in outstanding shares | 266,385,415 | 135,868,135 | ||||||
Transaction Fees (See Note 1) | 48,505 | 21 | ||||||
Net increase in net assets from capital share transactions | 266,433,920 | 135,868,156 | ||||||
Total increase in net assets | $ | 351,880,822 | $ | 162,259,010 | ||||
NET ASSETS | ||||||||
Beginning of Year | 170,993,440 | 8,734,430 | ||||||
End of Year | $ | 522,874,262 | $ | 170,993,440 | ** |
* | Includes net investment income distributions of $31,641. |
** | Includes undistributed (accumulated) net investment income of $61,070. |
Summary of share transactions is as follows:
Year Ended | Year Ended | |||||||||||||||
September 30, 2018 | September 30, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 9,200,000 | $ | 351,060,880 | 5,550,000 | $ | 155,535,335 | ||||||||||
Transaction Fees (See Note 1) | — | 48,505 | — | 21 | ||||||||||||
Shares Redeemed | (2,250,000 | ) | (84,675,465 | ) | (650,000 | ) | (19,667,200 | ) | ||||||||
Net Transactions in Fund Shares | 6,950,000 | $ | 266,433,920 | 4,900,000 | $ | 135,868,156 | ||||||||||
Beginning Shares | 5,250,000 | 350,000 | ||||||||||||||
Ending Shares | 12,200,000 | 5,250,000 |
The accompanying notes are an integral part of these financial statements.
39
ETFMG Drone Economy Strategy ETF
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2018 | 2017 | |||||||
OPERATIONS | ||||||||
Net investment income | $ | 189,857 | $ | 120,642 | ||||
Net realized gain on investments and In-Kind Redemptions | 3,991,077 | 271,606 | ||||||
Net change in unrealized appreciation of investments | 4,505 | 5,251,260 | ||||||
Net increase in net assets resulting from operations | 4,185,439 | 5,643,508 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
Total distributions from distributable earnings | (404,140 | ) | (129,906 | )* | ||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase in net assets derived from net change in outstanding shares | 9,035,745 | 25,745,485 | ||||||
Transaction Fees (See Note 1) | 5,629 | 2,630 | ||||||
Net increase in net assets from capital share transactions | 9,041,374 | 25,748,115 | ||||||
Total increase in net assets | $ | 12,822,673 | $ | 31,261,717 | ||||
NET ASSETS | ||||||||
Beginning of Year | 37,948,194 | 6,686,477 | ||||||
End of Year | $ | 50,770,867 | $ | 37,948,194 | ** |
* | Includes net investment income distributions of $101,055 and $28,851 from net realized gains. |
** | Includes undistributed (accumulated) net investment income of $21,329. |
Summary of share transactions is as follows:
Year Ended | Year Ended | |||||||||||||||
September 30, 2018 | September 30, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 700,000 | $ | 25,292,665 | 850,000 | $ | 27,286,680 | ||||||||||
Transaction Fees (See Note 1) | — | 5,629 | — | 2,630 | ||||||||||||
Shares Redeemed | (450,000 | ) | (16,256,920 | ) | (50,000 | ) | (1,541,195 | ) | ||||||||
Net Transactions in Fund Shares | 250,000 | $ | 9,041,374 | 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.
40
ETFMG Video Game Tech ETF
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2018 | 2017 | |||||||
OPERATIONS | ||||||||
Net investment income | $ | 1,420,708 | $ | 115,714 | ||||
Net realized gain on investments and In-Kind Redemptions | 6,650,718 | 2,509,264 | ||||||
Net change in unrealized appreciation (depreciation) of investments | (8,639,103 | ) | 2,154,494 | |||||
Net increase (decrease) in net assets resulting from operations | (567,677 | ) | 4,779,472 | |||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
Total distributions from distributable earnings | (1,401,544 | ) | (211,320 | )* | ||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase in net assets derived from net change in outstanding shares | 92,609,390 | 28,765,980 | ||||||
Transaction Fees (See Note 1) | 35,374 | 18,631 | ||||||
Net increase in net assets from capital share transactions | 92,644,764 | 28,784,611 | ||||||
Net increase in net assets | $ | 90,675,543 | $ | 33,352,763 | ||||
NET ASSETS | ||||||||
Beginning of Year | 39,933,676 | 6,580,913 | ||||||
End of Year | $ | 130,609,219 | $ | 39,933,676 | ** |
* | Includes net investment income distributions of $114,780 and $96,540 from net realized gains. |
** | Includes undistributed (accumulated) net investment income of $53,637. |
Summary of share transactions is as follows:
Year Ended | Year Ended | |||||||||||||||
September 30, 2018 | September 30, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 2,550,000 | $ | 127,750,900 | 900,000 | $ | 37,042,630 | ||||||||||
Transaction Fees (See Note 1) | — | 35,374 | — | 18,631 | ||||||||||||
Shares Redeemed | (700,000 | ) | (35,141,510 | ) | (200,000 | ) | (8,276,650 | ) | ||||||||
Net Transactions in Fund Shares | 1,850,000 | $ | 92,644,764 | 700,000 | $ | 28,784,611 | ||||||||||
Beginning Shares | 900,000 | 200,000 | ||||||||||||||
Ending Shares | 2,750,000 | 900,000 |
The accompanying notes are an integral part of these financial statements.
41
ETFMG Prime Junior Silver ETF
For a capital share outstanding throughout the year
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net Asset Value, Beginning of Year | $ | 11.84 | $ | 15.57 | $ | 5.28 | $ | 10.00 | $ | 11.71 | ||||||||||
Income (Loss) from Investment Operations: | ||||||||||||||||||||
Net investment loss1 | (0.03 | ) | (0.06 | ) | (0.06 | ) | (0.03 | ) | (0.06 | ) | ||||||||||
Net realized and unrealized gain (loss) on investments | (3.11 | ) | (3.61 | ) | 10.47 | (4.69 | ) | (1.64 | ) | |||||||||||
Total from investment operations | (3.14 | ) | (3.67 | ) | 10.41 | (4.72 | ) | (1.70 | ) | |||||||||||
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 year | $ | 8.70 | $ | 11.84 | $ | 15.57 | $ | 5.28 | $ | 10.00 | ||||||||||
Total Return | -26.50 | % | -23.53 | % | 201.99 | % | -47.20 | % | -14.52 | % | ||||||||||
Ratios/Supplemental Data: | ||||||||||||||||||||
Net assets at end of year (000’s) | $ | 45,265 | $ | 58,033 | $ | 77,065 | $ | 3,432 | $ | 6,997 | ||||||||||
Expenses to Average Net Assets before legal expense | 0.69 | % | 0.69 | % | 0.69 | % | 0.69 | % | 0.69 | % | ||||||||||
Gross Expenses to Average Net Assets | 0.69 | % | 0.72 | %2 | 0.69 | % | 0.69 | % | 0.69 | % | ||||||||||
Net Investment Loss to Average Net Assets | -0.32 | % | -0.48 | % | -0.45 | % | -0.39 | % | -0.52 | % | ||||||||||
Portfolio Turnover Rate | 36 | % | 69 | % | 33 | % | 55 | % | 44 | % |
1 | Calculated based on average shares outstanding during the year. |
2 | The ratio of gross expenses to average net assets includes legal expense. See Note 10 in the Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
42
ETFMG Prime Cyber Security ETF
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the year/period
Year Ended | Year Ended | Year Ended | Period Ended | |||||||||||||
September 30, | September 30, | September 30, | �� | September 30, | ||||||||||||
2018 | 2017 | 2016 | 20151 | |||||||||||||
Net Asset Value, Beginning of Year/Period | $ | 30.11 | $ | 27.91 | $ | 25.28 | $ | 25.00 | ||||||||
Income (Loss) from Investment Operations: | ||||||||||||||||
Net investment income (loss) 2 | 0.03 | (0.01 | ) | 0.30 | (0.05 | ) | ||||||||||
Net realized and unrealized gain on investments | 9.94 | 2.34 | 2.52 | 0.33 | ||||||||||||
Total from investment operations | 9.97 | 2.33 | 2.82 | 0.28 | ||||||||||||
Less Distributions: | ||||||||||||||||
Distributions from net investment income | (0.00 | )3 | (0.13 | ) | (0.19 | ) | — | |||||||||
Total distributions | (0.00 | )3 | (0.13 | ) | (0.19 | ) | — | |||||||||
Net asset value, end of year/period | $ | 40.08 | $ | 30.11 | $ | 27.91 | $ | 25.28 | ||||||||
Total Return | 33.16 | % | 8.42 | % | 11.23 | % | 1.11 | %4 | ||||||||
Ratios/Supplemental Data: | ||||||||||||||||
Net assets at end of year/period (000’s) | $ | 1,835,861 | $ | 1,097,360 | $ | 803,794 | $ | 1,059,125 | ||||||||
Expenses to Average Net Assets before legal expense | 0.60 | % | 0.68 | % | 0.75 | % | 0.75 | %5 | ||||||||
Gross Expenses to Average Net Assets | 0.60 | % | 0.72 | %6 | 0.75 | % | 0.75 | %5 | ||||||||
Net Investment Income (Loss) to Average Net Assets | 0.07 | % | -0.03 | % | 1.21 | % | -0.19 | %5 | ||||||||
Portfolio Turnover Rate | 41 | % | 53 | % | 34 | % | 31 | %4 |
1 | Commencement of operations on November 11, 2014. |
2 | Calculated based on average shares outstanding during the year/period. |
3 | Per share amount is less than $0.01. |
4 | Not annualized. |
5 | Annualized. |
6 | The ratio of gross expenses to average net assets includes legal expense. See Note 10 in the Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
43
ETFMG Prime Mobile Payments ETF
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the year/period
Year Ended | Year Ended | Year Ended | Period Ended | |||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2018 | 2017 | 2016 | 20151 | |||||||||||||
Net Asset Value, Beginning of Year/Period | $ | 32.57 | $ | 24.96 | $ | 23.53 | $ | 25.00 | ||||||||
Income (Loss) from Investment Operations: | ||||||||||||||||
Net investment income (loss) 2 | 0.07 | 0.03 | 0.15 | (0.01 | ) | |||||||||||
Net realized and unrealized gain (loss) on investments | 10.22 | 7.60 | 1.39 | (1.46 | ) | |||||||||||
Total from investment operations | 10.29 | 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 | ) | — | |||||||||
Capital Share Transactions: | ||||||||||||||||
Transaction fees added to paid-in capital | 0.01 | — | — | — | ||||||||||||
Net asset value, end of year/period | $ | 42.86 | $ | 32.57 | $ | 24.96 | $ | 23.53 | ||||||||
Total Return | 31.62 | % | 30.59 | % | 6.51 | % | -5.86 | %3 | ||||||||
Ratios/Supplemental Data: | ||||||||||||||||
Net assets at end of year/period (000’s) | $ | 522,874 | $ | 170,993 | $ | 8,734 | $ | 4,707 | ||||||||
Expenses to Average Net Assets before legal expense | 0.75 | % | 0.75 | % | 0.75 | % | 0.75 | %4 | ||||||||
Gross Expenses to Average Net Assets | 0.75 | % | 0.80 | %5 | 0.75 | % | 0.75 | %4 | ||||||||
Net Investment Income (Loss) to Average Net Assets | 0.16 | % | 0.12 | % | 0.63 | % | -0.23 | %4 | ||||||||
Portfolio Turnover Rate | 16 | % | 31 | % | 32 | % | 8 | %3 |
1 | Commencement of operations on July 15, 2015. |
2 | Calculated based on average shares outstanding during the year/period. |
3 | Not annualized. |
4 | Annualized. |
5 | The ratio of gross expenses to average net assets includes legal expense. See Note 10 in the Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
44
ETFMG Drone Economy Strategy ETF
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the year/period
Year Ended | Year Ended | Period Ended | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
2018 | 2017 | 20161 | ||||||||||
Net Asset Value, Beginning of Year/Period | $ | 36.14 | $ | 26.75 | $ | 25.00 | ||||||
Income from Investment Operations: | ||||||||||||
Net investment income 2 | 0.15 | 0.27 | 0.11 | |||||||||
Net realized and unrealized gain on investments | 3.08 | 9.26 | 1.68 | |||||||||
Total from investment operations | 3.23 | 9.53 | 1.79 | |||||||||
Less Distributions: | ||||||||||||
Distributions from net investment income | (0.13 | ) | (0.04 | ) | (0.04 | ) | ||||||
Net realized gains | (0.19 | ) | (0.10 | ) | — | |||||||
Total distributions | (0.32 | ) | (0.14 | ) | (0.04 | ) | ||||||
Net asset value, end of year/period | $ | 39.05 | $ | 36.14 | $ | 26.75 | ||||||
Total Return | 9.03 | % | 36.39 | % | 7.15 | %3 | ||||||
Ratios/Supplemental Data: | ||||||||||||
Net assets at end of year/period (000’s) | $ | 50,771 | $ | 37,948 | $ | 6,686 | ||||||
Expenses to Average Net Assets before legal expense | 0.75 | % | 0.75 | % | 0.75 | %4 | ||||||
Gross Expenses to Average Net Assets | 0.75 | % | 0.79 | %5 | 0.75 | %4 | ||||||
Net Investment Income to Average Net Assets | 0.42 | % | 0.87 | % | 0.68 | %4 | ||||||
Portfolio Turnover Rate | 42 | % | 21 | % | 13 | %3 |
1 | Commencement of operations on March 8, 2016. |
2 | Calculated based on average shares outstanding during the year/period. |
3 | Not annualized. |
4 | Annualized. |
5 | The ratio of gross expenses to average net assets includes legal expense. See Note 10 in the Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
45
ETFMG Video Game Tech ETF
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the year/period
Year Ended | Year Ended | Period Ended | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
2018 | 2017 | 20161 | ||||||||||
Net Asset Value, Beginning of Year/Period | $ | 44.37 | $ | 32.90 | $ | 25.00 | ||||||
Income from Investment Operations: | ||||||||||||
Net investment income 2 | 0.74 | 0.33 | 0.08 | |||||||||
Net realized and unrealized gain on investments | 2.98 | 11.71 | 7.82 | |||||||||
Total from investment operations | 3.72 | 12.04 | 7.90 | |||||||||
Less Distributions: | ||||||||||||
Distributions from net investment income | (0.59 | ) | (0.18 | ) | — | |||||||
Net realized gains | (0.03 | ) | (0.39 | ) | — | |||||||
Total distributions | (0.62 | ) | (0.57 | ) | — | |||||||
Capital Share Transactions: | ||||||||||||
Transaction fees added to paid-in capital | 0.02 | — | — | |||||||||
Net asset value, end of year/period | $ | 47.49 | $ | 44.37 | $ | 32.90 | ||||||
Total Return | 8.38 | % | 37.67 | % | 31.62 | %3 | ||||||
Ratios/Supplemental Data: | ||||||||||||
Net assets at end of year/period (000’s) | $ | 130,609 | $ | 39,934 | $ | 6,581 | ||||||
Expenses to Average Net Assets before legal expense | 0.75 | % | 0.75 | % | 0.74 | %4 | ||||||
Gross Expenses to Average Net Assets | 0.75 | % | 0.82 | %5 | 0.74 | %4 | ||||||
Net Investment Income to Average Net Assets | 1.48 | % | 0.86 | % | 0.44 | %4 | ||||||
Portfolio Turnover Rate | 42 | % | 49 | % | 10 | %3 |
1 | Commencement of operations on March 8, 2016. |
2 | Calculated based on average shares outstanding during the year/period. |
3 | Not annualized. |
4 | Annualized. |
5 | The ratio of gross expenses to average net assets includes legal expense. See Note 10 in the Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
46
ETFMG™ ETFs
September 30, 2018
NOTE 1 – ORGANIZATION
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.
47
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
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 September 30, 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. |
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. |
48
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
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 is a summary of the inputs used to value the Funds’ net assets as of September 30, 2018:
ETFMG Prime Junior Silver ETF | ||||||||||||||||
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 42,452,212 | $ | 2,652,126 | $ | — | $ | 45,104,338 | ||||||||
Short Term Investments | 259,393 | — | — | 259,393 | ||||||||||||
Total Investments in Securities | $ | 42,711,605 | $ | 2,652,126 | $ | — | $ | 45,363,731 | ||||||||
ETFMG Prime Cyber Security ETF | ||||||||||||||||
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 1,821,787,143 | $ | — | $ | — | $ | 1,821,787,143 | ||||||||
Short Term Investments | 14,970,191 | — | — | 14,970,191 | ||||||||||||
Investments Purchased with Securities Lending Collateral* | — | — | — | 257,747,708 | ||||||||||||
Total Investments in Securities | $ | 1,836,757,334 | $ | — | $ | — | $ | 2,094,505,042 | ||||||||
ETFMG Prime Mobile Payments ETF | ||||||||||||||||
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 519,854,065 | $ | — | $ | — | $ | 519,854,065 | ||||||||
Short Term Investments | 3,300,136 | — | — | 3,300,136 | ||||||||||||
Investments Purchased with Securities Lending Collateral* | — | — | — | 63,943,784 | ||||||||||||
Total Investments in Securities | $ | 523,154,201 | $ | — | $ | — | $ | 587,097,985 |
49
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
ETFMG Drone Economy Strategy ETF | ||||||||||||||||
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 46,393,702 | $ | 4,274,785 | $ | — | $ | 50,668,487 | ||||||||
Short Term Investments | 88,779 | — | — | 88,779 | ||||||||||||
Investments Purchased with Securities Lending Collateral* | — | — | — | 5,008,188 | ||||||||||||
Total Investments in Securities | $ | 46,482,481 | $ | 4,274,785 | $ | — | $ | 55,765,454 | ||||||||
ETFMG Video Game Tech ETF | ||||||||||||||||
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 129,948,293 | $ | — | $ | — | $ | 129,948,293 | ||||||||
Short Term Investments | 446,814 | — | — | 446,814 | ||||||||||||
Investments Purchased with Securities Lending Collateral* | — | — | — | 16,713,426 | ||||||||||||
Total Investments in Securities | $ | 130,395,107 | $ | — | $ | — | $ | 147,108,533 |
^ | 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 Schedules of Investments. |
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’ 2018 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.
As of September 30, 2018, 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. |
50
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
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. |
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. |
51
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
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.
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 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 and accounting, 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 management fee at the following annual rates:
52
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
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 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, doing business as U.S. Bank Global Fund Services (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.
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 year ended September 30, 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 year ended September 30, 2018:
Purchases | Sales | |||||||
ETFMG Prime Junior Silver ETF | $ | 15,569,028 | $ | 16,174,899 | ||||
ETFMG Prime Cyber Security ETF | 599,281,440 | 609,966,469 | ||||||
ETFMG Prime Mobile Payments ETF | 102,473,800 | 101,517,977 | ||||||
ETFMG Drone Economy Strategy ETF | 10,029,365 | 11,076,781 | ||||||
ETFMG Video Game Tech ETF | 57,219,301 | 40,545,782 |
53
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
The costs of purchases and sales of in-kind transactions associated with creations and redemptions during the year ended September 30, 2018:
Purchases In-Kind | Sales In-Kind | |||||||
ETFMG Prime Junior Silver ETF | $ | 13,339,068 | $ | 8,790,543 | ||||
ETFMG Prime Cyber Security ETF | 980,746,016 | 621,360,665 | ||||||
ETFMG Prime Mobile Payments ETF | 342,813,122 | 79,699,977 | ||||||
ETFMG Drone Economy Strategy ETF | 24,049,316 | 14,208,395 | ||||||
ETFMG Video Game Tech ETF | 109,630,312 | 33,967,964 |
Purchases in-kind are the aggregate of all in-kind purchases and sales in-kind are the aggregate of all 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 year ended September 30, 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. 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 year ended September 30, 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.
54
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
As of the year ended September 30, 2018, the value of the securities on loan and payable for collateral due to broker were as follows:
Value of Securities on Loan and Collateral Received
Fund | Values of Securities on Loan | Fund Collateral Received* | ||||||
ETFMG Prime Cyber Security ETF | $ | 252,738,916 | $ | 257,747,708 | ||||
ETFMG Prime Mobile Payments ETF | 62,768,345 | 63,943,784 | ||||||
ETFMG Drone Economy Strategy ETF | 4,931,437 | 5,008,188 | ||||||
ETFMG Video Game Tech ETF | 16,035,195 | 16,713,426 |
* The cash collateral received was invested in the Mount Vernon Liquid Assets Portfolio as shown on the Schedule of Investments, a money market fund with an overnight and continuous maturity.
NOTE 8 – FEDERAL INCOME TAXES
The components of distributable earnings (losses) and cost basis of investments for federal income tax purposes at September 30, 2018 were as follows:
Cost | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | |||||||||||||
SILJ | $ | 66,928,849 | $ | 540,845 | $ | (22,106,575 | ) | $ | (21,565,730 | ) | ||||||
HACK | 1,866,926,814 | 307,310,359 | (79,737,616 | ) | 227,572,743 | |||||||||||
IPAY | 511,658,553 | 94,899,463 | (19,465,723 | ) | 75,433,740 | |||||||||||
IFLY | 51,348,181 | 10,588,189 | (6,171,270 | ) | 4,416,919 | |||||||||||
GAMR | 156,268,962 | 13,586,427 | (22,748,527 | ) | (9,162,100 | ) |
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, 2018, 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) | Total Accumulated (Loss) | ||||||||||||||||
SILJ | $ | 713,794 | $ | — | $ | 713,794 | $ | (23,630,715 | ) | $ | (44,482,651 | ) | ||||||||
HACK | — | — | — | (191,500,869 | ) | 36,071,874 | ||||||||||||||
IPAY | 1,559,775 | 726,555 | 2,286,330 | — | 77,720,070 | |||||||||||||||
IFLY | 15,364 | — | 15,364 | (284,222 | ) | 4,148,061 | ||||||||||||||
GAMR | 281,317 | — | 281,317 | (612,706 | ) | (9,493,489 | ) |
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.
55
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
As of September 30, 2018, the Funds had accumulated capital loss carryovers of:
Capital Loss Carryforward ST | Capital Loss Carryforward LT | Expires | ||||||
SILJ | $ | 13,246,133 | $ | 10,384,582 | Indefinite | |||
HACK | 107,836,484 | 83,656,390 | Indefinite | |||||
IPAY | — | — | Indefinite | |||||
IFLY | 261,490 | 22,732 | Indefinite | |||||
GAMR | 612,706 | — | 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 ending September 30, 2018.
Late Year Ordinary Loss | Post- October Capital Loss | |||||||
SILJ | $ | — | $ | — | ||||
HACK | 7,995 | — | ||||||
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, 2018, the following table shows the reclassifications made:
Undistributed Accumulated Net Investment Income/(Loss) | Accumulated Net Realized Loss | Paid-In Capital | ||||||||||
ETFMG Prime Junior Silver ETF | $ | 721,191 | $ | (115,711 | ) | $ | (605,480 | ) | ||||
ETFMG Prime Cyber Security ETF | 83,497 | (189,120,329 | ) | 189,036,832 | ||||||||
ETFMG Prime Mobile Payments ETF | (34,499 | ) | (28,546,941 | ) | 28,581,440 | |||||||
ETFMG Drone Economy Strategy ETF | (22,836 | ) | (5,193,188 | ) | 5,216,024 | |||||||
ETFMG Video Game Tech ETF | 18,692 | (10,537,949 | ) | 10,519,257 |
The tax charter of distributions paid during the year ended September 30, 2018, and the year ended September 30, 2017 were as follows:
Year Ended September 30, 2018 | Year Ended September 30, 2017 | |||||||||||||||
From Ordinary Income | From Capital Gains | From Ordinary Income | From Capital Gains | |||||||||||||
SILJ | $ | — | $ | — | $ | 258,169 | $ | — | ||||||||
HACK | 125,955 | — | 3,740,625 | — | ||||||||||||
IPAY | 61,070 | — | 31,641 | — | ||||||||||||
IFLY | 401,757 | 2,383 | 129,906 | — | ||||||||||||
GAMR | 1,401,544 | — | 211,320 | — |
56
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
NOTE 9 – 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 year ended September 30, 2018. After ETFMG Prime Cyber Security ETF sold some of their holdings in Carbonite, Inc., the company was no longer deemed an affiliate of the Fund as defined by the 1940 Act. SecureWorks Corp. is deemed to be an affiliate of the Fund as of September 30, 2018. Transactions during the year in these securities were as follows:
Share Activity | ||||||||||||||||||||||||||||||||
Security Name | Balance September 30, 2017 | Purchases | Sales | Balance September 30, 2018 | Realized Gains (Losses)1 | Net change in Unrealized Appreciation | Dividend Income | Value September 30, 2018 | ||||||||||||||||||||||||
SecureWorks Corp. * | 768,717 | 955,764 | (783,152 | ) | 941,329 | $ | (2,414,556 | ) | $ | 2,982,814 | $ | — | $ | 13,790,470 | ||||||||||||||||||
Carbonite, Inc. | — | 2,763,118 | (1,132,916 | ) | 1,630,202 | 3,813,529 | 2,000,717 | — | 58,116,701 | |||||||||||||||||||||||
Total | 768,717 | 3,718,882 | (1,916,068 | ) | 2,571,531 | 1,398,973 | 4,983,531 | — | 71,907,171 |
ETFMG Prime Mobile Payments ETF
ETFMG Prime Mobile Payments ETF owned 5% or more of the voting securities of the following company during the year ended September 30, 2018. Dai-ichi Life Holdings, Inc is deemed to be an affiliate of the Fund as of September 30, 2018 as defined by the 1940 Act. Transactions during the year in this security were as follows:
Share Activity | ||||||||||||||||||||||||||||||||
Security Name | Balance September 30, 2017 | Purchases | Sales | Balance September 30, 2018 | Realized Losses1 | Net Change in Unrealized Appreciation | Dividend Income | Value September 30, 2018 | ||||||||||||||||||||||||
Dai-ichi | ||||||||||||||||||||||||||||||||
Life | ||||||||||||||||||||||||||||||||
Holdings, | ||||||||||||||||||||||||||||||||
Inc.* | — | 1,010,579 | (94,953 | ) | 915,626 | $ | (111,011 | ) | $ | 896,086 | $ | 297,036 | $ | 19,062,782 |
*Affiliate as of September 30, 2018.
1 Realized Gains (Losses) include transactions in affiliated investments and affiliated in-kind redemptions.
NOTES 10 – LEGAL MATTERS
The Trust, the trustees of the Trust, the Advisor and certain officers of the Advisor are defendants in an action filed May 2, 2017 in the Superior Court of New Jersey captioned PureShares, LLC d/b/a PureFunds et al. v. ETF Managers Group, LLC et al., Docket No. C-63-17. The PureShares action alleges claims based on disputes arising out of contractual relationships with the Advisor. The action seeks damages in unspecified amounts and injunctive relief based on breach of contract, wrongful termination, and several other theories. At the outset of the litigation, and again a few weeks later, plaintiffs sought temporary injunctive relief. Both motions were denied, and the matter is now proceeding through pretrial discovery. The defendants believe the lawsuit is without merit and intend to vigorously defend themselves against the allegations.
57
ETFMG™ ETFs
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
The Advisor, its parent, Exchange Traded Managers Group, LLC and its chief executive officer are defendants in a case filed on October 26, 2017 in the United States District Court for the Southern District of New York by NASDAQ, Inc. captioned Nasdaq, Inc. v. Exchange Traded Managers Group, LLC et al., Case 1:17-cv-08252. This action arises out of related facts and circumstances in the New Jersey litigation and asserts claims for breach of contract, wrongful termination and certain other theories with respect to the same exchange traded funds discussed above. The defendants in the Southern District actions believe the lawsuit is without merit and intend to vigorously defend themselves against the allegations and to assert counterclaims against NASDAQ for breaches of its duties under the related index license agreement and various other agreements. Management of the Trust and the Funds, after consultation with legal counsel, believes that the resolution of these matters will not have a material adverse effect on the Funds’ financial statements.
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. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments to the Financial Statements.
58
ETFMG™ ETFs
To the Board of Trustees of ETF Managers Trust and the Shareholders 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:
Opinion on the Financial Statements
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, 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 (collectively the “Funds”) (certain of the Funds comprising ETF Managers Trust) as of September 30, 2018, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Funds as of September 30, 2018, and the results of their operations for the year then ended, the changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of September 30, 2018 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more series of the Trust since 2013.
/s/WithumSmith+Brown, PC
New York, New York
November 29, 2018
59
ETFMG™ ETFs
ETFMG ETFs Closing Price vs. NAV
The following Frequency Distribution of Premiums and Discounts chart is provided to show the frequency at which the closing price for each Fund is at a premium or discount to its daily net asset value (NAV). The chart presented represents past performance and cannot be used to predict future results.
ETFMG Prime Junior Silver ETF | Year Ended September 30, 2018 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 8 | 3.2 | ||||||
Greater Than or equal to 0.75% And Less Than 1.00% | 24 | 9.6 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 34 | 13.5 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 44 | 17.5 | ||||||
Greater Than or Equal to 0.00% And Less Than 0.25% | 38 | 15.1 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 46 | 18.3 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 28 | 11.2 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 19 | 7.6 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 10 | 4.0 | ||||||
Less than -1.00% | 0 | 0.0 |
ETFMG Prime Junior Silver ETF | Year Ended September 30, 2017 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 4 | 1.6 | ||||||
Greater Than or equal to 0.75% And Less Than 1.00% | 4 | 1.6 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 17 | 6.8 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 34 | 13.5 | ||||||
Greater Than or Equal to 0.00% And Less Than 0.25% | 45 | 17.9 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 58 | 23.1 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 53 | 21.1 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 26 | 10.4 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 7 | 2.8 | ||||||
Less than -1.00% | 3 | 1.2 |
60
ETFMG™ ETFs
FREQUENCY DISTRIBUTION OF PREMIUMS AND DISCOUNTS (Unaudited) (Cont.)
ETFMG Prime Junior Silver ETF | Year Ended September 30, 2016 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 65 | 25.7 | ||||||
Greater Than or equal to 0.75% And Less Than 1.00% | 24 | 9.5 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 44 | 17.4 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 40 | 15.8 | ||||||
Greater Than or Equal to 0.00% And Less Than 0.25% | 15 | 5.9 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 19 | 7.5 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 20 | 7.9 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 9 | 3.6 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 9 | 3.6 | ||||||
Less than -1.00% | 8 | 3.2 |
ETFMG Prime Junior Silver ETF | Year Ended September 30, 2015 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.50% | 21 | 8.3 | ||||||
Greater Than or equal to 1.25% And Less Than 1.50% | 12 | 4.8 | ||||||
Greater Than or Equal to 1.00% And Less Than 1.25% | 20 | 7.9 | ||||||
Greater Than or Equal to 0.75% And Less Than 1.00% | 24 | 9.5 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 27 | 10.7 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 20 | 7.9 | ||||||
Greater Than or Equal to 0.0% And Less Than 0.25% | 27 | 10.7 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 16 | 6.4 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 28 | 11.1 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 18 | 7.2 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 19 | 7.5 | ||||||
Less Than or Equal to -1.00% And Greater Than -1.25% | 8 | 3.2 | ||||||
Less Than or Equal to -1.25% And Greater Than -1.50% | 5 | 2.0 | ||||||
Less than -1.50% | 7 | 2.8 |
61
ETFMG™ ETFs
FREQUENCY DISTRIBUTION OF PREMIUMS AND DISCOUNTS (Unaudited) (Cont.)
ETFMG Prime Junior Silver ETF | Year Ended September 30, 2014 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.50% | 28 | 11.1 | ||||||
Greater Than or equal to 1.25% And Less Than 1.50% | 8 | 3.2 | ||||||
Greater Than or Equal to 1.00% And Less Than 1.25% | 20 | 7.9 | ||||||
Greater Than or Equal to 0.75% And Less Than 1.00% | 17 | 6.7 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 30 | 11.9 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 32 | 12.7 | ||||||
Greater Than or Equal to 0.0% And Less Than 0.25% | 35 | 13.9 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 25 | 9.9 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 28 | 11.1 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 12 | 4.8 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 9 | 3.6 | ||||||
Less Than or Equal to -1.00% And Greater Than -1.25% | 3 | 1.2 | ||||||
Less Than or Equal to -1.25% And Greater Than -1.50% | 4 | 1.6 | ||||||
Less than -1.50% | 1 | 0.4 |
ETFMG Prime Cyber Security ETF | Year Ended September 30, 2018 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.75% And Less Than 1.00% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 6 | 2.4 | ||||||
Greater Than or Equal to 0.0% And Less Than 0.25% | 161 | 64.1 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 82 | 32.7 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 1 | 0.4 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 1 | 0.4 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 0 | 0.0 | ||||||
Less than -1.00% | 0 | 0.0 |
62
ETFMG™ ETFs
FREQUENCY DISTRIBUTION OF PREMIUMS AND DISCOUNTS (Unaudited) (Cont.)
ETFMG Prime Cyber Security ETF | Year Ended September 30, 2017 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.75% And Less Than 1.00% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 5 | 2.0 | ||||||
Greater Than or Equal to 0.0% And Less Than 0.25% | 143 | 57.0 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 100 | 39.8 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 3 | 1.2 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 0 | 0.0 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 0 | 0.0 | ||||||
Less than -1.00% | 0 | 0.0 |
ETFMG Prime Cyber Security ETF | Year Ended September 30, 2016 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.75% And Less Than 1.00% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 1 | 0.4 | ||||||
Greater Than or Equal to 0.0% And Less Than 0.25% | 80 | 31.6 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 142 | 56.1 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 26 | 10.3 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 3 | 1.2 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 1 | 0.4 | ||||||
Less than -1.00% | 0 | 0.0 |
63
ETFMG™ ETFs
FREQUENCY DISTRIBUTION OF PREMIUMS AND DISCOUNTS (Unaudited) (Cont.)
ETFMG Prime Cyber Security ETF | November 11, 2014* through September 30, 2015 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.50% | 0 | 0.0 | ||||||
Greater than or equal to 1.25% And Less Than 1.50% | 0 | 0.0 | ||||||
Greater Than or Equal to 1.00% And Less Than 1.25% | 1 | 0.4 | ||||||
Greater Than or Equal to 0.75% And Less Than 1.00% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 4 | 1.8 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 17 | 7.6 | ||||||
Greater Than or Equal to 0.0% And Less Than 0.25% | 162 | 72.7 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 33 | 14.8 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 6 | 2.7 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 0 | 0.0 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 0 | 0.0 | ||||||
Less Than or Equal to -1.00% And Greater Than -1.25% | 0 | 0.0 | ||||||
Less Than or Equal to -1.25% And Greater Than -1.50% | 0 | 0.0 | ||||||
Less than -1.50% | 0 | 0.0 |
*First day of secondary market trading
ETFMG Prime Mobile Payments ETF | Year Ended September 30, 2018 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.75% And Less Than 1.00% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 45 | 17.9 | ||||||
Greater Than or Equal to 0.0% And Less Than 0.25% | 174 | 69.3 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 29 | 11.6 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 2 | 0.8 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 1 | 0.4 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 0 | 0.0 | ||||||
Less than -1.00% | 0 | 0.0 |
64
ETFMG™ ETFs
FREQUENCY DISTRIBUTION OF PREMIUMS AND DISCOUNTS (Unaudited) (Cont.)
ETFMG Prime Mobile Payments ETF | Year Ended September 30, 2017 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 1 | 0.4 | ||||||
Greater Than or Equal to 0.75% And Less Than 1.00% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 4 | 1.6 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 26 | 10.3 | ||||||
Greater Than or Equal to 0.0% And Less Than 0.25% | 202 | 80.5 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 16 | 6.4 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 1 | 0.4 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 1 | 0.4 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 0 | 0.0 | ||||||
Less than -1.00% | 0 | 0.0 |
ETFMG Prime Mobile Payments ETF | Year Ended September 30, 2016 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 3 | 1.2 | ||||||
Greater Than or Equal to 0.75% And Less Than 1.00% | 6 | 2.4 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 13 | 5.1 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 36 | 14.2 | ||||||
Greater Than or Equal to 0.0% And Less Than 0.25% | 80 | 31.6 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 56 | 22.1 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 21 | 8.3 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 16 | 6.3 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 11 | 4.4 | ||||||
Less than -1.00% | 11 | 4.4 |
65
ETFMG™ ETFs
FREQUENCY DISTRIBUTION OF PREMIUMS AND DISCOUNTS (Unaudited) (Cont.)
ETFMG Prime Mobile Payments ETF | July 15, 2015* through September 30, 2015 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.50% | 1 | 1.8 | ||||||
Greater than or equal to 1.25% And Less Than 1.50% | 1 | 1.8 | ||||||
Greater Than or Equal to 1.00% And Less Than 1.25% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.75% And Less Than 1.00% | 1 | 1.8 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 1 | 1.8 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 4 | 7.3 | ||||||
Greater Than or Equal to 0.0% And Less Than 0.25% | 27 | 49.1 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 14 | 25.5 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 3 | 5.5 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 1 | 1.8 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 2 | 3.6 | ||||||
Less Than or Equal to -1.00% And Greater Than -1.25% | 0 | 0.0 | ||||||
Less Than or Equal to -1.25% And Greater Than -1.50% | 0 | 0.0 | ||||||
Less than -1.50% | 0 | 0.0 |
*First day of secondary market trading
ETFMG Drone Economy Strategy ETF | Year Ended September 30, 2018 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 1 | 0.4 | ||||||
Greater Than or equal to 0.75% And Less Than 1.00% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 17 | 6.8 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 72 | 28.7 | ||||||
Greater Than or Equal to 0.00% And Less Than 0.25% | 89 | 35.4 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 53 | 21.1 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 14 | 5.6 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 3 | 1.2 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 1 | 0.4 | ||||||
Less than -1.00% | 1 | 0.4 |
66
ETFMG™ ETFs
FREQUENCY DISTRIBUTION OF PREMIUMS AND DISCOUNTS (Unaudited) (Cont.)
ETFMG Drone Economy Strategy ETF | Year Ended September 30, 2017 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 14 | 5.6 | ||||||
Greater Than or equal to 0.75% And Less Than 1.00% | 39 | 15.5 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 52 | 20.7 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 80 | 32.0 | ||||||
Greater Than or Equal to 0.00% And Less Than 0.25% | 47 | 18.7 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 16 | 6.3 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 3 | 1.2 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 0 | 0.0 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 0 | 0.0 | ||||||
Less than -1.00% | 0 | 0.0 |
ETFMG Drone Economy Strategy ETF | March 8, 2016* through September 30, 2016 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 7 | 4.8 | ||||||
Greater Than or Equal to 0.75% And Less Than 1.00% | 23 | 15.9 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 40 | 27.6 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 36 | 24.8 | ||||||
Greater Than or Equal to 0.0% And Less Than 0.25% | 22 | 15.2 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 10 | 6.9 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 4 | 2.8 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 3 | 2.1 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 0 | 0.0 | ||||||
Less than -1.00% | 0 | 0.0 |
*First day of secondary market trading
ETFMG Video Game Tech ETF | Year Ended September 30, 2018 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 3 | 1.2 | ||||||
Greater Than or Equal to 0.75% And Less Than 1.00% | 7 | 2.8 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 34 | 13.5 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 56 | 22.3 | ||||||
Greater Than or Equal to 0.0% And Less Than 0.25% | 84 | 33.5 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 38 | 15.1 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 19 | 7.6 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 6 | 2.4 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 2 | 0.8 | ||||||
Less than -1.00% | 2 | 0.8 |
67
ETFMG™ ETFs
FREQUENCY DISTRIBUTION OF PREMIUMS AND DISCOUNTS (Unaudited) (Cont.)
ETFMG Video Game Tech ETF | Year Ended September 30, 2017 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 4 | 1.6 | ||||||
Greater Than or Equal to 0.75% And Less Than 1.00% | 5 | 2.0 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 30 | 12.0 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 76 | 30.3 | ||||||
Greater Than or Equal to 0.0% And Less Than 0.25% | 66 | 26.3 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 41 | 16.3 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 22 | 8.8 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 5 | 2.0 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 1 | 0.4 | ||||||
Less than -1.00% | 1 | 0.4 |
ETFMG Video Game Tech ETF | March 8, 2016* through September 30, 2016 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 10 | 6.9 | ||||||
Greater Than or Equal to 0.75% And Less Than 1.00% | 20 | 13.8 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 24 | 16.6 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 37 | 25.5 | ||||||
Greater Than or Equal to 0.0% And Less Than 0.25% | 28 | 19.3 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 17 | 11.7 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 5 | 3.5 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 2 | 1.4 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 2 | 1.4 | ||||||
Less than -1.00% | 0 | 0.0 |
*First day of secondary market trading
68
ETFMG™ ETFs
Six Months Ended September 30, 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 management 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 (April 1, 2018 to September 30, 2018) for the Funds.
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.
69
ETFMG™ ETFs
EXPENSE EXAMPLES
Six Months Ended September 30, 2018 (Unaudited) (Cont.)
Fund Name | Beginning Account Value April 1, 2018 | Ending Account Value September 30, 2018 | Expenses Paid During the Period ^ | Annualized Expense Ratio During the Period April 1, 2018 to September 30, 2018 | ||||||||||||
ETFMG Prime Junior Silver ETF | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 819.00 | $ | 3.15 | 0.69 | % | ||||||||
Hypothetical (5% annual) | 1,000.00 | 1,021.61 | 3.50 | 0.69 | % | |||||||||||
ETFMG Prime Cyber Security ETF | ||||||||||||||||
Actual | 1,000.00 | 1,169.80 | 3.26 | 0.60 | % | |||||||||||
Hypothetical (5% annual) | 1,000.00 | 1,022.06 | 3.04 | 0.60 | % | |||||||||||
ETFMG Prime Mobile Payments ETF | ||||||||||||||||
Actual | 1,000.00 | 1,183.00 | 4.10 | 0.75 | % | |||||||||||
Hypothetical (5% annual) | 1,000.00 | 1,021.31 | 3.80 | 0.75 | % | |||||||||||
ETFMG Drone Economy Strategy ETF | ||||||||||||||||
Actual | 1,000.00 | 1,134.90 | 4.01 | 0.75 | % | |||||||||||
Hypothetical (5% annual) | 1,000.00 | 1,021.31 | 3.80 | 0.75 | % | |||||||||||
ETFMG Video Game Tech ETF | ||||||||||||||||
Actual | 1,000.00 | 992.20 | 3.75 | 0.75 | % | |||||||||||
Hypothetical (5% annual) | 1,000.00 | 1,021.31 | 3.80 | 0.75 | % |
^ 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 183/365 (to reflect the one-half year period for the Funds).
70
ETFMG™ ETFs
Board of Trustees
Set forth below are the names, birth years, positions with the Trust, length of term of office, and the principal occupations and other directorships held during at least the last five years of each of the persons currently serving as a Trustee of the Trust, as well as information about each officer. The business address of each Trustee and officer is 30 Maple Street, 2nd Floor, Summit, New Jersey 07901. The SAI includes additional information about Fund directors and is available, without charge, upon request by calling 1-844-ETF-MGRS (1-844-383-6477).
Name and Year of Birth | Position(s) Held with the Trust, Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen By Trustee | Other Directorships Held by Trustee During Past 5 Years |
Samuel Masucci, III (1962) | Trustee, Chairman of the Board and President (since 2012); Secretary (since 2014) | Chief Executive Officer, Exchange Traded Managers Group, LLC (since 2013); Chief Executive Officer (since 2016), ETF Managers Group, LLC; Chief Executive Officer, ETF Managers Capital LLC (commodity pool operator) (since 2014); Chief Executive Officer (2012–2016) and Chief Compliance Officer (2012– 2014), Factor Advisors, LLC (investment adviser); President and Chief Executive Officer, Factor Capital Management LLC (2012– 2014) (commodity pool operator). | 10 | None |
Reshma J. Amin (1978) | Chief Compliance Officer (since 2016) | Chief Compliance Officer, ETF Managers Group LLC (since 2016); Partner, Crow & Cushing (law firm) (2007–2016). | n/a | n/a |
John A. Flanagan (1946) | Treasurer (since 2015) | President, John A. Flanagan CPA, LLC (accounting services) (since 2010); Treasurer, ETF Managers Trust (since 2015); Principal Financial Officer, ETF Managers Capital, LLC (commodity pool operator) (since 2014); Chief Financial Officer, Macromarkets LLC (exchange traded funds) (2007–2010) | n/a | n/a |
* Mr. Masucci is an interested Trustee by virtue of his role as the Chief Executive Officer of the Adviser.
71
ETFMG™ ETFs
Board of Trustees (Continued)
Name and Year of Birth | Position(s) Held with the Trust, Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen By Trustee | Other Directorships Held by Trustee During Past 5 Years |
Independent Trustees | ||||
Jared Chase (1955) | Trustee (since 2018) | Chairman, State Street Global Alliance LLC, State Street Corporation (2007-2012); Head of Global Treasury, Liability Management, Money Markets & Derivatives, State Street Corporation (2004-2007) | 10 | None |
Terry Loebs (1963) | Trustee (since 2014) | Founder and Managing Member, Pulsenomics LLC (index product development and consulting firm) (since 2011); Managing Director, MacroMarkets, LLC (exchange-traded products firm) (2006–2011). | 10 | None |
72
Supplementary Information
September 30, 2018 (Unaudited)
Qualified Dividend Income/Dividends Received Deduction
For the fiscal year ended September 30, 2018, certain dividends paid by the Funds may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Reconciliation Act of 2003. The percentage of dividends declared from ordinary income designated as qualified dividend income was as follows:
Fund Name | Qualified Dividend Income |
SILJ | 0.00% |
HACK | 0.00% |
IPAY | 100.00% |
IFLY | 70.43% |
GAMR | 89.39% |
For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received deduction for the fiscal year ended September 30, 2018 was as follows:
Fund Name | Dividends Received Deduction |
SILJ | 0.00% |
HACK | 0.00% |
IPAY | 96.16% |
IFLY | 58.52% |
GAMR | 23.85% |
Short Term Capital Gain
The percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions under Internal Revenue Section 871 (k)(2)(C) for each Fund were as follows:
Fund Name | Short-Term Capital Gain |
SILJ | 0.00% |
HACK | 0.00% |
IPAY | 0.00% |
IFLY | 58.22% |
GAMR | 2.36% |
During the year ended September 30, 2018, the Funds did not declare any long-term realized gains distributions.
Pursuant to Section 853 of the Internal Revenue Code the Fund designated the following amounts as foreign taxes paid for the year ended September 30, 2018. Foreign taxes paid for purposes of Section 853 may be less than actual foreign taxes paid for financial statement purposes.
Per Share | ||||||||||||||||||||
Fund | Gross Foreign Source Income | Foreign Taxes Passthrough | Gross Foreign Source Income | Foreign Taxes Passthrough | Shares Outstanding at 9/30/18 | |||||||||||||||
GAMR | 1,834,496 | 107,005 | 0.66708932 | 0.03891090 | 2,750,000 | |||||||||||||||
SILJ | 203,788 | 13,800 | 0.03918994 | 0.00265376 | 5,200,000 | |||||||||||||||
73
ETFMG™ ETFs
SUPPLEMENTARY INFORMATION
September 30, 2018 (Continued)
September 30, 2018 (Continued)
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. The Funds’ portfolio holdings are posted on the Funds’ website at www.ETFMG.com daily.
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.
74
ETF MANAGERS TRUST
ETF Managers Trust, (the “Trust”) has adopted the following privacy policies in order to safeguard the personal information of the Trust’s customers and consumers in accordance with Regulation S-P as promulgated by the U.S. Securities and Exchange Commission.
Trust officers are responsible for ensuring that the following policies and procedures are implemented:
1) The Trust is committed to protecting the confidentiality and security of the information they collect and will handle personal customer and consumer information only in accordance with Regulation S-P and any other applicable laws, rules and regulations1. The Trust will ensure: (a) the security and confidentiality of customer records and information; (b) that customer records and information are protected from any anticipated threats and hazards; and (c) that customer records and information are protected from unauthorized access or use.
2) The Trust conducts its business affairs through its trustees, officers and third parties that provide services pursuant to agreements with the Trust. The Trust has no employees. It is anticipated that the trustees and officers of the Trust who are not employees of service providers of the Trust will not have access to customer records and information in the performance of their normal responsibilities for the Trust.
3) The Trust may share customer information with its affiliates, subject to the customers’ right to prohibit such sharing.
4) The Trust may share customer information with unaffiliated third parties only in accordance with the requirements of Regulation S-P. Pursuant to this policy, the Trust will not share customer information with unaffiliated third parties other than as permitted by law, unless authorized to do so by the customer.
Consistent with these policies, the Trust has adopted the following procedures:
1) The Trust will determine that the policies and procedures of its affiliates and Service Providers are reasonably designed to safeguard customer information and only permit appropriate and authorized access to and use of customer information through the application of appropriate administrative, technical and physical protections.
2) The Trust will direct each of its Service Providers to adhere to the privacy policy of the Trust and to its privacy policies with respect to all customer information of the Trust and to take all actions reasonably necessary so that the Trust is in compliance with the provisions of Regulation S-P, including, as applicable, the development and delivery of privacy notices and the maintenance of appropriate and adequate records.
3) The Trust requires its Service Providers to provide periodic reports to the Trust’s Board of Trustees outlining their privacy policies and the implementation of such policies. Each Service Provider is required to promptly report to the Trust’s Board any material changes to its privacy policy before, or promptly after, the adoption of such changes
(1) Generally, the Funds have institutional clients which are not considered “customers” for purposes of regulation S-P.
75
Advisor
ETF Managers Group, LLC
30 Maple Street, Suite 2, Summit, NJ 07901
ETF Managers Group, LLC
30 Maple Street, Suite 2, Summit, NJ 07901
Distributor
ETFMG Financial, Inc.
30 Maple Street, Suite 2, Summit, NJ 07901
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
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 doing business as U.S. Bank Global Fund Services
615 East Michigan Street, Milwaukee, Wisconsin 53202
U.S. Bancorp Fund Services, LLC doing business as U.S. Bank Global Fund Services
615 East Michigan Street, Milwaukee, Wisconsin 53202
Securities Lending Agent
U.S Bank, National Association
Securities Lending
800 Nicolet Mall
Minneapolis, MN 55402-7020
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
WithumSmith + Brown, PC
1411 Broadway, 9th Floor, New York, NY 10018
Legal Counsel
Sullivan & Worcester LLP
1666 K Street NW, Washington, DC 20006
Sullivan & Worcester LLP
1666 K Street NW, Washington, DC 20006
Annual Report
September 30, 2018
ETFMG Alternative Harvest ETF
Ticker: MJ
The fund is a series of ETF Managers Trust.
ETFMG Alternative Harvest ETF
TABLE OF CONTENTS
September 30, 2018
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1
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 (“MJ” or the “Fund”). The following information pertains to the fiscal year ended September 30, 2018.
The Fund tracks the Prime Alternative Harvest Index (the “Index”), designed to measure the performance of companies within the cannabis ecosystem benefitting from global medicinal and recreational cannabis legalization.
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.
For the fiscal year ended September 30, 2018, the total return for the Fund was 33.85%, which reflects the performance of the Fund under two different investment strategies for the period. The total return for the Index was 40.56%. The difference was primarily attributable to two different investment strategies utilized for the period and, additionally, Fund expenses that are not a part of the Index. The best performers on the basis of contribution to return were Tilray, Canopy Growth and Cronos Group, while the worst performers were Auxly Cannabis Growth, Isodiol International and Newstrike Brands.
There is much ahead for environmentally sustainable and socially responsible investing. We are thankful you have joined us by investing in the ETFMG Alternative Harvest ETF.
We thank you for your interest in the Fund. 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
2
ETFMG Alternative Harvest
Average Annual Returns | 1 Year | Since Inception | ||||||
Year Ended September 30, 2018 | Return | (12/3/2015) | ||||||
ETFMG Alternative Harvest ETF (NAV) | 33.85 | % | 27.15 | % | ||||
ETFMG Alternative Harvest ETF (Market) | 30.10 | % | 26.14 | % | ||||
S&P 500 Index (2) | 18.61 | % | 13.41 | % | ||||
Prime Alternative Harvest Index (2) | 40.56 | % | 28.73 | % | ||||
Total Fund Operating Expenses(1) | 0.75 | % |
(1) | The expense ratio is taken from the Fund’s most recent prospectus dated January 31, 2018. |
(2) | The return reflects the actual performance through September 28, 2018 (the last day of the fiscal year that the New York Stock Exchange was open) to maintain consistency with the Fund’s net asset value calculations used for shareholder transactions. |
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 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 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
% of Total | |||
Security | Investments | ||
1 | Tilray, Inc. | 9.40% | |
2 | Aurora Cannabis, Inc. | 9.32% | |
3 | Canopy Growth Corp. | 9.07% | |
4 | Cronos Group, Inc. | 9.00% | |
5 | GW Pharmaceuticals PLC - ADR | 6.27% | |
6 | CannTrust Holdings, Inc. | 4.77% | |
7 | Hydropothecary Corp. | 4.61% | |
8 | Corbus Pharmaceuticals Holdings, Inc. | 3.39% | |
9 | Green Organic Dutchman Holdings Ltd. | 3.30% | |
10 | Emerald Health Therapeutics, Inc. | 3.25% | |
Top Ten Holdings = 62.38% of Total Investments | |||
* Current Fund holdings may not be indicative of future Fund holdings. |
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.
This is not a complete list of risks that may affect the Fund. For additional information concerning the risks applicable to the Fund, please see the Fund’s prospectus.
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 and Redemption Units only, typically consisting of aggregations of 50,000 shares.
5
ETFMG Alternative Harvest ETF
As of September 30, 2018
ETFMG | ||||
Alternative | ||||
Harvest ETF | ||||
As a percent of Net Assets: | ||||
Australia | 1.0 | % | ||
Canada | 65.9 | |||
Denmark | 1.1 | |||
Hong Kong | 1.1 | |||
Italy | 1.0 | |||
Japan | 1.1 | |||
Mexico | — | ^ | ||
Spain | 0.8 | |||
Sweden | 1.0 | |||
United Kingdom | 8.5 | |||
United States | 17.1 | |||
Cash and other Net Assets (Liabilities) | 1.4 | |||
100.0 | % |
^ Less than 0.05%.
6
ETFMG Alternative Harvest ETF
September 30, 2018
Shares | Value | |||||||
COMMON STOCKS - 98.6% | ||||||||
Australia - 1.0% | ||||||||
Pharmaceuticals - 1.0% | ||||||||
Cann Group Ltd.(a) | 3,531,330 | $ | 6,967,713 | |||||
Canada - 65.9% | ||||||||
Investment Companies - 9.3% | ||||||||
Cronos Group, Inc.(a) | 5,698,932 | 63,372,124 | ||||||
Total Investment Companies | 63,372,124 | |||||||
Miscellaneous Manufacturing - 0.0% | ||||||||
Radient Technologies, Inc.(a) | 235,222 | 218,506 | ||||||
Pharmaceuticals - 56.6% | ||||||||
Aurora Cannabis, Inc.(a) | 6,828,605 | 65,600,733 | ||||||
Auxly Cannabis Group, Inc.(a) | 21,344,260 | 19,001,324 | ||||||
CannTrust Holdings, Inc.(a) | 3,411,793 | 33,568,594 | ||||||
Canopy Growth Corp.(a) | 1,314,225 | 63,839,338 | ||||||
Emerald Health Therapeutics, Inc.(a) | 6,432,715 | 22,906,412 | ||||||
Green Organic Dutchman Holdings Ltd.(a) | 4,156,193 | 23,197,217 | ||||||
Hydropothecary Corp.(a) | 4,787,475 | 32,427,950 | ||||||
Newstrike Resources Ltd.(a) | 18,706,034 | 10,426,034 | ||||||
Organigram Holdings, Inc.(a) | 4,151,911 | 22,176,962 | ||||||
Supreme Cannabis Co., Inc.(a) | 4,579,732 | 7,905,873 | ||||||
TerrAscend Corp.(a) | 2,462,567 | 12,390,999 | ||||||
Tilray, Inc.(a) ^ | 460,440 | 66,128,393 | ||||||
Vivo Cannabis, Inc.(a) | 4,349,794 | 5,252,889 | ||||||
Total Pharmaceuticals | 384,822,718 | |||||||
Total Canada | 448,413,348 | |||||||
Denmark - 1.1% | ||||||||
Tobacco - 1.1% | ||||||||
Scandinavian Tobacco Group AS | 484,990 | 7,437,022 | ||||||
Hong Kong - 1.1% | ||||||||
Chemicals - 1.1% | ||||||||
Huabao International Holdings Ltd. | 13,663,438 | 7,330,544 | ||||||
Italy - 1.0% | ||||||||
Machinery - 1.0% | ||||||||
Gima TT SpA | 523,229 | 6,581,642 | ||||||
Japan - 1.1% | ||||||||
Tobacco - 1.1% | ||||||||
Japan Tobacco, Inc. | 279,638 | 7,299,605 | ||||||
Mexico - 0.00% | ||||||||
Construction & Engineering - 0.00% | ||||||||
Empresas ICA SAB de CV(a)(b) | 155,893 | — |
The accompanying notes are an integral part of these financial statements.
7
ETFMG Alternative Harvest ETF
Schedule of Investments
September 30, 2018
Shares | Value | |||||||
Spain - 0.8% | ||||||||
Paper & Forest Products - 0.8% | ||||||||
Miquel y Costas & Miquel SA | 142,386 | $ | 5,289,697 | |||||
Sweden - 1.0% | ||||||||
Tobacco - 1.0% | ||||||||
Swedish Match AB | 136,250 | 6,974,979 | ||||||
United Kingdom - 8.5% | ||||||||
Pharmaceuticals - 6.5% | ||||||||
GW Pharmaceuticals PLC - ADR(a) | 255,611 | 44,154,244 | ||||||
Tobacco - 2.0% | ||||||||
British American Tobacco PLC | 140,566 | 6,567,296 | ||||||
Imperial Brands PLC | 200,929 | 6,995,105 | ||||||
Total Tobacco | 13,562,401 | |||||||
Total United Kingdom | 57,716,645 | |||||||
United States - 17.1% | ||||||||
Biotechnology - 8.2% | ||||||||
Arena Pharmaceuticals, Inc.(a) | 202,561 | 9,321,855 | ||||||
Cara Therapeutics, Inc.(a) | 427,628 | 10,241,691 | ||||||
Corbus Pharmaceuticals Holdings, Inc.(a) | 3,161,514 | 23,869,431 | ||||||
Insys Therapeutics, Inc.(a) | 1,204,784 | 12,132,175 | ||||||
Total Biotechnology | 55,565,152 | |||||||
Chemicals - 1.1% | ||||||||
Scotts Miracle-Gro Co. | 96,953 | 7,633,110 | ||||||
Paper & Forest Products - 1.0% | ||||||||
Schweitzer-Mauduit International, Inc. | 180,089 | 6,899,210 | ||||||
Tobacco - 6.8% | ||||||||
22nd Century Group, Inc.(a) ^ | 3,103,720 | 8,721,453 | ||||||
Altria Group, Inc. | 128,321 | 7,739,040 | ||||||
Philip Morris International, Inc. | 87,904 | 7,167,692 | ||||||
Turning Point Brands, Inc. | 224,758 | 9,318,467 | ||||||
Universal Corp. | 112,327 | 7,301,255 | ||||||
Vector Group Ltd. | 431,330 | 5,943,727 | ||||||
Total Tobacco | 46,191,634 | |||||||
Total United States | 116,289,106 | |||||||
TOTAL COMMON STOCKS (Cost $544,985,230) | 670,300,301 | |||||||
INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL - 4.9% + | ||||||||
Stock Loan Cash Collateral - 4.9% | ||||||||
Stock Loan Cash Collateral | 33,551,774 | |||||||
TOTAL INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL (Cost 33,551,774) | 33,551,774 |
The accompanying notes are an integral part of these financial statements.
8
ETFMG Alternative Harvest ETF
Schedule of Investments
September 30, 2018
Shares | Value | |||||||
Total Investments (Cost $578,537,004) - 103.5% | $ | 703,852,075 | ||||||
Liabilities in Excess of Other Assets - (3.5)% | (24,292,823 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 679,559,252 |
Percentages are stated as a percent of net assets.
ADR | American Depositary Receipt |
(a) | Non-income producing security. |
(b) | 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. |
+ | Total cash collateral was $33,551,774 as of September 30, 2018. |
^ | All or a portion of this security is out on loan as of September 30, 2018. Total value of securities out on loan is $33,551,774. |
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.
The accompanying notes are an integral part of these financial statements.
9
ETFMG Alternative Harvest ETF
As of September 30, 2018
ETFMG | ||||
Alternative | ||||
Harvest | ||||
ETF | ||||
ASSETS | ||||
Investments in securities, at value* | $ | 703,852,075 | ||
Cash | 8,932,532 | |||
Receivables: | ||||
Dividends and interest receivable | 367,126 | |||
Due from broker | 29,103 | |||
Securities lending income receivable | 531,061 | |||
Total Assets | 713,711,897 | |||
LIABILITIES | ||||
Collateral received for securities loaned (Note 7) | 33,551,774 | |||
Payables: | ||||
Management fees payable | 353,914 | |||
Foreign currency | 246,957 | |||
Total Liabilities | 34,152,645 | |||
Net Assets | $ | 679,559,252 | ||
NET ASSETS CONSIST OF: | ||||
Paid-in Capital | $ | 616,953,565 | ||
Total Distributable Earnings | 62,605,687 | |||
Net Assets | $ | 679,559,252 | ||
*Identified Cost: | ||||
Investments in securities | $ | 578,537,004 | ||
Foreign currency | 839,756 | |||
Shares Outstanding^ | 17,100,000 | |||
Net Asset Value, Offering and Redemption Price per Share | $ | 39.74 |
^ No par value, unlimited number of shares authorized.
The accompanying notes are an integral part of these financial statements.
10
ETFMG Alternative Harvest ETF
Year Ended September 30, 2018
ETFMG | ||||
Alternative | ||||
Harvest ETF | ||||
INVESTMENT INCOME | ||||
Income: | ||||
Dividends from securities (net of foreign withholding taxes of $114,711) | $ | 2,707,200 | ||
Interest | 35,939 | |||
Securities lending Income | 2,945,664 | |||
Total Investment Income | 5,688,803 | |||
Expenses: | ||||
Management fees | 2,207,376 | |||
Total Expenses | 2,207,376 | |||
Net Investment Income | 3,481,427 | |||
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||
Net Realized Gain (Loss) on: | ||||
Unaffiliated investments | (62,666,978 | ) | ||
In-Kind redemptions | 4,003,590 | |||
Foreign currency | (243,077 | ) | ||
Net Realized Loss on Investments and Foreign Currency | (58,906,465 | ) | ||
Net Change in Unrealized Appreciation (Depreciation) of: | ||||
Unaffiliated investments in securities | 124,526,379 | |||
Foreign currency and foreign currency translation | (766,564 | ) | ||
Net Change in Unrealized Appreciation of Investments and Foreign Currency | 123,759,815 | |||
Net Realized and Unrealized Gain on Investments | 64,853,350 | |||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 68,334,777 |
The accompanying notes are an integral part of these financial statements.
11
ETFMG Alternative Harvest ETF
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2018 | 2017 | |||||||
OPERATIONS | ||||||||
Net investment income | $ | 3,481,427 | $ | 69,004 | ||||
Net realized gain (loss) on investments and foreign currency | (58,906,465 | ) | 68,596 | |||||
Net change in unrealized appreciation (depreciation) of investments and foreign currency | 123,759,815 | 415,461 | ||||||
Net increase (decrease) in net assets resulting from operations | 68,334,777 | 553,061 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income | (2,416,185 | ) | (263,218 | ) | ||||
From net realized gain | (40,848 | ) | (70,581 | ) | ||||
Total Distributions to Shareholders | (2,457,033 | ) | (333,799 | ) | ||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase in net assets derived from net change in outstanding shares(a) | 607,365,911 | 3,084,065 | ||||||
Transaction Fees (Note 1) | 44,190 | 4,359 | ||||||
Net increase in net assets from capital share transactions | 607,410,101 | 3,088,424 | ||||||
Net increase in net assets | $ | 673,287,845 | $ | 3,307,686 | ||||
NET ASSETS | ||||||||
Beginning of Period | 6,271,407 | 2,963,721 | ||||||
End of Period | $ | 679,559,252 | $ | 6,271,407 |
(a) Summary of share transactions is as follows:
Year Ended | Year Ended | |||||||||||||||
September 30, 2018 | September 30, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 19,000,000 | $ | 666,343,766 | 100,000 | $ | 3,084,065 | ||||||||||
Transaction Fees (Note 1) | — | 44,190 | — | 4,359 | ||||||||||||
Shares Redeemed | (2,100,000 | ) | (58,977,855 | ) | — | — | ||||||||||
Net Transactions in Fund Shares | 16,900,000 | $ | 607,410,101 | 100,000 | $ | 3,088,424 | ||||||||||
Beginning Shares | 200,000 | 100,000 | ||||||||||||||
Ending Shares | 17,100,000 | 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/year
Year Ended | Year Ended | Period Ended | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
2018 | 2017 | 2016(1) | ||||||||||
Net Asset Value, Beginning of Period/Year | $ | 31.36 | $ | 29.64 | $ | 25.00 | ||||||
Income from Investment Operations: | ||||||||||||
Net investment income(2) | 0.37 | 0.57 | 0.98 | |||||||||
Net realized and unrealized gain (loss) on investments | 8.95 | 4.42 | 4.59 | |||||||||
Total from investment operations | 9.32 | 4.99 | 5.57 | |||||||||
Less Distributions: | ||||||||||||
Distributions from net investment income | (0.74 | ) | (2.56 | ) | (0.93 | ) | ||||||
Distributions from net realized gain | (0.20 | ) | (0.71 | ) | — | |||||||
Total distributions | (0.94 | ) | (3.27 | ) | (0.93 | ) | ||||||
Net asset value, end of period/year | $ | 39.74 | $ | 31.36 | $ | 29.64 | ||||||
Total Return | 33.85 | % | 20.23 | % | 22.63 | %(3) | ||||||
Ratios/Supplemental Data: | ||||||||||||
Net assets at end of period (000’s) | $ | 679,559 | $ | 6,271 | $ | 2,964 | ||||||
Expenses to Average Net Assets | 0.75 | % | 0.79 | % | 0.79 | %(4) | ||||||
Net Investment Income to Average Net Assets | 1.18 | % | 1.98 | % | 5.88 | %(4) | ||||||
Portfolio Turnover Rate | 97 | % | 44 | % | 44 | %(3) |
(1) | Commencement of operations on December 2, 2015. |
(2) | Calculated based on average shares outstanding during the period/year. |
(3) | Not annualized. |
(4) | Annualized. |
The accompanying notes are an integral part of these financial statements.
13
ETFMG Alternative Harvest ETF
September 30, 2018
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 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 was 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 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 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”).
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ETFMG Alternative Harvest ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (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 September 30, 2018, the Fund held one fair valued security which was without value.
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.
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ETFMG Alternative Harvest ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
The following table presents a summary of the Funds’ assets measured at fair value as of September 30, 2018:
ETFMG Alternative Harvest ETF
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 670,300,301 | $ | — | $ | — | (1) | $ | 670,300,301 | |||||||
Investments Purchased with Security Lending Collateral* | — | — | — | 33,551,774 | ||||||||||||
Total Investments in Securities and Investments Purchased with Security Lending Collateral | $ | 670,300,301 | $ | — | $ | — | $ | 703,852,075 |
^ 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 year ended September 30, 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 2018 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.
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ETFMG Alternative Harvest ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (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 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 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.
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ETFMG Alternative Harvest ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
United States Regulatory Risks of the Marijuana Industry: 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. Members of the Trump Administration, including former Attorney General Jeff Sessions, have made statements indicating that the Trump Administration intends to take a harsher stance on federal marijuana laws. Any such change in the federal government’s enforcement of current federal laws could adversely affect the ability of the companies in which the Fund invests to possess or cultivate marijuana, including in connection with pharmaceutical research, or it could shrink the customer pool for certain of the Fund’s portfolio companies. Any of these outcomes would negatively affect the profitability and value of the Fund’s investments. The 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.
Marijuana is a Schedule I controlled substance under the Controlled Substances Act (“CSA”) (21 U.S.C. § 811), meaning that it has a high potential for abuse, has no currently “accepted medical use” in the United States, lacks accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United States. No drug product containing natural cannabis or naturally-derived cannabis extracts have been approved by the FDA for use in the United States or obtained registrations from the United States Drug Enforcement Administration (“DEA”) for commercial production and the DEA may never issue the registrations required for the commercialization of such products.
Facilities conducting research, manufacturing, distributing, importing or exporting, or dispensing controlled substances must be registered (licensed) to perform these activities and have the security, control, recordkeeping, reporting and inventory mechanisms required by the DEA to prevent drug loss and diversion. Failure to obtain the necessary registrations or comply with necessary regulatory requirements may significantly impair the ability of certain companies in which the Fund invests to pursue medical marijuana research or to otherwise cultivate, possess or distribute marijuana.
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.
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ETFMG Alternative Harvest ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
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.
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.
Securities Lending Risk. Securities lending involves exposure to certain risks, including operational risk (i.e., the risk of losses resulting from problems in the settlement and accounting process), “gap” risk (i.e., the risk of a mismatch between the return on cash collateral reinvestments and the fees a Fund has agreed to pay a borrower), and credit, legal, counterparty and market risk. In the event a borrower does not return a Fund’s securities as agreed, the Fund may experience losses if the proceeds received from liquidating the collateral do not at least equal the value of the loaned security at the time the collateral is liquidated plus the transaction costs incurred in purchasing replacement securities.
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 management fee. For services provided the Fund pays the Advisor at an annual rate of 0.75% of the Fund’s average daily net assets. 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.
19
ETFMG Alternative Harvest ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (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-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 year ended September 30, 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 year ended September 30 2018:
Purchases | Sales | |||||||
ETFMG Alternative Harvest ETF | $ | 296,100,386 | $ | 292,600,624 |
The costs of purchases and sales of in-kind transactions associated with creations and redemptions for the year ended September 30 2018:
Purchases | Sales | |||||||
In-Kind | In-Kind | |||||||
ETFMG Alternative Harvest ETF | $ | 652,149,860 | $ | 57,441,855 |
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 year ended September 30, 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 Wedbush Securities Inc (“the Custodian”). The securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 100% of the value of any loaned securities at the time of the loan. The Fund receives compensation in the form of fees. 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 held by the Custodian in accordance with the custody agreement. The Fund could 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.
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ETFMG Alternative Harvest ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
As of September 30, 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 | $ | 33,551,774 | $ | 33,551,774 |
* The securities on loan were collateralized in full with cash, as shown on the Schedule of Investments.
NOTE 8 – FEDERAL INCOME TAXES
The components of distributable earnings (losses) and cost basis of investments for federal income tax purposes at September 30, 2018 were as follows:
Net | ||||||||||||||||
Gross | Gross | Unrealized | ||||||||||||||
Unrealized | Unrealized | Appreciation | ||||||||||||||
Cost | Appreciation | Depreciation | (Depreciation) | |||||||||||||
ETFMG Alternative Harvest ETF | $ | 578,537,004 | $ | 155,913,673 | $ | (30,598,602 | ) | $ | 125,315,071 |
Undistributed | Total | Other | Total | |||||||||||||
Ordinary | Distributable | Accumulated | Accumulated | |||||||||||||
Income | Earnings | Loss | Gain | |||||||||||||
ETFMG Alternative Harvest ETF | $ | 1,057,477 | $ | 1,057,477 | $ | (63,766,861 | ) | $ | 62,605,687 |
As of September 30, 2018, the Fund had accumulated capital loss carryovers of:
Capital Loss | |||||
Carryover | Expires | ||||
ETFMG Alternative Harvest ETF | $ | 63,766,861 | 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, 2018.
Late Year | ||||||||
Ordinary | Post-October | |||||||
Loss | 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, 2018, the following table shows the reclassifications made:
Undistributed | ||||||||||||
Accumulated | ||||||||||||
Net | Accumulated | |||||||||||
Investment | Net Realized | Paid-In | ||||||||||
Income | Loss | Capital | ||||||||||
ETFMG Alternative Harvest ETF | $ | 44,190 | $ | (4,003,590 | ) | $ | (3,959,400 | ) | ||||
21
ETFMG Alternative Harvest ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
September 30, 2018 (Continued)
NOTE 9 – DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid by the Fund during the fiscal years ended September 30, 2018 and September 30, 2017 are as follows:
Year Ended September 30, 2018 | Year Ended September 30, 2017 | |||||||||||||||
From Ordinary Income | From Capital Gains | From Ordinary Income | From Capital Gains | |||||||||||||
ETFMG Alternative Harvest ETF | $ | 2,416,185 | $ | 40,848 | $ | 263,218 | $ | 70,581 |
NOTE 10 – LEGAL MATTERS
The Trust, the trustees of the Trust, the Adviser and certain officers of the Adviser are defendants in an action filed May 2, 2017 in the Superior Court of New Jersey captioned PureShares, LLC d/b/a PureFunds et al. v. ETF Managers Group, LLC et al., Docket No. C-63-17. The PureShares action alleges claims based on disputes arising out of contractual relationships with the Adviser. The action seeks damages in unspecified amounts and injunctive relief based on breach of contract, wrongful termination, and several other theories. At the outset of the litigation, and again a few weeks later, plaintiffs sought temporary injunctive relief. Both motions were denied, and the matter is now proceeding through pretrial discovery. The defendants believe the lawsuit is without merit and intend to vigorously defend themselves against the allegations.
The Adviser, its parent, Exchange Traded Managers Group, LLC and its chief executive officer are defendants in a case filed on October 26, 2017 in the United States District Court for the Southern District of New York by NASDAQ, Inc. captioned Nasdaq, Inc. v. Exchange Traded Managers Group, LLC et al., Case 1:17-cv-08252. This action arises out of related facts and circumstances in the New Jersey litigation and asserts claims for breach of contract, wrongful termination and certain other theories with respect to the same exchange traded Fund discussed above. The defendants in the Southern District actions believe the lawsuit is without merit and intend to vigorously defend themselves against the allegations and to assert counterclaims against NASDAQ for breaches of its duties under the related index license agreement and various other agreements. Management of the Trust and the Fund, after consultation with legal counsel, believes that the resolution of these matters will not have a material adverse effect on the Fund’s financial statements.
NOTE 11 – 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. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments to the financial statements.
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ETFMG Alternative Harvest ETF
To the Board of Trustees of ETF Managers Trust
and the Shareholders of ETFMG Alternative Harvest ETF:
and the Shareholders of ETFMG Alternative Harvest ETF:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of ETFMG Alternative Harvest ETF (the “Fund”) (a series of ETF Managers Trust (the “Trust”)), as of September 30, 2018, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of September 30, 2018, and the results of its operations for the year then ended, the changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of September 30, 2018 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor for one or more series of the Trust since 2013.
/s/WithumSmith+Brown, PC
New York, New York
November 29, 2018
New York, New York
November 29, 2018
23
ETFMG Alternative Harvest ETF
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 management 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 (April 1, 2018 to September 30, 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 April 1, 2018 | Ending Account Value March 31, 2018 | Expenses Paid During the Period^ | Annualized Expense Ratio During the Period April 1, 2018 to September 30, 2018 | ||||||||
Actual | $ 1,000.00 | $ 1,377.00 | $ 4.47 | 0.75% | |||||||
Hypothetical (5% annual) | $ 1,000.00 | $ 1,021.31 | $ 3.80 | 0.75% |
^ 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 183/365 (to reflect the period from April 1, 2018 to September 30, 2018).
24
ETFMG Alternative Harvest ETF
FEDERAL TAX INFORMATION
Qualified Dividend Income/Dividends Received Deduction
For the fiscal year ended September 30, 2018, certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Reconciliation Act of 2003. The percentage of dividends declared from ordinary income designated as qualified dividend income was as follows:
Fund Name | QDI |
ETFMG Alternative Harvest ETF | 80.82% |
For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received deduction for the fiscal year ended September 30, 2018 was as follows:
Fund Name | DRD |
ETFMG Alternative Harvest ETF | 41.38% |
Short Term Capital Gain
The percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions under Internal Revenue Section 871 (k)(2)(C) for the Fund was as follows:
Fund Name | Short-Term Capital Gain |
ETFMG Alternative Harvest ETF | 0.23% |
Pursuant to Section 853 of the Internal Revenue Code the Fund designated the following amounts as foreign taxes paid for the year ended September 30, 2018. Foreign taxes paid for purposes of Section 853 may be less than actual foreign taxes paid for financial statement purposes.
Per Share | ||||||||||||||||||||
Fund | Gross Foreign Source Income | Foreign Taxes Passthrough | Gross Foreign Source Income | Foreign Taxes Passthrough | Shares Outstanding at 9/30/18 | |||||||||||||||
ETFMG Alternative Harvest ETF | 1,531,423 | 114,711 | 0.08955688 | 0.00670825 | 17,100,000 |
25
ETFMG Alternative Harvest ETF
SUPPLEMENTARY INFORMATION
September 30, 2018 (Unaudited) (Continued)
September 30, 2018 (Unaudited) (Continued)
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.
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.
26
ETFMG Alternative Harvest ETF
ETFMG Alternative Harvest ETF Closing Price vs. NAV
The following Frequency Distribution of Premiums and Discounts chart is provided to show the frequency at which the closing price for each Fund is at a premium or discount to its daily net asset value (NAV). The chart presented represents past performance and cannot be used to predict future results.
Year Ended September 30, 2018 | ||||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 10 | 4.15 | ||||||
Greater Than or equal to 0.75% And Less Than 1.00% | 3 | 0.41 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 14 | 4.98 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 38 | 14.52 | ||||||
Greater Than or Equal to 0.00% And Less Than 0.25% | 63 | 25.32 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 48 | 19.92 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 47 | 19.09 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 13 | 5.39 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 8 | 3.32 | ||||||
Less than -1.00% | 7 | 2.9 |
Year Ended September 30, 2017 | ||||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
4.00% to 4.50% | 9 | 3.6 | ||||||
3.50% to 4.00% | 11 | 4.4 | ||||||
3.00% to 3.50% | 26 | 10.4 | ||||||
2.50% to 3.00% | 35 | 13.9 | ||||||
2.00% to 2.50% | 21 | 8.4 | ||||||
1.50% to 2.00% | 49 | 19.5 | ||||||
1.00% to 1.50% | 49 | 19.5 | ||||||
1.00% or Less | 51 | 20.3 | ||||||
December 2, 2015* through September 30, 2016 | ||||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 186 | 88.6 | ||||||
Greater Than or equal to 0.75% And Less Than 1.00% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 3 | 1.4 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 3 | 1.4 | ||||||
Greater Than or Equal to 0.00% And Less Than 0.25% | 3 | 1.4 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 2 | 1.0 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 4 | 1.9 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 2 | 1.0 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 3 | 1.4 | ||||||
Less than -1.00% | 4 | 1.9 |
* First day of secondary market trading.
27
ETFMG Alternative Harvest ETF
Board of Trustees
Set forth below are the names, birth years, positions with the Trust, length of term of office, and the principal occupations and other directorships held during at least the last five years of each of the persons currently serving as a Trustee of the Trust, as well as information about each officer. The business address of each Trustee and officer is 30 Maple Street, 2nd Floor, Summit, New Jersey 07901. The SAI includes additional information about Fund directors and is available, without charge, upon request by calling 1-844-ETF-MGRS (1-844-383-6477).
Position(s) Held with the Trust, Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen By Trustee | Other Directorships Held by Trustee During Past 5 Years | |
Interested Trustee* and Officers | ||||
Samuel Masucci, III (1962) | Trustee, Chairman of the Board and President (since 2012); Secretary (since 2014) | Chief Executive Officer, Exchange Traded Managers Group, LLC (since 2013); Chief Executive Officer (since 2016), ETF Managers Group, LLC; Chief Executive Officer, ETF Managers Capital LLC (commodity pool operator) (since 2014); Chief Executive Officer (2012–2016) and Chief Compliance Officer (2012– 2014), Factor Advisors, LLC (investment adviser); President and Chief Executive Officer, Factor Capital Management LLC (2012– 2014) (commodity pool operator). | 10 | None |
Reshma J. Amin (1978) | Chief Compliance Officer (since 2016) | Chief Compliance Officer, ETF Managers Group LLC (since 2016); Partner, Crow & Cushing (law firm) (2007–2016). | n/a | n/a |
John A. Flanagan (1946) | Treasurer (since 2015) | President, John A. Flanagan CPA, LLC (accounting services) (since 2010); Treasurer, ETF Managers Trust (since 2015); Principal Financial Officer, ETF Managers Capital, LLC (commodity pool operator) (since 2014); Chief Financial Officer, Macromarkets LLC (exchange traded funds) (2007–2010) | n/a | n/a |
* Mr. Masucci is an interested Trustee by virtue of his role as the Chief Executive Officer of the Adviser.
28
ETFMG Alternative Harvest ETF
Board of Trustees (Continued)
Name and Year of Birth | Position(s) Held with the Trust, Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen By Trustee | Other Directorships Held by Trustee During Past 5 Years |
Independent Trustees | ||||
Jared Chase (1955) | Trustee (since 2018) | Chairman, State Street Global Alliance LLC, State Street Corporation (2007-2012); Head of Global Treasury, Liability Management, Money Markets & Derivatives, State Street Corporation (2004-2007) | 10 | None |
Terry Loebs (1963) | Trustee (since 2014) | Founder and Managing Member, Pulsenomics LLC (index product development and consulting firm) (since 2011); Managing Director, MacroMarkets, LLC (exchange-traded products firm) (2006–2011). | 10 | None |
29
ETFMG Alternative Harvest ETF
ETF MANAGERS TRUST
ETF Managers Trust, (the “Trust”) has adopted the following privacy policies in order to safeguard the personal information of the Trust’s customers and consumers in accordance with Regulation S-P as promulgated by the U.S. Securities and Exchange Commission.
Trust officers are responsible for ensuring that the following policies and procedures are implemented:
1) The Trust is committed to protecting the confidentiality and security of the information they collect and will handle personal customer and consumer information only in accordance with Regulation S-P and any other applicable laws, rules and regulations(1). The Trust will ensure: (a) the security and confidentiality of customer records and information; (b) that customer records and information are protected from any anticipated threats and hazards; and (c) that customer records and information are protected from unauthorized access or use.
2) The Trust conducts its business affairs through its trustees, officers and third parties that provide services pursuant to agreements with the Trust. The Trust has no employees. It is anticipated that the trustees and officers of the Trust who are not employees of service providers of the Trust will not have access to customer records and information in the performance of their normal responsibilities for the Trust.
3) The Trust may share customer information with its affiliates, subject to the customers’ right to prohibit such sharing.
4) The Trust may share customer information with unaffiliated third parties only in accordance with the requirements of Regulation S-P. Pursuant to this policy, the Trust will not share customer information with unaffiliated third parties other than as permitted by law, unless authorized to do so by the customer.
Consistent with these policies, the Trust has adopted the following procedures:
1) The Trust will determine that the policies and procedures of its affiliates and Service Providers are reasonably designed to safeguard customer information and only permit appropriate and authorized access to and use of customer information through the application of appropriate administrative, technical and physical protections.
2) The Trust will direct each of its Service Providers to adhere to the privacy policy of the Trust and to its privacy policies with respect to all customer information of the Trust and to take all actions reasonably necessary so that the Trust is in compliance with the provisions of Regulation S-P, including, as applicable, the development and delivery of privacy notices and the maintenance of appropriate and adequate records.
3) The Trust requires its Service Providers to provide periodic reports to the Trust’s Board of Trustees outlining their privacy policies and the implementation of such policies. Each Service Provider is required to promptly report to the Trust’s Board any material changes to its privacy policy before, or promptly after, the adoption of such changes.
(1) Generally, the Funds have institutional clients which are not considered “customers” for purposes of regulation S-P.
30
Advisor
ETF Managers Group, LLC
30 Maple Street, Suite 2, Summit, NJ 07901
ETF Managers Group, LLC
30 Maple Street, Suite 2, Summit, NJ 07901
Distributor
ETFMG Financial, LLC
30 Maple Street, Suite 2, Summit, NJ 07901
ETFMG Financial, LLC
30 Maple Street, Suite 2, Summit, NJ 07901
Custodian
Wedbush Securities Inc.
1000 Wilshire Boulevard, Los Angeles, California 90017
Wedbush Securities Inc.
1000 Wilshire Boulevard, Los Angeles, California 90017
Transfer Agent
Computershare Investor Services
480 Washington Boulevard, Jersey City, New Jersey 07310
Computershare Investor Services
480 Washington Boulevard, Jersey City, New Jersey 07310
Securities Lending Agent
Wedbush Securities Inc.
1000 Wilshire Boulevard, Los Angeles, California 90017
Wedbush Securities Inc.
1000 Wilshire Boulevard, Los Angeles, California 90017
Independent Registered Public Accounting Firm
WithumSmith + Brown, PC
1411 Broadway, 9th Floor, New York, NY 10018
WithumSmith + Brown, PC
1411 Broadway, 9th Floor, New York, NY 10018
Legal Counsel
Sullivan & Worcester LLP
1666 K Street NW, Washington, DC 20006
Sullivan & Worcester LLP
1666 K Street NW, Washington, DC 20006
Annual Report
September 30, 2018
BlueStar Israel Technology ETF
Ticker: ITEQ
The fund is a series in the ETF Managers Trust.
BlueStar Israel Technology ETF
TABLE OF CONTENTS
September 30, 2018
September 30, 2018
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31 |
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 September 30, 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 12-month period ending September 30, 2018, the total return for the Fund was 15.41% while the total return for the Index was 16.38%. The difference was primarily attributable to Fund expenses that are not a part of the Index. The best performers in the Fund on the basis of contribution to its return were NovoCure, NICE Systems, and Wix.com, while the worst performers were OPKO Health, Tower Semiconductor, and Elbit Systems.
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
Average Annual Returns | ||||||||||
Period Ended September 30, 2018 | 1 Year Return | Since Inception (11/2/2015) | Value of $10,000 (9/30/2018) | |||||||
BlueStar Israel Technology ETF (NAV) | 15.41 | % | 13.72 | % | $ | 14,543 | ||||
BlueStar Israel Technology ETF (Market) | 15.08 | % | 13.79 | % | $ | 14,567 | ||||
S&P 500 Index | 17.91 | % | 14.18 | % | $ | 14,872 | ||||
BlueStar Israel Global Technology IndexTM | 16.38 | % | 14.60 | % | $ | 14,713 | ||||
Total Fund Operating Expenses1 | 0.75 | % |
1. 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 index returns do not reflect fees or expenses and are not available for direct investment.
3
BlueStar Israel Technology ETF
% of Total | |||
Security | Investments | ||
1 | Check Point Software Technologies Ltd. | 8.15% | |
2 | NICE Ltd. | 6.93% | |
3 | Amdocs Ltd. | 6.42% | |
4 | Wix.com Ltd. | 4.70% | |
5 | Novocure Ltd. | 4.13% | |
6 | Mellanox Technologies Ltd. | 4.01% | |
7 | Verint Systems, Inc. | 3.78% | |
8 | Elbit Systems Ltd. | 3.49% | |
9 | CyberArk Software Ltd. | 3.35% | |
10 | Orbotech Ltd. | 3.16% | |
Top Ten Holdings = 48.12% of Total Investments | |||
* Current Fund holdings may not be indicative of future Fund holdings. |
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 IndexTM (“BIGITechTM” or the “Index”).
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™ 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 BlueStar Israel Global Technology Index™ (BIGITech™) is an index of 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 September 30, 2018 (Unaudited)
BlueStar Israel | ||||
Technology | ||||
ETF | ||||
As a percent of Net Assets: | ||||
Australia | 0.4 | % | ||
Cayman Islands | 0.6 | |||
Guernsey | 7.4 | |||
Hong Kong | 0.3 | |||
Israel | 60.5 | |||
Jersey | 5.0 | |||
United Kingdom | 4.0 | |||
United States | 21.3 | |||
Short-Term and other Net Assets (Liabilities) | 0.5 | |||
100.0 | % |
6
BlueStar Israel Technology ETF
September 30, 2018
Shares | Value | |||||||
COMMON STOCKS - 99.5% | ||||||||
Australia - 0.4% | ||||||||
Diversified Telecommunication Services - 0.2% | ||||||||
Sky & Space Global Ltd. (a) | 2,657,952 | $ | 121,042 | |||||
Machinery - 0.2% | ||||||||
Fluence Corp Ltd. (a) | 472,041 | 145,017 | ||||||
Total Australia | 266,059 | |||||||
Cayman Islands - 0.6% | ||||||||
Software - 0.6% | ||||||||
Sapiens International Corp. NV | 32,236 | 380,993 | ||||||
Guernsey - 7.4% | ||||||||
IT Services - 7.4% | ||||||||
Amdocs Ltd. | 64,653 | 4,265,805 | ||||||
SafeCharge International Group Ltd. | 66,407 | 283,902 | ||||||
Total IT Services | 4,549,707 | |||||||
Hong Kong - 0.3% | ||||||||
Health Care Equipment & Supplies - 0.3% | ||||||||
Sisram Medical Ltd. (a) | 295,519 | 200,829 | ||||||
Israel - 60.5% | ||||||||
Aerospace & Defense - 4.3% | ||||||||
Aeronautics Ltd. (a) | 77,899 | 180,624 | ||||||
Elbit Systems Ltd. | 18,270 | 2,316,524 | ||||||
RADA Electronic Industries Ltd. (a) | 60,487 | 177,227 | ||||||
Total Aerospace & Defense | 2,674,375 | |||||||
Auto Components - 0.3% | ||||||||
Foresight Autonomous Holdings Ltd. (a) | 272,997 | 156,185 | ||||||
Biotechnology - 2.9% | ||||||||
BioLine RX Ltd. - ADR (a)(c) | 209,523 | 224,190 | ||||||
Galmed Pharmaceuticals Ltd. (a) | 23,274 | 316,061 | ||||||
Intec Pharma Ltd. (a) | 49,514 | 279,754 | ||||||
Kamada Ltd. (a) | 49,719 | 306,865 | ||||||
UroGen Pharma Ltd. (a) | 10,546 | 498,088 | ||||||
Vascular Biogenics Ltd. (a) | 71,114 | 115,560 | ||||||
Total Biotechnology | 1,740,518 | |||||||
Communications Equipment - 4.1% | ||||||||
AudioCodes Ltd. | 32,884 | 330,813 | ||||||
Ceragon Networks Ltd. (a) | 89,897 | 302,953 | ||||||
Ituran Location & Control Ltd. | 15,592 | 536,365 | ||||||
RADCOM Ltd. (a) | 13,371 | 150,424 | ||||||
Radware Ltd. (a) | 32,693 | 865,383 | ||||||
Silicom Ltd. (a) | 7,736 | 313,772 | ||||||
Total Communications Equipment | 2,499,710 |
The accompanying notes are an integral part of these financial statements.
7
BlueStar Israel Technology ETF
Schedule of Investments
September 30, 2018 (Continued)
Shares | Value | |||||||
Electronic Equipment, Instruments & Components - 3.7% | ||||||||
Magal Security Systems Ltd. (a) | 33,361 | $ | 187,489 | |||||
Orbotech Ltd. (a) | 35,296 | 2,097,994 | ||||||
Total Electronic Equipment, Instruments & Components | 2,285,483 | |||||||
Health Care Equipment & Supplies - 1.8% | ||||||||
Mazor Robotics Ltd. (a) | 38,395 | 1,103,062 | ||||||
Household Durables - 0.6% | ||||||||
Maytronics Ltd. | 54,778 | 355,712 | ||||||
Independent Power and Renewable Electricity Producers - 0.8% | ||||||||
Energix-Renewable Energies Ltd. (a) | 196,271 | 226,197 | ||||||
Enlight Renewable Energy Ltd. (a) | 478,530 | 249,960 | ||||||
Total Independent Power and Renewable Electricity Producers | 476,157 | |||||||
IT Services - 6.4% | ||||||||
Formula Systems 1985 Ltd. | 8,438 | 354,464 | ||||||
Matrix IT Ltd. | �� | 34,601 | 414,272 | |||||
Wix.com Ltd. (a) | 26,123 | 3,126,923 | ||||||
Total IT Services | 3,895,659 | |||||||
Life Sciences Tools & Services - 0.4% | ||||||||
Compugen Ltd. (a) | 73,036 | 268,057 | ||||||
Machinery - 1.4% | ||||||||
Kornit Digital Ltd. (a) | 29,424 | 644,385 | ||||||
Sarine Technologies Ltd. | 361,377 | 173,148 | ||||||
Total Machinery | 817,533 | |||||||
Pharmaceuticals - 1.3% | ||||||||
Foamix Pharmaceuticals Ltd. (a) | 49,199 | 281,910 | ||||||
MediWound Ltd. (a) | 30,554 | 187,907 | ||||||
Redhill Biopharma Ltd. - ADR (a)(c) | 34,076 | 300,891 | ||||||
Total Pharmaceuticals | 770,708 | |||||||
Semiconductors & Semiconductor Equipment - 8.5% | ||||||||
Camtek Ltd. | 29,047 | 248,933 | ||||||
Mellanox Technologies Ltd. (a) | 36,281 | 2,664,839 | ||||||
Nova Measuring Instruments Ltd. (a) | 23,131 | 598,466 | ||||||
Tower Semiconductor Ltd. (a) | 79,648 | 1,734,239 | ||||||
Total Semiconductors & Semiconductor Equipment | 5,246,477 | |||||||
Software - 22.3% | ||||||||
Allot Communications Ltd. (a) | 42,384 | 266,022 | ||||||
Allot Communications Ltd. (a) | 1,782 | 11,013 | ||||||
Attunity Ltd. (a) | 23,551 | 444,878 | ||||||
Check Point Software Technologies Ltd. (a)(c) | 46,057 | 5,419,526 | ||||||
CyberArk Software Ltd. (a) | 27,852 | 2,223,704 | ||||||
Hilan Ltd. | 15,594 | 388,157 | ||||||
Magic Software Enterprises Ltd. | 32,443 | 286,755 | ||||||
Nice Ltd. (a) | 40,712 | 4,605,759 | ||||||
Total Software | 13,645,814 | |||||||
Technology Hardware, Storage & Peripherals - 1.7% | ||||||||
Stratasys Ltd. (a)(c) | 46,216 | 1,068,052 | ||||||
Total Israel | 37,003,502 |
The accompanying notes are an integral part of these financial statements.
8
BlueStar Israel Technology ETF
Schedule of Investments
September 30, 2018 (Continued)
Shares | Value | |||||||
Jersey - 5.0% | ||||||||
Health Care Equipment & Supplies - 4.5% | ||||||||
Novocure Ltd. (a) | 52,367 | $ | 2,744,031 | |||||
Interactive Media & Services - 0.5% | ||||||||
XLMedia PLC | 226,828 | 276,432 | ||||||
Total Jersey | 3,020,463 | |||||||
United Kingdom - 4.0% | ||||||||
Communications Equipment - 0.5% | ||||||||
Telit Communications PLC (a) | 146,320 | 329,364 | ||||||
Diversified Financial Services - 2.2% | ||||||||
Plus500 Ltd. | 76,374 | 1,326,954 | ||||||
Hotels, Restaurants & Leisure - 0.8% | ||||||||
888 Holdings PLC | 201,975 | 524,668 | ||||||
Media - 0.5% | ||||||||
Taptica international Ltd. | 71,678 | 350,346 | ||||||
Total United Kingdom | 2,531,332 | |||||||
United States - 21.3% | ||||||||
Aerospace & Defense - 0.3% | ||||||||
Arotech Corp. (a) | 50,641 | 172,179 | ||||||
Biotechnology - 2.6% | ||||||||
BrainStorm Cell Therapeutics, Inc. (a) | 37,988 | 145,114 | ||||||
OPKO Health, Inc. (a) | 291,660 | 1,064,839 | ||||||
Pluristem Therapeutics, Inc. (a) | 167,641 | 216,845 | ||||||
Protalix BioTherapeutics, Inc. (a) | 331,521 | 220,564 | ||||||
Total Biotechnology | 1,647,362 | |||||||
Commercial Services & Supplies - 0.3% | ||||||||
Pointer Telocation Ltd. (a) | 12,547 | 159,882 | ||||||
Communications Equipment - 0.8% | ||||||||
Gilat Satellite Networks Ltd. (a) | 55,398 | 483,555 | ||||||
Electric Utilities - 2.5% | ||||||||
Ormat Technologies, Inc. | 29,684 | 1,561,157 | ||||||
Semiconductors & Semiconductor Equipment - 3.5% | ||||||||
CEVA, Inc. (a) | 20,679 | 594,521 | ||||||
DSP Group, Inc. (a) | 26,298 | 312,946 | ||||||
SolarEdge Technologies, Inc. (a)(c) | 32,015 | 1,205,365 | ||||||
Total Semiconductors & Semiconductor Equipment | 2,112,832 | |||||||
Software - 11.3% | ||||||||
ForeScout Technologies, Inc. (a) | 18,945 | 715,363 | ||||||
Imperva, Inc. (a) | 26,691 | 1,239,797 | ||||||
LivePerson, Inc. (a) | 45,912 | 1,172,729 | ||||||
Varonis Systems, Inc. (a) | 16,848 | 1,234,116 | ||||||
Verint Systems, Inc. (a) | 50,103 | 2,510,160 | ||||||
Total Software | 6,872,165 | |||||||
Total United States | 13,009,132 | |||||||
TOTAL COMMON STOCKS (Cost $54,347,232) | 60,962,017 |
The accompanying notes are an integral part of these financial statements.
9
BlueStar Israel Technology ETF
Schedule of Investments
September 30, 2018 (Continued)
Shares | Value | |||||||
SHORT-TERM INVESTMENTS - 0.3% | ||||||||
Money Market Funds - 0.3% | ||||||||
Invesco Advisers, Inc. STIT - Treasury Portfolio - Institutional Class, 1.90% (b) | 193,052 | $ | 193,052 | |||||
TOTAL SHORT-TERM INVESTMENTS (Cost $193,052) | 193,052 | |||||||
INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL - 8.7% | ||||||||
Mount Vernon Liquid Assets Portfolio, LLC, 2.31% (b) | 5,313,584 | |||||||
TOTAL INVESTMENTS PURCHASED WITH PROCEEDS FROM SECURITIES LENDING (Cost 5,313,584) | 5,313,584 | |||||||
Total Investments (Cost $59,853,868) - 108.5% | 66,468,653 | |||||||
Liabilities in Excess of Other Assets - (8.5)% | (5,225,564 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 61,243,089 |
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 September 30, 2018. |
(c) | All or a portion of this security is out on loan as of September 30, 2018. |
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, doing business as U.S. Bank Global Fund Services (“Fund Services”).
The accompanying notes are an integral part of these financial statements.
10
BlueStar Israel Technology ETF
As of September 30, 2018
BlueStar Israel | ||||
Technology | ||||
ETF | ||||
ASSETS | ||||
Investments in securities, at value* | $ | 66,468,653 | ||
Cash | 274 | |||
Receivables: | ||||
Dividends and interest receivable | 120,981 | |||
Securities lending income receivable | 1,206 | |||
Total Assets | 66,591,114 | |||
LIABILITIES | ||||
Collateral received for securities loaned (Note 7) | 5,313,584 | |||
Payables: | ||||
Management fees payable | 34,441 | |||
Total Liabilities | 5,348,025 | |||
Net Assets | $ | 61,243,089 | ||
NET ASSETS CONSIST OF: | ||||
Paid-in Capital | $ | 55,102,365 | ||
Total Distributable Earnings | 6,140,724 | |||
Net Assets | $ | 61,243,089 | ||
*Identified Cost: | ||||
Investments in securities | $ | 59,853,868 | ||
Shares Outstanding^ | 1,700,000 | |||
Net Asset Value, Offering and Redemption Price per Share | $ | 36.03 |
^ No par value, unlimited number of shares authorized.
The accompanying notes are an integral part of these financial statements.
11
BlueStar Israel Technology ETF
BlueStar Israel | ||||
Technology | ||||
ETF | ||||
INVESTMENT INCOME | ||||
Income: | ||||
Dividends from unaffiliated securities (net of foreign withholdings tax of $39,241) | $ | 309,937 | ||
Interest | 1,706 | |||
Securities lending income | 25,358 | |||
Total Investment Income | 337,001 | |||
Expenses: | ||||
Management fees | 292,018 | |||
Total Expenses | 292,018 | |||
Net Investment Income | 44,983 | |||
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||
Net Realized Gain (Loss) on: | ||||
Unaffiliated investments | (78,659 | ) | ||
In-Kind redemptions | 1,535,893 | |||
Foreign currency | (1,961 | ) | ||
Net Realized Gain on Investments and Foreign Currency | 1,455,273 | |||
Net Change in Unrealized Appreciation (Depreciation) of: | ||||
Unaffiliated investments | 3,976,021 | |||
Foreign currency and foreign currency translation | (60 | ) | ||
Net Change in Unrealized Appreciation of Investments and Foreign Currency | 3,975,961 | |||
Net Realized and Unrealized Gain on Investments | 5,431,234 | |||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 5,476,217 |
The accompanying notes are an integral part of these financial statements.
12
BlueStar Israel Technology ETF
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2018 | 2017 | |||||||
OPERATIONS | ||||||||
Net investment income | $ | 44,983 | $ | 8,590 | ||||
Net realized gain on investments | 1,455,273 | 221,184 | ||||||
Net change in unrealized appreciation of investments | 3,975,961 | 2,411,218 | ||||||
Net increase in net assets resulting from operations | 5,476,217 | 2,640,992 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
Total distributions from distributable earnings | (163,624 | ) | (18,370 | )* | ||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase in net assets derived from net change in outstanding shares | 32,392,245 | 15,800,080 | ||||||
Net increase in net assets | 37,704,838 | 18,422,702 | ||||||
NET ASSETS | ||||||||
Beginning of Year | 23,538,251 | 5,115,549 | ||||||
End of Year | $ | 61,243,089 | $ | 23,538,251 | ** |
* Includes net investment income distributions of $18,370.
** Includes undistributed (accumulated) net investment loss of $(1,355).
Summary of share transactions is as follows:
Year Ended | Year Ended | |||||||||||||||
September 30, 2018 | September 30, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 1,150,000 | $ | 38,822,145 | 650,000 | $ | 18,752,200 | ||||||||||
Shares Redeemed | (200,000 | ) | (6,429,900 | ) | (100,000 | ) | (2,952,120 | ) | ||||||||
Net Transactions in Fund Shares | 950,000 | $ | 32,392,245 | 550,000 | $ | 15,800,080 | ||||||||||
Beginning Shares | 750,000 | 200,000 | ||||||||||||||
Ending Shares | 1,700,000 | 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 year/period
Year Ended | Year Ended | Period Ended | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
2018 | 2017 | 20161 | ||||||||||
Net Asset Value, Beginning of Year/Period | $ | 31.38 | $ | 25.58 | $ | 25.00 | ||||||
Income from Investment Operations: | ||||||||||||
Net investment income 2 | 0.04 | 0.02 | 0.05 | |||||||||
Net realized and unrealized gain on investments | 4.78 | 5.87 | 0.53 | |||||||||
Total from investment operations | 4.82 | 5.89 | 0.58 | |||||||||
Less Distributions: | ||||||||||||
Distributions from net investment income | (0.17 | ) | (0.09 | ) | — | |||||||
Net asset value, end of year/period | $ | 36.03 | $ | 31.38 | $ | 25.58 | ||||||
Total Return | 15.41 | % | 23.16 | % | 2.31 | %3 | ||||||
Ratios/Supplemental Data: | ||||||||||||
Net assets at end of year/period (000’s) | $ | 61,243 | $ | 23,538 | $ | 5,116 | ||||||
Expenses to Average Net Assets | 0.75 | % | 0.75 | % | 0.75 | %4 | ||||||
Net Investment Income to Average Net Assets | 0.12 | % | 0.07 | % | 0.23 | %4 | ||||||
Portfolio Turnover Rate | 11 | % | 19 | % | 14 | %3 |
1 | Commencement of operations on November 2, 2015. |
2 | Calculated based on average shares outstanding during the year/period. |
3 | Not annualized. |
4 | Annualized. |
The accompanying notes are an integral part of these financial statements.
14
BlueStar Israel Technology ETF
September 30, 2018
NOTE 1 – ORGANIZATION
BlueStar Israel Technology ETF (formerly known as BlueStar TA – BIGITechTM 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 total return performance of the BlueStar Israel Global Technology Index TM (“BIGITech TM” or the “Index”). 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 NASDAQ Stock Market, LLC. 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.
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.
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
September 30, 2018 (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 September 30, 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
September 30, 2018 (Continued)
The following is a summary of the inputs used to value the Funds’ net assets as of September 30, 2018:
BlueStar Israel Technology ETF
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 60,962,017 | $ | — | $ | — | $ | 60,962,017 | ||||||||
Short-Term Investments | 193,052 | — | — | 193,052 | ||||||||||||
Investments Purchased with Securities Lending Collateral* | — | — | — | 5,313,584 | ||||||||||||
Total Investments in Securities | $ | 61,155,069 | $ | — | $ | — | $ | 66,468,653 |
^ 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 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 2018 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.
As of September 30, 2018, 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
September 30, 2018 (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.
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.
18
BlueStar Israel Technology ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
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 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 and accounting, 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 management 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.
U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services (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
BlueStar Israel Technology ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (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-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 year ended September 30, 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 year ended September 30, 2018:
Purchases | Sales | |||||||
BlueStar Israel Technology ETF | $ | 4,255,929 | $ | 5,170,525 |
The costs of purchases and sales of in-kind transactions associated with creations and redemptions for the year ended September 30, 2018:
Purchases | Sales In- | |||||||
In-Kind | Kind | |||||||
BlueStar Israel Technology ETF | $ | 38,591,341 | $ | 5,503,082 |
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 year ended September 30, 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 earns interest on the cash collateral. The amount of fees depends on a number of factors including the type earns 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 September 30, 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
September 30, 2018 (Continued)
As of September 30, 2018, the value of the securities on loan and payable for collateral due to broker were as follows:
Value of Securities on Loan and Collateral Received
Values of | Fund | |||||||
Securities | Collateral | |||||||
Fund | on Loan | Received* | ||||||
BlueStar Israel Technology ETF | $ | 5,165,610 | $ | 5,313,584 |
* The cash collateral received was invested in the Mount Vernon Liquid Assets Portfolio, 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 year ended September 30, 2018, aggregated $25,358.
NOTE 8 – FEDERAL INCOME TAXES
The components of distributable earnings (losses) and cost basis of investments for federal income tax purposes at September 30, 2018 were as follows:
Cost | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | |||||||||||||
BlueStar Israel Technology ETF | $ | 60,394,917 | $ | 10,006,885 | $ | (3,933,149 | ) | $ | 6,073,736 |
Undistributed Ordinary Income | Undistributed Long-term Gain | Total Distributable Earnings | Other Accumulated (Loss) | Total Accumulated Gain | ||||||||||||||||
BlueStar Israel Technology ETF | $ | 146,990 | $ | — | $ | 146,990 | $ | (80,002 | ) | $ | 6,140,724 |
As of September 30, 2018, the Fund had accumulated capital loss carryovers of:
Capital Loss | |||||
Carryforward | |||||
LT | Expires | ||||
BlueStar Israel Technology ETF | $ | 79,947 | 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, 2018.
21
BlueStar Israel Technology ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
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, 2018, the following table shows the reclassifications made:
Undistributed | ||||||||||||
Accumulated | Accumulated | |||||||||||
Net Investment | Net Realized | Paid-In | ||||||||||
Income | Loss | Capital | ||||||||||
BlueStar Israel Technology ETF | $ | 113,579 | $ | (1,642,177 | ) | $ | 1,528,598 |
The tax character of distributions paid by the Fund during the fiscal years ended September 30, 2018 and September 30, 2017 are as follows:
Year Ended September 30, 2018 | Year Ended September 30, 2017 | |||||||||||||||
From Ordinary Income | From Capital Gains | From Ordinary Income | From Capital Gains | |||||||||||||
BlueStar Israel Technology ETF | $ | 163,624 | $ | — | $ | 18,370 | $ | — |
NOTE 9 – LEGAL MATTERS
The Trust, the trustees of the Trust, the Adviser and certain officers of the Adviser are defendants in an action filed May 2, 2017 in the Superior Court of New Jersey captioned PureShares, LLC d/b/a PureFunds et al. v. ETF Managers Group, LLC et al., Docket No. C-63-17. The PureShares action alleges claims based on disputes arising out of contractual relationships with the Adviser. The action seeks damages in unspecified amounts and injunctive relief based on breach of contract, wrongful termination, and several other theories. At the outset of the litigation, and again a few weeks later, plaintiffs sought temporary injunctive relief. Both motions were denied, and the matter is now proceeding through pretrial discovery. The defendants believe the lawsuit is without merit and intend to vigorously defend themselves against the allegations.
The Adviser, its parent, Exchange Traded Managers Group, LLC and its chief executive officer are defendants in a case filed on October 26, 2017 in the United States District Court for the Southern District of New York by NASDAQ, Inc. captioned Nasdaq, Inc. v. Exchange Traded Managers Group, LLC et al., Case 1:17-cv-08252. This action arises out of related facts and circumstances in the New Jersey litigation and asserts claims for breach of contract, wrongful termination and certain other theories with respect to the same exchange traded Fund discussed above. The defendants in the Southern District actions believe the lawsuit is without merit and intend to vigorously defend themselves against the allegations and to assert counterclaims against NASDAQ for breaches of its duties under the related index license agreement and various other agreements. Management of the Trust and the Fund, after consultation with legal counsel, believes that the resolution of these matters will not have a material adverse effect on the Fund’s financial statements.
22
BlueStar Israel Technology ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
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. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments to the Financial Statements.
23
BlueStar Israel Technology ETF
To the Board of Trustees of ETF Managers Trust
and the Shareholders of BlueStar Israel Technology ETF:
and the Shareholders of BlueStar Israel Technology ETF:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of BlueStar Israel Technology ETF (the “Fund”) (a series of ETF Managers Trust) as of September 30, 2018, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of September 30, 2018, and the results of its operations for the year then ended, the changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of September 30, 2018 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor for one or more series of the Trust since 2013.
/s/WithumSmith+Brown, PC
New York, New York
November 29, 2018
24
BlueStar Israel Technology ETF
BlueStar Israel Technology ETF Closing Price vs. NAV
The following Frequency Distribution of Premiums and Discounts chart is provided to show the frequency at which the closing price for each Fund is at a premium or discount to its daily net asset value (NAV). The chart presented represents past performance and cannot be used to predict future results.
Year Ended | ||||||||
BlueStar Israel Technology ETF | September 30, 2018 | |||||||
Number | Percentage of | |||||||
Premium/Discount Range | of Days | Total Days | ||||||
Greater than 1.00% | 2 | 0.8 | ||||||
Greater Than or equal to 0.75% And Less Than 1.00% | 2 | 0.8 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 25 | 9.9 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 135 | 53.8 | ||||||
Greater Than or Equal to 0.00% And Less Than 0.25% | 71 | 28.3 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 12 | 4.8 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 3 | 1.2 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 1 | 0.4 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 0 | 0.0 | ||||||
Less than -1.00% | 0 | 0.0 |
Year Ended | ||||||||
BlueStar Israel Technology ETF | September 30, 2017 | |||||||
Number | Percentage of | |||||||
Premium/Discount Range | of Days | Total Days | ||||||
Greater than 1.00% | 0 | 0.0 | ||||||
Greater Than or equal to 0.75% And Less Than 1.00% | 1 | 0.4 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 15 | 6.0 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 161 | 64.1 | ||||||
Greater Than or Equal to 0.00% And Less Than 0.25% | 70 | 27.9 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 4 | 1.6 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 0 | 0.0 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 0 | 0.0 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 0 | 0.0 | ||||||
Less than -1.00% | 0 | 0.0 |
November 2, 2015* through | ||||||||
BlueStar Israel Technology ETF | September 30, 2016 | |||||||
Number | Percentage of | |||||||
Premium/Discount Range | of Days | Total Days | ||||||
Greater than 1.00% | 3 | 1.3 | ||||||
Greater Than or equal to 0.75% And Less Than 1.00% | 8 | 3.5 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 70 | 30.3 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 103 | 44.6 | ||||||
Greater Than or Equal to 0.00% And Less Than 0.25% | 38 | 16.5 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 8 | 3.5 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 1 | 0.4 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 0 | 0.0 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 0 | 0.0 | ||||||
Less than -1.00% | 0 | 0.0 |
*First day of secondary market trading
25
BlueStar Israel Technology ETF
Six Months Ended September 30, 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 management 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 (April 1, 2018 to September 30, 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
Annualized | ||||||||||||||||
Expense Ratio | ||||||||||||||||
Beginning | Ending | Expenses | During the | |||||||||||||
Account | Account | Paid | Period April 30, | |||||||||||||
Value | Value | During | 2018 – | |||||||||||||
April 1, | September | the | September 30, | |||||||||||||
2018 | 30, 2018 | Period^ | 2018 | |||||||||||||
Actual | $ | 1,000.00 | $ | 1,126.10 | $ | 4.00 | 0.75 | % | ||||||||
Hypothetical (5% annual) | $ | 1,000.00 | $ | 1,021.31 | $ | 3.80 | 0.75 | % |
^ 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 183/365 (to reflect the period from April 1, 2018 to September 30, 2018).
26
BlueStar Israel Technology ETF
September 30, 2018 (Unaudited)
FEDERAL TAX INFORMATION (Unaudited)
Qualified Dividend Income/Dividends Received Deduction
For the fiscal year ended September 30, 2018, certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Reconciliation Act of 2003. The percentage of dividends declared from ordinary income designated as qualified dividend income was as follows:
Fund Name | QDI |
Etho Climate Leadership U.S. ETF | 100.00% |
For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received deduction for the fiscal year ended September 30, 2018 was as follows:
Fund Name | DRD |
Etho Climate Leadership U.S. ETF | 100.00% |
Short Term Capital Gain
The percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions under Internal Revenue Section 871 (k)(2)(C) for the Fund was as follows:
Fund Name | Short-Term Capital Gain |
Etho Climate Leadership U.S. ETF | 5.17% |
27
BlueStar Israel Technology ETF
SUPPLEMENTARY INFORMATION
September 30, 2018 (Unaudited) (Continued)
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. The Fund’s portfolio holdings are posted on the Fund’s website at www.iteqetf.com daily.
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.
28
BlueStar Israel Technology ETF
SUPPLEMENTARY INFORMATION
September 30, 2018 (Unaudited) (Continued)
Board of Trustees
Set forth below are the names, birth years, positions with the Trust, length of term of office, and the principal occupations and other directorships held during at least the last five years of each of the persons currently serving as a Trustee of the Trust, as well as information about each officer. The business address of each Trustee and officer is 30 Maple Street, 2nd Floor, Summit, New Jersey 07901. The SAI includes additional information about Fund directors and is available, without charge, upon request by calling 1-844-ETF-MGRS (1-844-383-6477).
Name and Year of Birth | Position(s) Held with the Trust, Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen By Trustee | Other Directorships Held by Trustee During Past 5 Years |
Samuel Masucci, III (1962) | Trustee, Chairman of the Board and President (since 2012); Secretary (since 2014) | Chief Executive Officer, Exchange Traded Managers Group, LLC (since 2013); Chief Executive Officer (since 2016), ETF Managers Group, LLC; Chief Executive Officer, ETF Managers Capital LLC (commodity pool operator) (since 2014); Chief Executive Officer (2012–2016) and Chief Compliance Officer (2012– 2014), Factor Advisors, LLC (investment adviser); President and Chief Executive Officer, Factor Capital Management LLC (2012– 2014) (commodity pool operator). | 10 | None |
Reshma J. Amin (1978) | Chief Compliance Officer (since 2016) | Chief Compliance Officer, ETF Managers Group LLC (since 2016); Partner, Crow & Cushing (law firm) (2007–2016). | n/a | n/a |
John A. Flanagan (1946) | Treasurer (since 2015) | President, John A. Flanagan CPA, LLC (accounting services) (since 2010); Treasurer, ETF Managers Trust (since 2015); Principal Financial Officer, ETF Managers Capital, LLC (commodity pool operator) (since 2014); Chief Financial Officer, Macromarkets LLC (exchange traded funds) (2007–2010) | n/a | n/a |
* Mr. Masucci is an interested Trustee by virtue of his role as the Chief Executive Officer of the Adviser.
29
BlueStar Israel Technology ETF
SUPPLEMENTARY INFORMATION
September 30, 2018 (Unaudited) (Continued)
Board of Trustees (Continued)
Name and Year of Birth | Position(s) Held with the Trust, Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen By Trustee | Other Directorships Held by Trustee During Past 5 Years |
Independent Trustees | ||||
Jared Chase (1955) | Trustee (since 2018) | Chairman, State Street Global Alliance LLC, State Street Corporation (2007-2012); Head of Global Treasury, Liability Management, Money Markets & Derivatives, State Street Corporation (2004-2007) | 10 | None |
Terry Loebs (1963) | Trustee (since 2014) | Founder and Managing Member, Pulsenomics LLC (index product development and consulting firm) (since 2011); Managing Director, MacroMarkets, LLC (exchange-traded products firm) (2006–2011). | 10 | None |
30
BlueStar Israel Technology ETF
SUPPLEMENTARY INFORMATION
September 30, 2018 (Unaudited) (Continued)
ETF MANAGERS TRUST
ETF Managers Trust, (the “Trust”) has adopted the following privacy policies in order to safeguard the personal information of the Trust’s customers and consumers in accordance with Regulation S-P as promulgated by the U.S. Securities and Exchange Commission.
Trust officers are responsible for ensuring that the following policies and procedures are implemented:
1) The Trust is committed to protecting the confidentiality and security of the information they collect and will handle personal customer and consumer information only in accordance with Regulation S-P and any other applicable laws, rules and regulations1. The Trust will ensure: (a) the security and confidentiality of customer records and information; (b) that customer records and information are protected from any anticipated threats and hazards; and (c) that customer records and information are protected from unauthorized access or use.
2) The Trust conducts its business affairs through its trustees, officers and third parties that provide services pursuant to agreements with the Trust. The Trust has no employees. It is anticipated that the trustees and officers of the Trust who are not employees of service providers of the Trust will not have access to customer records and information in the performance of their normal responsibilities for the Trust.
3) The Trust may share customer information with its affiliates, subject to the customers’ right to prohibit such sharing.
4) The Trust may share customer information with unaffiliated third parties only in accordance with the requirements of Regulation S-P. Pursuant to this policy, the Trust will not share customer information with unaffiliated third parties other than as permitted by law, unless authorized to do so by the customer.
Consistent with these policies, the Trust has adopted the following procedures:
1) The Trust will determine that the policies and procedures of its affiliates and Service Providers are reasonably designed to safeguard customer information and only permit appropriate and authorized access to and use of customer information through the application of appropriate administrative, technical and physical protections.
2) The Trust will direct each of its Service Providers to adhere to the privacy policy of the Trust and to its privacy policies with respect to all customer information of the Trust and to take all actions reasonably necessary so that the Trust is in compliance with the provisions of Regulation S-P, including, as applicable, the development and delivery of privacy notices and the maintenance of appropriate and adequate records.
3) The Trust requires its Service Providers to provide periodic reports to the Trust’s Board of Trustees outlining their privacy policies and the implementation of such policies. Each Service Provider is required to promptly report to the Trust’s Board any material changes to its privacy policy before, or promptly after, the adoption of such changes
(1) Generally, the Funds have institutional clients which are not considered “customers” for purposes of regulation S-P.
31
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 doing business as U.S. Bank Global Fund Services
615 East Michigan Street, Milwaukee, Wisconsin 53202
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
Annual Report
September 30, 2018
Etho Climate Leadership U.S. ETF
Ticker: ETHO
The fund is a series of the ETF Managers Trust.
Etho Climate Leadership U.S. ETF |
TABLE OF CONTENTS |
September 30, 2018 |
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1
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 September 30, 2018.
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 – U.S. (the “Index”).
The Fund saw positive performance during the fiscal period ended September 30, 2018. The total return for the Fund was 18.16% while the total return for the Index was 17.60%. The difference was primarily attributable to Fund expenses that are not a part of the Index. The best performing sectors in the Fund on the basis of contribution to return were Information Technology and Healthcare while the worst performers were Real Estate and Consumer Staples.
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.1 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
1 Etho Capital. www.ethocapital.com
2
Average Annual Returns | 1 Year | Since Inception | Value of $10,000 | |||||||||
Year Ended September 30, 2018 | Return | (11/18/2015) | (9/30/2018) | |||||||||
Etho Climate Leadership U.S. ETF (NAV) | 18.16 | % | 16.22 | % | $ | 15,392 | ||||||
Etho Climate Leadership U.S. ETF (Market) | 18.22 | % | 16.27 | % | $ | 15,411 | ||||||
S&P 500 Index | 17.91 | % | 14.73 | % | $ | 14,830 | ||||||
Etho Climate Leadership Index - U.S. | 17.60 | % | 15.53 | % | $ | 15,128 | ||||||
Total Fund Operating Expenses1 | 0.45 | % |
1. 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 index returns do not reflect fees or expenses and are not available for direct investment.
3
Etho Climate Leadership U.S. ETF
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 a broad-based index of publicly traded U.S. companies that are, on average, more climate efficient (as measured by carbon emission as percentage of market capitalization) than their industry peers.
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 September 30, 2018 (Unaudited) |
Etho Climate | ||||
Leadership U.S. | ||||
ETF | ||||
As a percent of Net Assets: | ||||
Bermuda | 1.6 | % | ||
Canada | 0.4 | |||
Ireland | 0.7 | |||
Jersey | 0.3 | |||
Switzerland | 0.7 | |||
United Kingdom | 0.4 | |||
United States | 95.0 | |||
Virgin Islands (UK) | 0.3 | |||
Closed-End Funds | 0.3 | |||
Short-Term and other Net Assets (Liabilities) | 0.3 | |||
100.0 | % |
6
Etho Climate Leadership U.S. ETF |
September 30, 2018 |
Shares | Value | |||||||
COMMON STOCKS - 99.4% | ||||||||
Bermuda - 1.6% | ||||||||
Chemicals - 0.3% | ||||||||
Axalta Coating Systems Ltd. (a) | 3,730 | $ | 108,767 | |||||
Insurance - 1.3% | ||||||||
Arch Capital Group Ltd. (a) | 3,945 | 117,600 | ||||||
Everest Re Group Ltd. | 438 | 100,070 | ||||||
RenaissanceRe Holdings Ltd. | 811 | 108,333 | ||||||
White Mountains Insurance Group Ltd. | 136 | 127,278 | ||||||
Total Insurance | 453,281 | |||||||
Total Bermuda | 562,048 | |||||||
Canada - 0.4% | ||||||||
Commercial Services & Supplies - 0.4% | ||||||||
Waste Connections, Inc. | 1,568 | 125,079 | ||||||
Ireland - 0.7% | ||||||||
Electrical Equipment - 0.1% | ||||||||
nVent Electric PLC | 1,659 | 45,058 | ||||||
Machinery - 0.2% | ||||||||
Pentair PLC | 1,659 | 71,918 | ||||||
Pharmaceuticals - 0.4% | ||||||||
Jazz Pharmaceuticals PLC (a) | 745 | 125,256 | ||||||
Total Ireland | 242,232 | |||||||
Jersey - 0.3% | ||||||||
Auto Components - 0.3% | ||||||||
Aptiv PLC | 1,323 | 111,000 | ||||||
Switzerland - 0.7% | ||||||||
Electronic Equipment, Instruments & Components - 0.3% | ||||||||
TE Connectivity Ltd. | 1,127 | 99,097 | ||||||
Household Durables - 0.4% | ||||||||
Garmin Ltd. | 1,910 | 133,796 | ||||||
Total Switzerland | 232,893 | |||||||
United Kingdom - 0.4% | ||||||||
Insurance - 0.3% | ||||||||
Aon PLC | 802 | 123,332 | ||||||
Media - 0.1% | ||||||||
Liberty Global PLC – Class A (a) | 1,183 | 34,224 | ||||||
Total United Kingdom | 157,556 |
The accompanying notes are an integral part of these financial statements.
7
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
September 30, 2018 (Continued) |
Shares | Value | |||||||
United States - 95.0% | ||||||||
Air Freight & Logistics - 0.7% | ||||||||
CH Robinson Worldwide, Inc. | 1,201 | $ | 117,602 | |||||
Expeditors International of Washington, Inc. | 1,777 | 130,663 | ||||||
Total Air Freight & Logistics | 248,265 | |||||||
Airlines - 0.3% | ||||||||
Southwest Airlines Co. | 1,965 | 122,714 | ||||||
Auto Components - 0.3% | ||||||||
Gentex Corp. (c) | 4,892 | 104,982 | ||||||
Automobiles - 0.5% | ||||||||
Tesla, Inc. (a)(c) | 422 | 111,733 | ||||||
Thor Industries, Inc. | 977 | 81,775 | ||||||
Total Automobiles | 193,508 | |||||||
Banks - 3.8% | ||||||||
Bank of Hawaii Corp. | 1,355 | 106,923 | ||||||
Commerce Bancshares, Inc. | 1,877 | 123,920 | ||||||
Cullen/Frost Bankers, Inc. | 1,059 | 110,602 | ||||||
First Horizon National Corp. | 5,980 | 103,215 | ||||||
First Republic Bank | 1,216 | 116,736 | ||||||
Fulton Financial Corp. | 6,346 | 105,661 | ||||||
People’s United Financial, Inc. | 6,035 | 103,319 | ||||||
Signature Bank | 791 | 90,838 | ||||||
South State Corp. | 1,319 | 108,158 | ||||||
SVB Financial Group (a) | 582 | 180,903 | ||||||
Synovus Financial Corp. | 2,253 | 103,165 | ||||||
Zions Bancorporation | 2,135 | 107,070 | ||||||
Total Banks | 1,360,510 | |||||||
Biotechnology - 2.0% | ||||||||
Agios Pharmaceuticals, Inc. (a) | 1,376 | 106,117 | ||||||
Alnylam Pharmaceuticals, Inc. (a) | 939 | 82,181 | ||||||
Incyte Corp. (a) | 1,351 | 93,327 | ||||||
Ionis Pharmaceuticals, Inc. (a) | 2,554 | 131,735 | ||||||
Seattle Genetics, Inc. (a) | 2,151 | 165,886 | ||||||
Vertex Pharmaceuticals, Inc. (a) | 684 | 131,834 | ||||||
Total Biotechnology | 711,080 | |||||||
Building Products - 2.3% | ||||||||
AO Smith Corp. | 1,771 | 94,518 | ||||||
Apogee Enterprises, Inc. | 2,596 | 107,267 | ||||||
Fortune Brands Home & Security, Inc. | 1,911 | 100,060 | ||||||
Lennox International, Inc. | 551 | 120,338 | ||||||
Masco Corp. | 2,788 | 102,041 | ||||||
Simpson Manufacturing Co., Inc. | 1,953 | 141,514 | ||||||
Trex Co., Inc. (a) | 2,052 | 157,963 | ||||||
Total Building Products | 823,701 | |||||||
Capital Markets - 3.8% | ||||||||
Cboe Global Markets, Inc. | 984 | 94,425 | ||||||
Charles Schwab Corp. | 2,156 | 105,967 | ||||||
CME Group, Inc. | 695 | 118,296 | ||||||
E*TRADE Financial Corp. (a) | 2,010 | 105,304 |
The accompanying notes are an integral part of these financial statements.
8
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
September 30, 2018 (Continued) |
Shares | Value | |||||||
Interactive Brokers Group, Inc. – Class A | 1,661 | $ | 91,870 | |||||
Intercontinental Exchange, Inc. | 1,551 | 116,154 | ||||||
KKR & Co., Inc. – Class A | 5,549 | 151,321 | ||||||
Moody’s Corporation | 696 | 116,371 | ||||||
MSCI, Inc. | 752 | 133,412 | ||||||
S&P Global, Inc. | 589 | 115,085 | ||||||
SEI Investments Co. | 1,488 | 90,917 | ||||||
T. Rowe Price Group, Inc. (c) | 1,032 | 112,674 | ||||||
Total Capital Markets | 1,351,796 | |||||||
Chemicals - 3.2% | ||||||||
Ecolab, Inc. | 821 | 128,716 | ||||||
FMC Corp. | 1,470 | 128,155 | ||||||
Ingevity Corp. (a) | 1,527 | 155,571 | ||||||
International Flavors & Fragrances, Inc. (c) | 822 | 114,357 | ||||||
Intrepid Potash, Inc. (a) | 30,943 | 111,085 | ||||||
PPG Industries, Inc. | 1,009 | 110,112 | ||||||
RPM International, Inc. | 2,371 | 153,973 | ||||||
Sherwin-Williams Co. | 287 | 130,645 | ||||||
W.R. Grace & Co. | 1,837 | 131,272 | ||||||
Total Chemicals | 1,163,886 | |||||||
Commercial Services & Supplies - 0.9% | ||||||||
Brink’s Co. | 1,579 | 110,135 | ||||||
Cintas Corp. | 658 | 130,159 | ||||||
Copart, Inc. (a) | 2,190 | 112,851 | ||||||
Total Commercial Services & Supplies | 353,145 | |||||||
Communications Equipment - 1.2% | ||||||||
Cisco Systems, Inc. | 2,626 | 127,755 | ||||||
F5 Networks, Inc. (a) | 779 | 155,348 | ||||||
Palo Alto Networks, Inc. (a)(c) | 614 | 138,310 | ||||||
Total Communications Equipment | 421,413 | |||||||
Construction & Engineering - 0.7% | ||||||||
EMCOR Group, Inc. | 1,446 | 108,609 | ||||||
Jacobs Engineering Group, Inc. | 1,904 | 145,656 | ||||||
Total Construction & Engineering | 254,265 | |||||||
Construction Materials - 0.6% | ||||||||
Martin Marietta Materials, Inc. | 542 | 98,617 | ||||||
Vulcan Materials Co. | 984 | 109,421 | ||||||
Total Construction Materials | 208,038 | |||||||
Consumer Finance - 0.3% | ||||||||
SLM Corp. (a)(c) | 10,046 | 112,013 | ||||||
Containers & Packaging - 0.7% | ||||||||
AptarGroup, Inc. | 1,254 | 135,106 | ||||||
Avery Dennison Corp. | 1,058 | 114,634 | ||||||
Total Containers & Packaging | 249,740 | |||||||
Distributors - 0.3% | ||||||||
LKQ Corp. (a) | 2,968 | 93,997 | ||||||
Diversified Consumer Services - 0.3% | ||||||||
H&R Block, Inc. | 4,432 | 114,124 | ||||||
Diversified Financial Services - 0.3% |
The accompanying notes are an integral part of these financial statements.
9
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
September 30, 2018 (Continued) |
Shares | Value | |||||||
Voya Financial, Inc. | 2,229 | $ | 110,714 | |||||
Diversified Telecommunication Services - 0.5% | ||||||||
AT&T, Inc. | 1,710 | 57,422 | ||||||
Zayo Group Holdings, Inc. (a) | 3,296 | 114,437 | ||||||
Total Diversified Telecommunication Services | 171,859 | |||||||
Electric Utilities - 0.3% | ||||||||
Pinnacle West Capital Corp. | 1,411 | 111,723 | ||||||
Electrical Equipment - 2.1% | ||||||||
Acuity Brands, Inc. | 808 | 127,018 | ||||||
AMETEK, Inc. | 1,467 | 116,069 | ||||||
Emerson Electric Co. | 1,647 | 126,127 | ||||||
Generac Holdings, Inc. (a) | 2,453 | 138,374 | ||||||
Rockwell Automation, Inc. | 647 | 121,325 | ||||||
Sensata Technologies Holding PLC (a) | 2,172 | 107,623 | ||||||
Total Electrical Equipment | 736,536 | |||||||
Electronic Equipment, Instruments & Components - 3.3% | ||||||||
Amphenol Corp. – Class A | 1,305 | 122,696 | ||||||
Badger Meter, Inc. | 2,362 | 125,068 | ||||||
CDW Corp. | 1,601 | 142,361 | ||||||
Dolby Laboratories, Inc. – Class A | 1,771 | 123,917 | ||||||
IPG Photonics Corp. (a) | 478 | 74,601 | ||||||
Itron, Inc. (a) | 1,572 | 100,922 | ||||||
Keysight Technologies, Inc. (a) | 2,150 | 142,503 | ||||||
Littelfuse, Inc. | 535 | 105,871 | ||||||
National Instruments Corp. | 2,206 | 106,616 | ||||||
Trimble, Inc. (a) | 3,139 | 136,421 | ||||||
Total Electronic Equipment, Instruments & Components | 1,180,976 | |||||||
Entertainment - 1.1% | ||||||||
Netflix, Inc. (a) | 376 | 140,673 | ||||||
Twenty-First Century Fox, Inc. – Class A | 3,068 | 142,140 | ||||||
Walt Disney Co. (c) | 1,121 | 131,090 | ||||||
Total Entertainment | 413,903 | |||||||
Food & Staples Retailing - 0.7% | ||||||||
Costco Wholesale Corp. | 596 | 139,988 | ||||||
PriceSmart, Inc. | 1,345 | 108,878 | ||||||
Total Food & Staples Retailing | 248,866 | |||||||
Food Products - 1.3% | ||||||||
Hain Celestial Group, Inc. (a) | 3,510 | 95,191 | ||||||
Kraft Heinz Co. | 1,808 | 99,639 | ||||||
McCormick & Co., Inc. | 1,057 | 139,260 | �� | |||||
Pinnacle Foods, Inc. | 2,080 | 134,805 | ||||||
Total Food Products | 468,895 | |||||||
Health Care Equipment & Supplies - 4.3% | ||||||||
Align Technology, Inc. (a) | 444 | 173,701 | ||||||
Boston Scientific Corp. (a) | 4,123 | 158,736 | ||||||
Cooper Cos. | 490 | 135,804 | ||||||
DexCom, Inc. (a)(c) | 1,516 | 216,848 |
The accompanying notes are an integral part of these financial statements.
10
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
September 30, 2018 (Continued) |
Shares | Value | |||||||
Edwards Lifesciences Corp. (a) | 799 | $ | 139,106 | |||||
IDEXX Laboratories, Inc. (a) | 589 | 147,050 | ||||||
Intuitive Surgical, Inc. (a) | 270 | 154,980 | ||||||
ResMed, Inc. | 1,143 | 131,834 | ||||||
Stryker Corp. | 697 | 123,843 | ||||||
Teleflex, Inc. | 441 | 117,346 | ||||||
Total Health Care Equipment & Supplies | 1,499,248 | |||||||
Health Care Providers & Services - 3.6% | ||||||||
Aetna, Inc. | 667 | 135,301 | ||||||
AMN Healthcare Services, Inc. (a) | 1,984 | 108,525 | ||||||
Anthem, Inc. | 513 | 140,588 | ||||||
Centene Corp. (a) | 1,041 | 150,715 | ||||||
Cigna Corp. | 671 | 139,736 | ||||||
Humana, Inc. | 419 | 141,840 | ||||||
Laboratory Corp of America Holdings (a) | 694 | 120,534 | ||||||
MEDNAX, Inc. (a) | 2,023 | 94,393 | ||||||
Quest Diagnostics, Inc. | 1,123 | 121,183 | ||||||
UnitedHealth Group, Inc. | 524 | 139,405 | ||||||
Total Health Care Providers & Services | 1,292,220 | |||||||
Health Care Technology - 0.7% | ||||||||
Allscripts Healthcare Solutions, Inc. (a)(c) | 9,121 | 129,974 | ||||||
Cerner Corp. (a) | 1,942 | 125,084 | ||||||
Total Health Care Technology | 255,058 | |||||||
Hotels, Restaurants & Leisure - 0.6% | ||||||||
Choice Hotels International, Inc. | 1,406 | 117,120 | ||||||
Starbucks Corp. | 1,945 | 110,554 | ||||||
Total Hotels, Restaurants & Leisure | 227,674 | |||||||
Household Durables - 0.5% | ||||||||
KB Home | 3,918 | 93,679 | ||||||
TopBuild Corp. (a) | 1,471 | 83,582 | ||||||
Total Household Durables | 177,261 | |||||||
Household Products - 1.0% | ||||||||
Church & Dwight Co., Inc. | 2,235 | 132,692 | ||||||
Colgate-Palmolive Co. | 1,569 | 105,045 | ||||||
Procter & Gamble Co. | 1,418 | 118,020 | ||||||
Total Household Products | 355,757 | |||||||
Independent Power and Renewable Electricity Producers - 1.0% | ||||||||
NextEra Energy Partners LP (c) | 2,816 | 136,576 | ||||||
Ormat Technologies, Inc. | 1,998 | 108,112 | ||||||
Pattern Energy Group, Inc. – Class A | 6,512 | 129,393 | ||||||
Total Independent Power and Renewable Electricity Producers | 374,081 | |||||||
Industrial Conglomerates - 1.0% | ||||||||
3M Co. | 513 | 108,094 | ||||||
Honeywell International, Inc. | 779 | 129,626 | ||||||
Roper Technologies, Inc. | 401 | 118,780 | ||||||
Total Industrial Conglomerates | 356,500 |
The accompanying notes are an integral part of these financial statements.
11
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
September 30, 2018 (Continued) |
Shares | Value | |||||||
Insurance - 2.3% | ||||||||
Brighthouse Financial, Inc. (a) | 2,190 | $ | 96,886 | |||||
Brown & Brown, Inc. | 4,428 | 130,936 | ||||||
Chubb Ltd. | 823 | 109,986 | ||||||
Cincinnati Financial Corp. | 1,514 | 116,290 | ||||||
Markel Corp. (a) | 96 | 114,095 | ||||||
Marsh & McLennan Cos., Inc. | 1,362 | 112,665 | ||||||
Torchmark Corp. | 1,337 | 115,905 | ||||||
Total Insurance | 796,763 | |||||||
Interactive Media & Services - 1.0% | ||||||||
Alphabet, Inc. – Class A (a) | 107 | 127,701 | ||||||
TripAdvisor, Inc. (a) | 2,755 | 140,698 | ||||||
Zillow Group, Inc. – Class A (a)(c) | 2,073 | 91,730 | ||||||
Total Interactive Media & Services | 360,129 | |||||||
Internet & Direct Marketing Retail - 1.1% | ||||||||
Amazon.com, Inc. (a) | 77 | 154,231 | ||||||
Booking Holdings, Inc. (a) | 52 | 103,168 | ||||||
Expedia Group, Inc. | 1,018 | 132,829 | ||||||
Total Internet & Direct Marketing Retail | 390,228 | |||||||
IT Services - 5.0% | ||||||||
Automatic Data Processing, Inc. | 992 | 149,455 | ||||||
Broadridge Financial Solutions, Inc. | 1,016 | 134,061 | ||||||
Cognizant Technology Solutions Corp. – Class A (c) | 1,397 | 107,779 | ||||||
Fidelity National Information Services, Inc. | 1,168 | 127,394 | ||||||
Fiserv, Inc. (a) | 1,579 | 130,078 | ||||||
FleetCor Technologies, Inc. (a) | 555 | 126,451 | ||||||
Global Payments, Inc. (c) | 998 | 127,145 | ||||||
MasterCard, Inc. – Class A | 889 | 197,899 | ||||||
Paychex, Inc. | 1,828 | 134,632 | ||||||
PayPal Holdings, Inc. (a) | 1,470 | 129,125 | ||||||
VeriSign, Inc. (a) | 950 | 152,114 | ||||||
Visa, Inc. – Class A (c) | 940 | 141,085 | ||||||
Worldpay, Inc. – Class A (a) | 1,369 | 138,639 | ||||||
Total IT Services | 1,795,857 | |||||||
Leisure Products - 0.4% | ||||||||
Hasbro, Inc. | 1,335 | 140,335 | ||||||
Life Sciences Tools & Services - 1.2% | ||||||||
Bio-Techne Corp. | 736 | 150,225 | ||||||
Illumina, Inc. (a) | 476 | 174,721 | ||||||
Waters Corp. (a) | 565 | 109,994 | ||||||
Total Life Sciences Tools & Services | 434,940 | |||||||
Machinery - 5.9% | ||||||||
Altra Industrial Motion Corp. | 374 | 15,437 | ||||||
Caterpillar, Inc. | 764 | 116,502 | ||||||
Crane Co. | 1,212 | 119,200 | ||||||
Donaldson Co., Inc. | 2,499 | 145,593 | ||||||
Energy Recovery, Inc. (a)(c) | 13,702 | 122,633 | ||||||
Fortive Corp. | 1,283 | 108,029 | ||||||
Graco, Inc. | 2,466 | 114,274 |
The accompanying notes are an integral part of these financial statements.
12
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
September 30, 2018 (Continued) |
Shares | Value | |||||||
IDEX Corp. | 782 | $ | 117,816 | |||||
Illinois Tool Works, Inc. | 717 | 101,183 | ||||||
ITT, Inc. | 2,300 | 140,898 | ||||||
Lincoln Electric Holdings, Inc. | 1,250 | 116,800 | ||||||
Middleby Corp. (a) | 907 | 117,320 | ||||||
Snap-On, Inc. | 763 | 140,087 | ||||||
Toro Co. | 1,801 | 108,006 | ||||||
WABCO Holdings, Inc. (a) | 841 | 99,188 | ||||||
Wabtec Corp. | 1,381 | 144,839 | ||||||
Watts Water Technologies, Inc. – Class A | 1,449 | 120,267 | ||||||
Xylem, Inc. | 1,449 | 115,732 | ||||||
Total Machinery | 2,063,804 | |||||||
Media - 1.0% | ||||||||
Charter Communications, Inc. – Class A (a) | 362 | 117,968 | ||||||
Liberty Broadband Corp. – Class A (a) | 1,326 | 111,822 | ||||||
Sirius XM Holdings, Inc. (c) | 18,052 | 114,089 | ||||||
Total Media | 343,879 | |||||||
Metals & Mining - 0.7% | ||||||||
Compass Minerals International, Inc. (c) | 1,867 | 125,462 | ||||||
Reliance Steel & Aluminum Co. | 1,313 | 111,986 | ||||||
Total Metals & Mining | 237,448 | |||||||
Multiline Retail - 0.3% | ||||||||
Dollar Tree, Inc. (a) | 1,186 | 96,718 | ||||||
Multi-Utilities - 0.6% | ||||||||
MDU Resources Group, Inc. | 3,999 | 102,734 | ||||||
Public Service Enterprise Group, Inc. | 2,242 | 118,355 | ||||||
Total Multi-Utilities | 221,089 | |||||||
Personal Products - 0.3% | ||||||||
Estee Lauder Cos., Inc. – Class A | 751 | 109,135 | ||||||
Pharmaceuticals - 0.6% | ||||||||
Bristol-Myers Squibb Co. | 1,758 | 109,137 | ||||||
Zoetis, Inc. | 1,335 | 122,233 | ||||||
Total Pharmaceuticals | 231,370 | |||||||
Professional Services - 1.0% | ||||||||
CoStar Group, Inc. (a) | 310 | 130,460 | ||||||
Nielsen Holdings PLC | 3,542 | 97,972 | ||||||
Verisk Analytics, Inc. (a) | 1,083 | 130,556 | ||||||
Total Professional Services | 358,988 | |||||||
Real Estate Investment Trusts (REITs) - 3.0% | ||||||||
Alexandria Real Estate Equities, Inc. | 901 | 113,337 | ||||||
AvalonBay Communities, Inc. | 685 | 124,087 | ||||||
Crown Castle International Corp. | 1,027 | 114,336 | ||||||
Digital Realty Trust, Inc. | 1,068 | 120,129 | ||||||
Hannon Armstrong Sustainable Infrastructure Capital, Inc. | 5,777 | 124,032 | ||||||
Prologis, Inc. | 1,788 | 121,209 | ||||||
Realty Income Corp. | 2,176 | 123,793 |
The accompanying notes are an integral part of these financial statements.
13
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
September 30, 2018 (Continued) |
Shares | Value | |||||||
Regency Centers Corp. | 1,908 | $ | 123,390 | |||||
SBA Communications Corp. (a) | 657 | 105,534 | ||||||
Total Real Estate Investment Trusts (REITs) | 1,069,847 | |||||||
Real Estate Management & Development - 0.3% | ||||||||
St. Joe Co. (a) | 5,974 | 100,363 | ||||||
Road & Rail - 1.1% | ||||||||
AMERCO | 326 | 116,268 | ||||||
CSX Corp. | 2,021 | 149,654 | ||||||
Union Pacific Corp. (c) | 838 | 136,452 | ||||||
Total Road & Rail | 402,374 | |||||||
Semiconductors & Semiconductor Equipment - 7.6% | ||||||||
Advanced Micro Devices, Inc. (a)(c) | 11,205 | 346,122 | ||||||
Analog Devices, Inc. (c) | 1,236 | 114,281 | ||||||
Applied Materials, Inc. | 2,003 | 77,416 | ||||||
Cypress Semiconductor Corp. | 6,640 | 96,214 | ||||||
First Solar, Inc. (a) | 1,579 | 76,455 | ||||||
Integrated Device Technology, Inc. (a) | 3,686 | 173,279 | ||||||
Intel Corp. | 2,139 | 101,153 | ||||||
KLA-Tencor Corp. | 1,032 | 104,965 | ||||||
Lam Research Corp. (c) | 554 | 84,042 | ||||||
Maxim Integrated Products, Inc. | 1,869 | 105,393 | ||||||
Microchip Technology, Inc. (c) | 1,219 | 96,191 | ||||||
NVIDIA Corp. (c) | 482 | 135,452 | ||||||
ON Semiconductor Corp. (a)(c) | 4,561 | 84,059 | ||||||
Power Integrations, Inc. | 1,646 | 104,027 | ||||||
Qorvo, Inc. (a)(c) | 1,598 | 122,870 | ||||||
QUALCOMM, Inc. | 2,033 | 146,437 | ||||||
Rambus, Inc. (a) | 8,386 | 91,491 | ||||||
Skyworks Solutions, Inc. | 1,123 | 101,867 | ||||||
SunPower Corp. (a)(c) | 14,113 | 103,025 | ||||||
Teradyne, Inc. | 2,438 | 90,157 | ||||||
Texas Instruments, Inc. | 1,084 | 116,302 | ||||||
Universal Display Corp. (c) | 1,113 | 131,223 | ||||||
Xilinx, Inc. | 1,559 | 124,985 | ||||||
Total Semiconductors & Semiconductor Equipment | 2,727,406 | |||||||
Software - 3.4% | ||||||||
Adobe Systems, Inc. (a) | 516 | 139,294 | ||||||
ANSYS, Inc. (a) | 716 | 133,663 | ||||||
Autodesk, Inc. (a) | 886 | 138,313 | ||||||
Intuit, Inc. | 641 | 145,763 | ||||||
Red Hat, Inc. (a) | 746 | 101,665 | ||||||
salesforce.com, Inc. (a) | 969 | 154,101 | ||||||
ServiceNow, Inc. (a) | 674 | 131,855 | ||||||
Splunk, Inc. (a) | 1,132 | 136,870 | ||||||
Workday, Inc. – Class A (a) | 877 | 128,024 | ||||||
Total Software | 1,209,548 | |||||||
Specialty Retail - 4.4% | ||||||||
Aaron’s, Inc. | 2,417 | 131,630 |
The accompanying notes are an integral part of these financial statements.
14
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
September 30, 2018 (Continued) |
Shares | Value | |||||||
AutoZone, Inc. (a) | 173 | $ | 134,196 | |||||
L Brands, Inc. | 2,948 | 89,324 | ||||||
Lowe’s Cos., Inc. | 1,282 | 147,199 | ||||||
O’Reilly Automotive, Inc. (a) | 452 | 156,989 | ||||||
Ross Stores, Inc. | 1,444 | 143,100 | ||||||
The Home Depot, Inc. | 631 | 130,712 | ||||||
Tiffany & Co. | 1,151 | 148,444 | ||||||
TJX Cos., Inc. | 1,379 | 154,476 | ||||||
Tractor Supply Co. | 1,787 | 162,402 | ||||||
Ulta Beauty, Inc. (a) | 551 | 155,448 | ||||||
Total Specialty Retail | 1,553,920 | |||||||
Technology Hardware, Storage & Peripherals - 0.9% | ||||||||
Apple, Inc. | 670 | 151,246 | ||||||
NetApp, Inc. | 1,826 | 156,835 | ||||||
Total Technology Hardware, Storage & Peripherals | 308,081 | |||||||
Textiles, Apparel & Luxury Goods - 2.7% | ||||||||
Hanesbrands, Inc. (c) | 6,113 | 112,663 | ||||||
Lululemon Athletica, Inc. (a) | 1,250 | 203,112 | ||||||
PVH Corp. | 743 | 107,289 | ||||||
Ralph Lauren Corp. | 1,007 | 138,513 | ||||||
Tapestry, Inc. | 2,139 | 107,528 | ||||||
Under Armour, Inc. – Class A (a)(c) | 6,887 | 146,142 | ||||||
VF Corp. | 1,520 | 142,044 | ||||||
Total Textiles, Apparel & Luxury Goods | 957,291 | |||||||
Thrifts & Mortgage Finance - 1.2% | ||||||||
Capitol Federal Financial, Inc. | 9,121 | 116,201 | ||||||
New York Community Bancorp, Inc. (c) | 8,645 | 89,649 | ||||||
TFS Financial Corp. | 7,666 | 115,067 | ||||||
Washington Federal, Inc. | 3,255 | 104,160 | ||||||
Total Thrifts & Mortgage Finance | 425,077 | |||||||
Trading Companies & Distributors - 2.9% | ||||||||
Air Lease Corp. (c) | 2,643 | 121,261 | ||||||
Fastenal Co. | 2,062 | 119,637 | ||||||
GATX Corp. (c) | 1,643 | 142,267 | ||||||
Herc Holdings, Inc. (a) | 2,322 | 118,886 | ||||||
MSC Industrial Direct Co., Inc. – Class A | 1,231 | 108,463 | ||||||
United Rentals, Inc. (a) | 875 | 143,151 | ||||||
WESCO International, Inc. (a) | 1,814 | 111,470 | ||||||
WW Grainger, Inc. | 399 | 142,607 | ||||||
Total Trading Companies & Distributors | 1,007,742 | |||||||
Water Utilities - 1.9% | ||||||||
American States Water Co. | 2,121 | 129,678 | ||||||
American Water Works Co., Inc. | 1,371 | 120,607 | ||||||
Aqua America, Inc. | 3,307 | 122,028 | ||||||
California Water Service Group | 3,023 | 129,687 | ||||||
Middlesex Water Co. | 3,068 | 148,553 | ||||||
Total Water Utilities | 650,553 | |||||||
Total United States | 33,861,333 |
The accompanying notes are an integral part of these financial statements.
15
Etho Climate Leadership U.S. ETF |
Schedule of Investments |
September 30, 2018 (Continued) |
Shares | Value | |||||||
Virgin Islands (UK) - 0.3% | ||||||||
Textiles, Apparel & Luxury Goods - 0.3% | ||||||||
Michael Kors Holdings Ltd. (a) | 1,796 | $ | 123,134 | |||||
TOTAL COMMON STOCKS (Cost $29,787,803) | 35,415,275 | |||||||
INVESTMENT COMPANIES – 0.3% | ||||||||
Closed-End Funds - 0.3% | ||||||||
Altaba, Inc. (a) | 1,521 | 103,611 | ||||||
TOTAL INVESTMENT COMPANIES (Cost $104,950) | 103,611 | |||||||
SHORT-TERM INVESTMENTS - 0.3% | ||||||||
Money Market Funds - 0.3% | ||||||||
Invesco Advisers, Inc. STIT - Treasury Portfolio - Institutional Class, 1.90% (b) | 96,996 | 96,996 | ||||||
TOTAL SHORT-TERM INVESTMENTS (Cost $96,996) | 96,996 | |||||||
INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL – 10.9% | ||||||||
Mount Vernon Liquid Assets Portfolio, LLC, 2.31% (b) | 3,907,333 | |||||||
TOTAL INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL(Cost 3,907,333) | 3,907,333 | |||||||
Total Investments (Cost $33,897,082) - 110.9% | 39,523,215 | |||||||
Liabilities in Excess of Other Assets - (10.9)% | (3,896,400 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 35,626,815 |
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 September 30, 2018.
(c) All or a portion of this security is out on loan as of September 30, 2018.
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, doing business as U.S. Bank Global Fund Services (“Fund Services”).
The accompanying notes are an integral part of these financial statements.
16
Etho Climate Leadership U.S. ETF |
As of September 30, 2018 |
Etho Climate | ||||
Leadership U.S. | ||||
ETF | ||||
ASSETS | ||||
Investments in securities, at value* | $ | 39,523,215 | ||
Cash | 1,280 | |||
Receivables: | ||||
Dividends and interest receivable | 20,834 | |||
Securities lending income receivable | 1,831 | |||
Total Assets | 39,547,160 | |||
LIABILITIES | ||||
Collateral received for securities loaned (Note 7) | 3,907,333 | |||
Payables: | ||||
Management fees payable | 13,012 | |||
Total Liabilities | 3,920,345 | |||
Net Assets | $ | 35,626,815 | ||
NET ASSETS CONSIST OF: | ||||
Paid-in Capital | $ | 30,449,466 | ||
Total Distributable Earnings | 5,177,349 | |||
Net Assets | $ | 35,626,815 | ||
*Identified Cost: | ||||
Investments in unaffiliated securities | $ | 33,897,082 | ||
Shares Outstanding^ | 950,000 | |||
Net Asset Value, Offering and Redemption Price per Share | $ | 37.50 |
^ | No par value, unlimited number of shares authorized |
The accompanying notes are an integral part of these financial statements.
17
Etho Climate Leadership U.S. ETF |
For the Year Ended September 30, 2018 |
Etho Climate | ||||
Leadership U.S. | ||||
ETF | ||||
INVESTMENT INCOME | ||||
Income: | ||||
Dividends from unaffiliated securities (net of foreign withholdings tax of $177) | $ | 324,560 | ||
Interest | 2,458 | |||
Securities lending income | 26,826 | |||
Total Investment Income | 353,844 | |||
Expenses: | ||||
Management fees | 125,363 | |||
Net Investment Income | 228,481 | |||
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||
Net Realized Gain (Loss) on: | ||||
Unaffiliated investments | (428,562 | ) | ||
In-Kind redemptions | 1,002,200 | |||
Net Realized Gain on Investments and In-Kind Redemptions | 573,638 | |||
Net Change in Unrealized Appreciation of: | ||||
Unaffiliated investments | 3,643,214 | |||
Net Realized and Unrealized Gain on Investments | 4,216,852 | |||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 4,445,333 |
The accompanying notes are an integral part of these financial statements.
18
Etho Climate Leadership U.S. ETF | |
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2018 | 2017 | |||||||
OPERATIONS | ||||||||
Net investment income | $ | 228,481 | $ | 128,439 | ||||
Net realized gain on investments and In-Kind Redemptions | 573,638 | 416,202 | ||||||
Net change in unrealized appreciation of investments | 3,643,214 | 1,768,693 | ||||||
Net increase in net assets resulting from operations | 4,445,333 | 2,313,334 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
Total Distributions to Shareholders | (248,686 | ) | (150,704 | )* | ||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Net increase in net assets derived from net change in outstanding shares | 12,222,365 | 10,294,350 | ||||||
Net increase in net assets | 16,419,012 | 12,456,980 | ||||||
NET ASSETS | ||||||||
Beginning of Year | 19,207,803 | 6,750,823 | ||||||
End of Year | $ | 35,626,815 | $ | 19,207,803 | ** |
* | Includes net investment income distributions of $100,859 and $40,845 from net realized gains |
** | Includes undistributed (accumulated) net investment income of $25,088 |
Summary of share transactions is as follows:
Year Ended | Year Ended | |||||||||||||||
September 30, 2018 | September 30, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 500,000 | $ | 17,289,620 | 450,000 | $ | 13,209,550 | ||||||||||
Shares Redeemed | (150,000 | ) | (5,067,255 | ) | (100,000 | ) | (2,915,200 | ) | ||||||||
Net Transactions in Fund Shares | 350,000 | $ | 12,222,365 | 350,000 | $ | 10,294,350 | ||||||||||
Beginning Shares | 600,000 | 250,000 | ||||||||||||||
Ending Shares | 950,000 | 600,000 |
The accompanying notes are an integral part of these financial statements.
19
Etho Climate Leadership U.S. ETF |
For a capital share outstanding throughout the period/year |
Year Ended | Year Ended | Period Ended | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
2018 | 2017 | 20161 | ||||||||||
Net Asset Value, Beginning of Period/Year | $ | 32.01 | $ | 27.00 | $ | 25.00 | ||||||
Income from Investment Operations: | ||||||||||||
Net investment income 2 | 0.29 | 0.31 | 0.23 | |||||||||
Net realized and unrealized gain on investments | 5.51 | 5.09 | 1.87 | |||||||||
Total from investment operations | 5.80 | 5.40 | 2.10 | |||||||||
Less Distributions: | ||||||||||||
Distributions from net investment income | (0.29 | ) | (0.25 | ) | (0.10 | ) | ||||||
Net Realized Gains | (0.02 | ) | (0.14 | ) | — | |||||||
Total distributions | (0.31 | ) | (0.39 | ) | (0.10 | ) | ||||||
Net asset value, end of period/year | $ | 37.50 | $ | 32.01 | $ | 27.00 | ||||||
Total Return | 18.16 | % | 20.14 | % | 8.43 | %3 | ||||||
Ratios/Supplemental Data: | ||||||||||||
Net assets at end of period/year (000’s) | $ | 35,627 | $ | 19,208 | $ | 6,751 | ||||||
Expenses to Average Net Assets | 0.45 | % | 0.45 | % | 0.50 | %4 | ||||||
Net Investment Income to Average Net Assets | 0.82 | % | 1.03 | % | 1.04 | %4 | ||||||
Portfolio Turnover Rate | 19 | % | 45 | % | 25 | %3 |
1 | Commencement of operations on November 18, 2015. |
2 | Calculated based on average shares outstanding during the period/year. |
3 | Not annualized. |
4 | Annualized. |
The accompanying notes are an integral part of these financial statements.
20
Etho Climate Leadership U.S. ETF
September 30, 2018
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.
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.
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.
21
Etho Climate Leadership U.S. ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (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 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 September 30, 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.
22
Etho Climate Leadership U.S. ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
The following is a summary of the inputs used to value the Fund’s net assets as of September 30, 2018:
Etho Climate Leadership U.S. ETF | ||||||||||||||||
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 35,415,275 | $ | — | $ | — | $ | 35,415,275 | ||||||||
Closed-End Funds | 103,611 | — | — | 103,611 | ||||||||||||
Short-Term Investments | 96,996 | — | — | 96,996 | ||||||||||||
Investments Purchased with Securities Lending Collateral* | — | — | — | 3,907,333 | ||||||||||||
Total Investments in Securities | $ | 35,615,882 | $ | — | $ | — | $ | 39,523,215 |
^ 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.
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 2018 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.
As of September 30, 2018, 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.
23
Etho Climate Leadership U.S. ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (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.
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.
24
Etho Climate Leadership U.S. ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
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 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 and accounting, 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 management 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.
U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services (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.
25
Etho Climate Leadership U.S. ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
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 year ended September 30, 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 year ended September 30, 2018:
Purchases | Sales | |||||||
Etho Climate Leadership U.S. ETF | $ | 5,167,605 | $ | 5,357,870 |
The costs of purchases and sales of in-kind transactions associated with creations and redemptions for the year ended September 30, 2018:
Purchases | Sales | |||||||
In-Kind | In-Kind | |||||||
Etho Climate Leadership U.S. ETF | $ | 16,951,551 | $ | 4,571,834 |
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 year ended September 30, 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 September 30, 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.
26
Etho Climate Leadership U.S. ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
As of September 30, 2018, the value of the securities on loan and payable for collateral due to broker were as follows:
Value of Securities on Loan and Collateral Received
Values of | Fund | |||||||
Securities | Collateral | |||||||
Fund | on Loan | Received* | ||||||
Etho Climate Leadership U.S. ETF | $ | 3,804,298 | $ | 3,907,333 | ||||
* The cash collateral received was invested in the Mount Vernon Liquid Assets Portfolio as shown on the Schedule of Investments, an investment with an overnight and continuous maturity.
NOTE 8 – FEDERAL INCOME TAXES
The components of distributable earnings (losses) and cost basis of investments for federal income tax purposes at September 30, 2018 were as follows:
Net | ||||||||||||||||||||
Gross | Gross | Unrealized | ||||||||||||||||||
Unrealized | Unrealized | Appreciation | ||||||||||||||||||
Cost | Appreciation | Depreciation | (Depreciation) | |||||||||||||||||
Etho Climate Leadership U.S. ETF | $ | 34,037,195 | $ | 6,451,732 | $ | (965,712 | ) | $ | 5,486,020 | |||||||||||
Undistributed | Undistributed | Total | Other | Total | ||||||||||||||||
Ordinary | Long-term | Distributable | Accumulated | Accumulated | ||||||||||||||||
Income | Gain | Earnings | (Loss) | Gain | ||||||||||||||||
Etho Climate Leadership U.S. ETF | $ | 18,612 | $ | — | $ | 18,612 | $ | (327,283 | ) | $ | 5,177,349 |
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, 2018, the Fund had accumulated capital loss carryovers of:
Capital Loss | Capital Loss | ||||||||
Carryover | Carryover | ||||||||
ST | LT | Expires | |||||||
Etho Climate Leadership U.S. ETF | 221,915 | 105,368 | 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, 2018.
27
Etho Climate Leadership U.S. ETF |
NOTES TO FINANCIAL STATEMENTS |
September 30, 2018 (Continued) |
Late Year | ||||
Ordinary | Post-October | |||
Loss | 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, 2018, the following table shows the reclassifications made:
Undistributed | ||||||||||||
Accumulated | Accumulated | |||||||||||
Net Investment | Net Realized | Paid-In | ||||||||||
Loss | Loss | Capital | ||||||||||
Etho Climate Leadership U.S. ETF | $ | 1,906 | $ | (961,090 | ) | $ | 959,184 |
The tax character of distributions paid by the Fund during the fiscal years ended September 30, 2018 and September 30, 2017 are as follows:
Year Ended September 30, 2018 | Year Ended September 30, 2017 | |||||||||||||||
From | From | From | From | |||||||||||||
Ordinary Income | Capital Gains | Ordinary Income | Capital Gains | |||||||||||||
Etho Climate Leadership U.S. ETF | $ | 248,686 | $ | — | $ | 149,309 | $ | 1,395 |
NOTE 9 – LEGAL MATTERS
The Trust, the trustees of the Trust, the Adviser and certain officers of the Adviser are defendants in an action filed May 2, 2017 in the Superior Court of New Jersey captioned PureShares, LLC d/b/a PureFunds et al. v. ETF Managers Group, LLC et al., Docket No. C-63-17. The PureShares action alleges claims based on disputes arising out of contractual relationships with the Adviser. The action seeks damages in unspecified amounts and injunctive relief based on breach of contract, wrongful termination, and several other theories. At the outset of the litigation, and again a few weeks later, plaintiffs sought temporary injunctive relief. Both motions were denied, and the matter is now proceeding through pretrial discovery. The defendants believe the lawsuit is without merit and intend to vigorously defend themselves against the allegations.
The Adviser, its parent, Exchange Traded Managers Group, LLC and its chief executive officer are defendants in a case filed on October 26, 2017 in the United States District Court for the Southern District of New York by NASDAQ, Inc. captioned Nasdaq, Inc. v. Exchange Traded Managers Group, LLC et al., Case 1:17-cv-08252. This action arises out of related facts and circumstances in the New Jersey litigation and asserts claims for breach of contract, wrongful termination and certain other theories with respect to the same exchange traded Fund discussed above. The defendants in the Southern District actions believe the lawsuit is without merit and intend to vigorously defend themselves against the allegations and to assert counterclaims against NASDAQ for breaches of its duties under the related index license agreement and various other agreements. Management of the Trust and the Fund, after consultation with legal counsel, believes that the resolution of these matters will not have a material adverse effect on the Fund’s financial statements.
28
Etho Climate Leadership U.S. ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
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. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments to the Financial Statements.
29
To the Board of Trustees of ETF Managers Trust
and the Shareholders of Etho Climate Leadership U.S. ETF:
and the Shareholders of Etho Climate Leadership U.S. ETF:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Etho Climate Leadership U.S. ETF (the “Fund”) (a series of ETF Managers Trust) as of September 30, 2018 and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the periods presented and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of September 30, 2018 , and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of September 30, 2018 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor for one or more series of the Trust since 2013.
/s/WithumSmith+Brown, PC
New York, New York
November 29, 2018
New York, New York
November 29, 2018
30
Etho Climate Leadership U.S. ETF
Six Months Ended September 30, 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 management 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 (April 1, 2018 to September 30, 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
Annualized | ||||||||||||||||
Expense | ||||||||||||||||
Ration | ||||||||||||||||
Beginning | Ending | During the | ||||||||||||||
Account | Account | Expenses | Period April | |||||||||||||
Value | Value | Paid | 1, 2018 – | |||||||||||||
April 1, | September 30, | During the | September | |||||||||||||
2018 | 2018 | Period^ | 30, 2018 | |||||||||||||
Actual | $ | 1,000.00 | $ | 1,097.50 | $ | 2.37 | 0.45 | % | ||||||||
Hypothetical (5% annual) | $ | 1,000.00 | $ | 1,022.81 | $ | 2.28 | 0.45 | % |
^ 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 183/365 (to reflect the period from April 1, 2018 to September 30, 2018).
31
Etho Climate Leadership U.S. ETF
September 30, 2018 (Unaudited)
FEDERAL TAX INFORMATION
Qualified Dividend Income/Dividends Received Deduction
For the fiscal year ended September 30, 2018, certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Reconciliation Act of 2003. The percentage of dividends declared from ordinary income designated as qualified dividend income was as follows:
Fund Name | QDI |
Etho Climate Leadership U.S. ETF | 100.00% |
For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received deduction for the fiscal year ended September 30, 2018 was as follows:
Fund Name | DRD |
Etho Climate Leadership U.S. ETF | 100.00% |
Short Term Capital Gain
The percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions under Internal Revenue Section 871 (k)(2)(C) for the Fund was as follows:
Fund Name | Short-Term Capital Gain |
Etho Climate Leadership U.S. ETF | 5.17% |
32
Etho Climate Leadership U.S. ETF
SUPPLEMENTARY INFORMATION
September 30, 2018 (Unaudited) (Continued)
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. The Fund’s portfolio holdings are posted on the Fund’s website at www.ethoetf.com daily.
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.
33
Etho Climate Leadership U.S. ETF
Etho Climate Leadership U.S. ETF Closing Price vs. NAV
The following Frequency Distribution of Premiums and Discounts chart is provided to show the frequency at which the closing price for each Fund is at a premium or discount to its daily net asset value (NAV). The chart presented represents past performance and cannot be used to predict future results.
Year Ended | ||||||||
Etho Climate Leadership U.S. ETF | September 30, 2018 | |||||||
Percentage | ||||||||
Number of | of Total | |||||||
Premium/Discount Range | Days | Days | ||||||
Greater than 1.00% | 3 | 1.2 | ||||||
Greater Than or equal to 0.75% And Less Than 1.00% | 1 | 0.4 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 7 | 2.8 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 40 | 15.9 | ||||||
Greater Than or Equal to 0.00% And Less Than 0.25% | 117 | 46.6 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 56 | 22.3 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 15 | 6.0 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 5 | 2.0 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 5 | 2.0 | ||||||
Less than -1.00% | 2 | 0.8 |
Year Ended | ||||||||
Etho Climate Leadership U.S. ETF | September 30, 2017 | |||||||
Percentage | ||||||||
Number of | of Total | |||||||
Premium/Discount Range | Days | Days | ||||||
Greater than 1.00% | 0 | 0.0 | ||||||
Greater Than or equal to 0.75% And Less Than 1.00% | 1 | 0.4 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 1 | 0.4 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 27 | 10.7 | ||||||
Greater Than or Equal to 0.00% And Less Than 0.25% | 153 | 61.0 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 63 | 25.1 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 6 | 2.4 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 0 | 0.0 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 0 | 0.0 | ||||||
Less than -1.00% | 0 | 0.0 |
34
Etho Climate Leadership U.S. ETF
November 11, 2015* through | ||||||||
Etho Climate Leadership U.S. ETF | September 30, 2016 | |||||||
Percentage | ||||||||
Number of | of Total | |||||||
Premium/Discount Range | Days | Days | ||||||
Greater than 1.00% | 16 | 7.3 | ||||||
Greater Than or equal to 0.75% And Less Than 1.00% | 2 | 0.9 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 14 | 6.4 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 24 | 11.0 | ||||||
Greater Than or Equal to 0.00% And Less Than 0.25% | 90 | 41.1 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 55 | 25.1 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 9 | 4.1 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 5 | 2.3 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 3 | 1.4 | ||||||
Less than -1.00% | 1 | 0.5 | ||||||
*First day of secondary market trading |
35
Etho Climate Leadership U.S. ETF
Board of Trustees
Set forth below are the names, birth years, positions with the Trust, length of term of office, and the principal occupations and other directorships held during at least the last five years of each of the persons currently serving as a Trustee of the Trust, as well as information about each officer. The business address of each Trustee and officer is 30 Maple Street, 2nd Floor, Summit, New Jersey 07901. The SAI includes additional information about Fund directors and is available, without charge, upon request by calling 1-844-ETF-MGRS (1-844-383-6477).
* Mr. Masucci is an interested Trustee by virtue of his role as the Chief Executive Officer of the Adviser.
36
Etho Climate Leadership U.S. ETF
Board of Trustees (Continued)
Name and Year of Birth | Position(s) Held with the Trust, Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen By Trustee | Other Directorships Held by Trustee During Past 5 Years |
Independent Trustees | ||||
Jared Chase (1955) | Trustee (since 2018) | Chairman, State Street Global Alliance LLC, State Street Corporation (2007-2012); Head of Global Treasury, Liability Management, Money Markets & Derivatives, State Street Corporation (2004-2007) | 10 | None |
Terry Loebs (1963) | Trustee (since 2014) | Founder and Managing Member, Pulsenomics LLC (index product development and consulting firm) (since 2011); Managing Director, MacroMarkets, LLC (exchange-traded products firm) (2006–2011). | 10 | None |
37
Etho Climate Leadership U.S. ETF
ETF MANAGERS TRUST
ETF Managers Trust, (the “Trust”) has adopted the following privacy policies in order to safeguard the personal information of the Trust’s customers and consumers in accordance with Regulation S-P as promulgated by the U.S. Securities and Exchange Commission.
Trust officers are responsible for ensuring that the following policies and procedures are implemented:
1) The Trust is committed to protecting the confidentiality and security of the information they collect and will handle personal customer and consumer information only in accordance with Regulation S-P and any other applicable laws, rules and regulations2. The Trust will ensure: (a) the security and confidentiality of customer records and information; (b) that customer records and information are protected from any anticipated threats and hazards; and (c) that customer records and information are protected from unauthorized access or use.
2) The Trust conducts its business affairs through its trustees, officers and third parties that provide services pursuant to agreements with the Trust. The Trust has no employees. It is anticipated that the trustees and officers of the Trust who are not employees of service providers of the Trust will not have access to customer records and information in the performance of their normal responsibilities for the Trust.
3) The Trust may share customer information with its affiliates, subject to the customers’ right to prohibit such sharing.
4) The Trust may share customer information with unaffiliated third parties only in accordance with the requirements of Regulation S-P. Pursuant to this policy, the Trust will not share customer information with unaffiliated third parties other than as permitted by law, unless authorized to do so by the customer.
Consistent with these policies, the Trust has adopted the following procedures:
1) The Trust will determine that the policies and procedures of its affiliates and Service Providers are reasonably designed to safeguard customer information and only permit appropriate and authorized access to and use of customer information through the application of appropriate administrative, technical and physical protections.
2) The Trust will direct each of its Service Providers to adhere to the privacy policy of the Trust and to its privacy policies with respect to all customer information of the Trust and to take all actions reasonably necessary so that the Trust is in compliance with the provisions of Regulation S-P, including, as applicable, the development and delivery of privacy notices and the maintenance of appropriate and adequate records.
3) The Trust requires its Service Providers to provide periodic reports to the Trust’s Board of Trustees outlining their privacy policies and the implementation of such policies. Each Service Provider is required to promptly report to the Trust’s Board any material changes to its privacy policy before, or promptly after, the adoption of such changes
(1) Generally, the Funds have institutional clients which are not considered “customers” for purposes of regulation S-P.
38
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 doing business as U.S. Bank Global Fund Services
615 East Michigan Street, Milwaukee, Wisconsin 53202
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
Annual Report
September 30, 2018
AI Powered Equity ETF
Ticker: AIEQ
The fund is a series in the ETF Managers Trust.
AI Powered Equity ETF
TABLE OF CONTENTS
September 30, 2018
September 30, 2018
Page | |
2 | |
3 | |
4 | |
5 | |
6 | |
7 | |
12 | |
13 | |
14 | |
15 | |
16 | |
25 | |
26 | |
27 | |
28 | |
29 | |
29 | |
30 | |
32 |
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 September 30, 2018.
The AI Powered Equity ETF is actively managed and seeks capital appreciation. Over the fiscal period, the total return for the Fund was 18.53%, while the total return for its benchmark, the S&P 500 Index, was 15.98%.
AIEQ invests primarily in equity securities listed on a U.S. exchange based on the results of a proprietary, quantitative model developed by EquBot LLC 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 125 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
2
AI Powered Equity ETF
Since | Value of | |||||||
Cumulative Returns | Inception | $10,000 | ||||||
Period Ended September 30, 2018 | (10/18/17) | (9/30/18) | ||||||
AI Powered Equity ETF (NAV) | 18.53 | % | $ | 11,853 | ||||
AI Powered Equity ETF (Market) | 18.67 | % | $ | 11,867 | ||||
S&P 500 Index | 15.98 | % | $ | 11,598 | ||||
Total Fund Operating Expenses1 | 0.75 | % |
1. | 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 index returns do not reflect fees or expenses and are not available for direct investment.
3
AI Powered Equity ETF
% of Total | |||
Security | Investments | ||
1 | Alphabet, Inc. | 3.16% | |
2 | Forest City Realty Trust, Inc. | 2.88% | |
3 | Texas Instruments, Inc. | 2.39% | |
4 | SS&C Technologies Holdings, Inc. | 2.19% | |
5 | Noble Energy, Inc. | 2.00% | |
6 | Amazon.com, Inc. | 1.93% | |
7 | Zayo Group Holdings, Inc. | 1.85% | |
8 | Markel Corp. | 1.80% | |
9 | Aaron’s, Inc. | 1.67% | |
10 | Ares Capital Corp. | 1.57% | |
Top Ten Holdings = 21.44% of Total Investments | |||
* Current Fund holdings may not be indicative of future Fund holdings. |
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 not 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 September 30, 2018 (Unaudited)
AI Powered | ||||
Equity ETF | ||||
As a percent of Net Assets: | ||||
Common Stocks | 95.4 | % | ||
Closed-End Funds | 3.1 | |||
Rights | 0.0 | |||
Short-Term and other Net Assets (Liabilities) | 1.5 | |||
100 | % |
6
AI Powered Equity ETF
September 30, 2018
Shares | Value | |||||||
COMMON STOCKS - 95.4% | ||||||||
United States - 95.4% | ||||||||
Aerospace & Defense - 2.7% | ||||||||
General Dynamics Corp. | 2,076 | $ | 424,999 | |||||
Huntington Ingalls Industries, Inc. | 5,182 | 1,327,007 | ||||||
Spirit AeroSystems Holdings, Inc. – Class A | 11,879 | 1,088,948 | ||||||
Textron, Inc. | 36,056 | 2,576,921 | ||||||
Total Aerospace & Defense | 5,417,875 | |||||||
Air Freight & Logistics - 0.7% | ||||||||
FedEx Corp. | 6,389 | 1,538,407 | ||||||
Automobiles - 0.2% | ||||||||
Thor Industries, Inc. | 5,878 | 491,989 | ||||||
Banks - 6.9% | ||||||||
BankUnited, Inc. | 38,234 | 1,353,484 | ||||||
CIT Group, Inc. | 62,247 | 3,212,568 | ||||||
Hancock Whitney Corp. | 67,835 | 3,225,554 | ||||||
Hilltop Holdings, Inc. | 29,435 | 593,704 | ||||||
SunTrust Banks, Inc. | 26,910 | 1,797,319 | ||||||
SVB Financial Group(a) | 4,721 | 1,467,428 | ||||||
Texas Capital Bancshares, Inc.(a) | 24,665 | 2,038,562 | ||||||
Western Alliance Bancorp.(a) | 11,092 | 631,024 | ||||||
Total Banks | 14,319,643 | |||||||
Beverages - 1.9% | ||||||||
Brown-Forman Corp. – Class B | 66,141 | 3,343,427 | ||||||
Constellation Brands, Inc. – Class B | 2,377 | 512,529 | ||||||
Total Beverages | 3,855,956 | |||||||
Biotechnology - 3.3% | ||||||||
AbbVie, Inc. | 6,885 | 651,183 | ||||||
Alexion Pharmaceuticals, Inc.(a) | 20,054 | 2,787,708 | ||||||
Amgen, Inc. | 12,487 | 2,588,430 | ||||||
Celgene Corp.(a) | 9,566 | 856,061 | ||||||
Total Biotechnology | 6,883,382 | |||||||
Capital Markets - 4.8% | ||||||||
Ameriprise Financial, Inc. | 18,908 | 2,791,955 | ||||||
BGC Partners, Inc. – Class A | 142,610 | 1,685,650 | ||||||
E*TRADE Financial Corp.(a) | 12,952 | 678,555 | ||||||
LPL Financial Holdings, Inc. | 41,527 | 2,678,907 | ||||||
Nasdaq, Inc. | 8,351 | 716,516 | ||||||
TD Ameritrade Holding Corp. | 24,412 | 1,289,686 | ||||||
Total Capital Markets | 9,841,269 | |||||||
Chemicals - 3.7% | ||||||||
LSB Industries, Inc.(a)(d) | 157,679 | 1,542,101 | ||||||
Platform Specialty Products Corp.(a) | 164,650 | 2,053,186 | ||||||
Praxair, Inc. | 16,025 | 2,575,697 | ||||||
Valvoline, Inc.(d) | 69,774 | 1,500,839 | ||||||
Total Chemicals | 7,671,823 |
The accompanying notes are an integral part of these financial statements.
7
AI Powered Equity ETF
Schedule of Investments
September 30, 2018 (Continued)
Shares | Value | |||||||
Communications Equipment - 1.6% | ||||||||
Arista Networks, Inc.(a) | 5,743 | $ | 1,526,834 | |||||
Ciena Corp.(a) | 54,429 | 1,700,362 | ||||||
Total Communications Equipment | 3,227,196 | |||||||
Consumer Finance - 0.3% | ||||||||
Capital One Financial Corp. | 6,381 | 605,748 | ||||||
Diversified Telecommunication Services - 2.0% | ||||||||
Zayo Group Holdings, Inc.(a) | 116,238 | 4,035,783 | ||||||
Electric Utilities - 1.5% | ||||||||
American Electric Power Co., Inc. | 42,348 | 3,001,626 | ||||||
Electrical Equipment - 0.7% | ||||||||
AMETEK, Inc. | 18,633 | 1,474,243 | ||||||
Electronic Equipment, Instruments & Components - 1.3% | ||||||||
CDW Corp. | 20,759 | 1,845,890 | ||||||
Tech Data Corp.(a) | 12,622 | 903,357 | ||||||
Total Electronic Equipment, Instruments & Components | 2,749,247 | |||||||
Entertainment - 0.2% | ||||||||
Zynga, Inc. – Class A(a) | 104,535 | 419,185 | ||||||
Food & Staples Retailing - 2.0% | ||||||||
Costco Wholesale Corp. | 5,764 | 1,353,848 | ||||||
Walmart, Inc. | 29,366 | 2,757,762 | ||||||
Total Food & Staples Retailing | 4,111,610 | |||||||
Food Products - 1.1% | ||||||||
Pinnacle Foods, Inc. | 35,421 | 2,295,635 | ||||||
Health Care Equipment & Supplies - 2.7% | ||||||||
Baxter International, Inc. | 25,913 | 1,997,633 | ||||||
Edwards Lifesciences Corp.(a) | 7,023 | 1,222,704 | ||||||
Intuitive Surgical, Inc.(a) | 2,601 | 1,492,974 | ||||||
Stryker Corp. | 4,607 | 818,572 | ||||||
Total Health Care Equipment & Supplies | 5,531,883 | |||||||
Health Care Providers & Services - 2.0% | ||||||||
Anthem, Inc. | 4,404 | 1,206,916 | ||||||
DaVita, Inc.(a) | 23,212 | 1,662,676 | ||||||
HealthEquity, Inc.(a) | 14,300 | 1,350,063 | ||||||
Total Health Care Providers & Services | 4,219,655 | |||||||
Hotels, Restaurants & Leisure - 2.1% | ||||||||
Boyd Gaming Corp. | 93,670 | 3,170,729 | ||||||
Las Vegas Sands Corp. | 19,081 | 1,132,076 | ||||||
Total Hotels, Restaurants & Leisure | 4,302,805 | |||||||
Household Durables - 0.7% | ||||||||
Mohawk Industries, Inc.(a) | 8,667 | 1,519,758 | ||||||
Household Products - 0.4% | ||||||||
Spectrum Brands Holdings, Inc. | 11,843 | 884,909 | ||||||
Industrial Conglomerates - 1.9% | ||||||||
3M Co. | 3,971 | 836,729 | ||||||
Honeywell International, Inc. | 8,622 | 1,434,701 |
The accompanying notes are an integral part of these financial statements.
8
AI Powered Equity ETF
Schedule of Investments
September 30, 2018 (Continued)
Shares | Value | |||||||
Roper Technologies, Inc. | 5,342 | $ | 1,582,354 | |||||
Total Industrial Conglomerates | 3,853,784 | |||||||
Insurance - 2.8% | ||||||||
Markel Corp.(a) | 3,298 | 3,919,640 | ||||||
Marsh & McLennan Cos., Inc. | 22,360 | 1,849,619 | ||||||
Total Insurance | 5,769,259 | |||||||
Interactive Media & Services - 4.7% | ||||||||
Alphabet, Inc. – Class A(a) | 5,705 | 6,886,392 | ||||||
Facebook, Inc. – Class A(a) | 16,683 | 2,743,686 | ||||||
Total Interactive Media & Services | 9,630,078 | |||||||
Internet & Direct Marketing Retail - 2.6% | ||||||||
Amazon.com, Inc.(a) | 2,099 | 4,204,297 | ||||||
GrubHub, Inc.(a) | 8,593 | 1,191,162 | ||||||
Total Internet & Direct Marketing Retail | 5,395,459 | |||||||
IT Services - 2.7% | ||||||||
Cognizant Technology Solutions Corp. – Class A(d) | 34,303 | 2,646,476 | ||||||
DXC Technology Co. | 18,655 | 1,744,616 | ||||||
Leidos Holdings, Inc.(d) | 16,033 | 1,108,842 | ||||||
Total IT Services | 5,499,934 | |||||||
Life Sciences Tools & Services - 0.4% | ||||||||
Thermo Fisher Scientific, Inc. | 3,216 | 784,961 | ||||||
Machinery - 0.8% | ||||||||
Nordson Corp. | 11,495 | 1,596,656 | ||||||
Media - 2.0% | ||||||||
CBS Corp. | 43,980 | 2,526,651 | ||||||
Nexstar Media Group, Inc.(d) | 19,483 | 1,585,916 | ||||||
Total Media | 4,112,567 | |||||||
Multi-Utilities - 0.8% | ||||||||
Sempra Energy | 14,886 | 1,693,283 | ||||||
Oil, Gas & Consumable Fuels - 7.2% | ||||||||
Continental Resources, Inc.(a) | 12,724 | 868,795 | ||||||
Energen Corp.(a) | 11,142 | 960,106 | ||||||
Noble Energy, Inc. | 139,779 | 4,359,707 | ||||||
Parsley Energy, Inc.(a) | 47,086 | 1,377,266 | ||||||
Phillips 66 | 5,909 | 666,062 | ||||||
Targa Resources Corp. | 58,392 | 3,288,054 | ||||||
Valero Energy Corp. | 19,479 | 2,215,736 | ||||||
WPX Energy, Inc.(a) | 61,083 | 1,228,990 | ||||||
Total Oil, Gas & Consumable Fuels | 14,964,716 | |||||||
Pharmaceuticals - 3.1% | ||||||||
Catalent, Inc.(a) | 69,109 | 3,147,915 | ||||||
Collegium Pharmaceutical, Inc.(a)(d) | 60,902 | 897,695 | ||||||
Intra-Cellular Therapies, Inc.(a) | 32,087 | 696,288 | ||||||
Nektar Therapeutics(a)(d) | 26,732 | 1,629,583 | ||||||
Total Pharmaceuticals | 6,371,481 | |||||||
Professional Services - 0.5% | ||||||||
ASGN, Inc.(a) | 12,709 | 1,003,121 |
The accompanying notes are an integral part of these financial statements.
9
AI Powered Equity ETF
Schedule of Investments
September 30, 2018 (Continued)
Shares | Value | |||||||
Real Estate Investment Trusts (REITs) - 4.5% | ||||||||
Equinix, Inc. | 3,790 | $ | 1,640,653 | |||||
Forest City Realty Trust, Inc. – Class A | 250,045 | 6,273,630 | ||||||
Weyerhaeuser Co. | 41,024 | 1,323,844 | ||||||
Total Real Estate Investment Trusts (REITs) | 9,238,127 | |||||||
Semiconductors & Semiconductor Equipment - 7.0% | ||||||||
Broadcom, Inc. | 9,046 | 2,231,920 | ||||||
Microchip Technology, Inc.(d) | 34,212 | 2,699,669 | ||||||
NVIDIA Corp. | 11,522 | 3,237,912 | ||||||
Skyworks Solutions, Inc. | 12,481 | 1,132,152 | ||||||
Texas Instruments, Inc. | 48,611 | 5,215,474 | ||||||
Total Semiconductors & Semiconductor Equipment | 14,517,127 | |||||||
Software - 5.1% | ||||||||
Adobe Systems, Inc.(a) | 9,053 | 2,443,857 | ||||||
salesforce.com, Inc.(a) | 9,540 | 1,517,146 | ||||||
SS&C Technologies Holdings, Inc. | 84,166 | 4,783,155 | ||||||
Synopsys, Inc.(a) | 18,876 | 1,861,362 | ||||||
Total Software | 10,605,520 | |||||||
Specialty Retail - 3.9% | ||||||||
Aaron’s, Inc. | 66,790 | 3,637,383 | ||||||
CarMax, Inc.(a) | 13,207 | 986,167 | ||||||
Foot Locker, Inc. | 33,507 | 1,708,187 | ||||||
The Home Depot, Inc. | 8,563 | 1,773,825 | ||||||
Total Specialty Retail | 8,105,562 | |||||||
Technology Hardware, Storage & Peripherals - 1.4% | ||||||||
Apple, Inc. | 12,706 | 2,868,252 | ||||||
Thrifts & Mortgage Finance - 1.0% | ||||||||
Radian Group, Inc. | 97,177 | 2,008,649 | ||||||
Trading Companies & Distributors - 0.2% | ||||||||
United Rentals, Inc.(a) | 2,806 | 459,062 | ||||||
Total United States | 196,877,225 | |||||||
TOTAL COMMON STOCKS (Cost $190,766,296) | 196,877,225 | |||||||
CLOSED-END FUNDS - 3.1% | ||||||||
United States – 3.1% | ||||||||
Altaba, Inc.(a) | 45,767 | 3,117,648 | ||||||
Ares Capital Corp. | 198,951 | 3,419,968 | ||||||
TOTAL CLOSED-END FUNDS (Cost $6,624,823) | 6,537,616 | |||||||
RIGHTS - 0% | ||||||||
United States – 0.0% | ||||||||
NewStar Financial, Inc.(a)(b) | 115,783 | — | ||||||
TOTAL RIGHTS (Cost $0) | — |
The accompanying notes are an integral part of these financial statements.
10
AI Powered Equity ETF
Schedule of Investments
September 30, 2018 (Continued)
Shares | Value | |||||||
SHORT-TERM INVESTMENTS - 1.7% | ||||||||
Money Market Funds - 1.7% | ||||||||
Invesco Advisers, Inc. STIT - Treasury Portfolio - Institutional Class, 1.90%(c) | 3,515,981 | $ | 3,515,981 | |||||
TOTAL SHORT-TERM INVESTMENTS (Cost $3,515,981) | 3,515,981 | |||||||
INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL - 5.4% | ||||||||
Mount Vernon Liquid Assets Portfolio, LLC, 2.31%(c) | 11,074,244 | |||||||
TOTAL INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL (Cost 11,074,244) | 11,074,244 | |||||||
Total Investments (Cost $211,981,344) - 105.6% | 218,005,066 | |||||||
Liabilities in Excess of Other Assets - (5.6)% | (11,532,685 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 206,472,381 |
Percentages are stated as a percent of net assets.
(a) | Non-income producing security. |
(b) | Includes a security that is valued using significant unobservable inputs and 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. |
(c) | The rate quoted is the annualized seven-day yield at September 30, 2018. |
(d) | All or a portion of this security is out on loan as of September 30, 2018. |
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, doing business as U.S. Bank Global Fund Services (“Fund Services”).
The accompanying notes are an integral part of these financial statements.
11
AI Powered Equity ETF
As of September 30, 2018
AI Powered | ||||
Equity ETF | ||||
ASSETS | ||||
Investments in securities, at value* | $ | 218,005,066 | ||
Cash | 2,049 | |||
Receivables: | ||||
Dividends and interest receivable | 76,703 | |||
Securities lending income receivable | 2,756 | |||
Receivable for investments sold | 5,058,137 | |||
Total Assets | 223,144,711 | |||
LIABILITIES | ||||
Collateral received for securities loaned (Note 7) | 11,074,244 | |||
Payables: | ||||
Payable for investments purchased | 5,473,701 | |||
Management fees payable | 124,385 | |||
Total Liabilities | 16,672,330 | |||
Net Assets | $ | 206,472,381 | ||
NET ASSETS CONSIST OF: | ||||
Paid-in Capital | $ | 190,063,580 | ||
Total Distibutable Earnings | 16,408,801 | |||
Net Assets | $ | 206,472,381 | ||
*Identified Cost: | ||||
Investments in securities | $ | 211,981,344 | ||
Shares Outstanding^ | 7,000,000 | |||
Net Asset Value, Offering and Redemption Price per Share | $ | 29.50 |
^ No par value, unlimited number of shares authorized.
The accompanying notes are an integral part of these financial statements.
12
AI Powered Equity ETF
For the Period Ended September 30, 2018
AI Powered | ||||
Equity ETF(1) | ||||
INVESTMENT INCOME | ||||
Income: | ||||
Dividends (net of foreign withholdings tax of $1,927) | $ | 1,566,993 | ||
Interest | 4,448 | |||
Securities lending income | 22,938 | |||
Total Investment Income | 1,594,379 | |||
Expenses: | ||||
Management fees | 940,030 | |||
Total Expenses | 940,030 | |||
Net Investment Income | 654,349 | |||
REALIZED & UNREALIZED GAIN ON INVESTMENTS | ||||
Net Realized Gain on: | ||||
Unaffiliated investments | 10,127,286 | |||
In-Kind redemptions | 1,486,931 | |||
Net Realized Gain on Investments and Foreign Currency | 11,614,217 | |||
Net Change in Unrealized Appreciation of: | ||||
Unaffiliated investments | 6,023,722 | |||
Net Change in Unrealized Appreciation of Investments and Foreign Currency | 6,023,722 | |||
Net Realized and Unrealized Gain on Investments | 17,637,939 | |||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 18,292,288 |
(1) | Fund commenced operations on October 18, 2017. The information presented is for the period from October 18, 2017 to September 30, 2018. |
The accompanying notes are an integral part of these financial statements.
13
AI Powered Equity ETF
Period Ended | ||||
September 30, | ||||
2018(1) | ||||
OPERATIONS | ||||
Net investment income | $ | 654,349 | ||
Net realized gain on investments | 11,614,217 | |||
Net change in unrealized appreciation of investments | 6,023,722 | |||
Net increase in net assets resulting from operations | 18,292,288 | |||
DISTRIBUTIONS TO SHAREHOLDERS | ||||
Total distributions from distributable earnings | (610,275 | ) | ||
CAPITAL SHARE TRANSACTIONS | ||||
Net increase in net assets derived from net change in outstanding shares | 188,790,368 | |||
Net increase in net assets from capital chare transactions | 188,790,368 | |||
Net increase in net assets | 206,472,381 | |||
NET ASSETS | ||||
Beginning of Period | — | |||
End of Period | $ | 206,472,381 |
Summary of share transactions is as follows:
Period Ended | ||||||||
September 30, 2018(1) | ||||||||
Shares | Amount | |||||||
Shares Sold | 8,450,000 | $ | 226,333,906 | |||||
Shares Redeemed | (1,450,000 | ) | (37,543,538 | ) | ||||
Net Transactions in Fund Shares | 7,000,000 | $ | 188,790,368 | |||||
Beginning Shares | — | |||||||
Ending Shares | 7,000,000 |
(1) | Fund commenced operations on October 18, 2017. The information presented is for the period from October 18, 2017 to September 30, 2018. |
The accompanying notes are an integral part of these financial statements.
14
AI Powered Equity ETF
For a capital share outstanding throughout the period
Period Ended | ||||
September 30, | ||||
2018(1) | ||||
Net Asset Value, Beginning of Period | $ | 25.00 | ||
Income from Investment Operations: | ||||
Net investment income(2) | 0.14 | |||
Net realized and unrealized gain on investments | 4.49 | |||
Total from investment operations | 4.63 | |||
Less Distributions: | ||||
Distributions from net investment income | (0.12 | ) | ||
Net realized gains | (0.01 | ) | ||
Total distributions | (0.13 | ) | ||
Net asset value, end of period | $ | 29.50 | ||
Total Return | 18.53 | %(3) | ||
Ratios/Supplemental Data: | ||||
Net assets at end of period (000’s) | $ | 206,472 | ||
Expenses to Average Net Assets | 0.75 | %(4) | ||
Net Investment Income to Average Net Assets | 0.52 | %(4) | ||
Portfolio Turnover Rate | 260 | %(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.
15
AI Powered Equity ETF
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 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, 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.
16
AI Powered Equity ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018
September 30, 2018
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 September 30, 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.
17
AI Powered Equity ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018
September 30, 2018
The following table presents a summary of the Funds’ investments in securities, at fair value, as of September 30, 2018:
AI Powered Equity ETF
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 196,877,225 | $ | — | $ | — | $ | 196,877,225 | ||||||||
Closed-End Funds | 6,537,616 | — | — | 6,537,616 | ||||||||||||
Rights | — | — | — | — | (1) | |||||||||||
Short Term Investments | 3,515,981 | — | — | 3,515,981 | ||||||||||||
Investments Purchased with Securities | ||||||||||||||||
Lending Collateral* | — | — | — | 11,074,244 | ||||||||||||
Total Investments in Securities | $ | 206,930,822 | $ | — | $ | — | (1) | $ | 218,005,066 |
(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.
^ See Schedule of Investments for classifications by industry 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.
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 2018 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.
As of September 30, 2018, 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.
18
AI Powered Equity ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018
September 30, 2018
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.
19
AI Powered Equity ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018
September 30, 2018
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.
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AI Powered Equity ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018
September 30, 2018
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.
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, 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. EquBot, 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.
U.S. Bancorp Fund Services, LLC doing business as U.S. Bank Global Fund Services (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.
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AI Powered Equity ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018
September 30, 2018
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 September 30, 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 period ended September 30, 2018:
Purchases | Sales | |||||||
AI Powered Equity ETF | $ | 338,956,286 | $ | 339,962,186 |
The costs of purchases and sales of in-kind transactions associated with creations and redemptions for the period ended September 30, 2018:
Purchases | Sales | |||||||
In-Kind | In-Kind | |||||||
AI Powered Equity ETF | $ | 224,015,170 | $ | 37,133,185 |
Purchases in-kind are the aggregate of all in-kind purchases and sales in-kind are the aggregate of all 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 September 30, 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.
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AI Powered Equity ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018
September 30, 2018
As of September 30, 2018, the value of the securities on loan and payable for collateral due to broker were as follows:
Value of Securities on Loan and Collateral Received
Value of | Fund | |||||||
Securities | Collateral | |||||||
Fund | on Loan | Received* | ||||||
AI Powered Equity ETF | $ | 10,832,700 | $ | 11,074,244 |
* | The cash collateral received was invested in the Mount Vernon Liquid Assets Portfolio as shown on the Schedule of Investments, an investment with an overnight and continuous maturity, as shown on the Schedule of Investments. |
NOTE 8 – FEDERAL INCOME TAXES
The components of distributable earnings and cost basis of investments for federal income tax purposes at September 30, 2018 were as follows:
Cost | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Depreciation (Appreciation) | |||||||||||||
AI Powered Equity ETF | $ | 213,345,993 | $ | 11,446,754 | $ | 6,787,681 | $ | 4,659,073 |
Undistributed Ordinary Income | Undistributed Long-term Gain | Total Distributable Earnings | Other Accumulated Loss | Total Accumulated Gain (Loss) | ||||||||||||||||
AI Powered Equity ETF | $ | 11,673,609 | $ | 76,119 | $ | 11,749,728 | $ | — | $ | 16,408,801 |
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, 2018, the Fund had accumulated capital loss carryovers of:
Capital Loss Carryforward ST | Capital Loss Carryforward LT | Expires | |||||||
AI Powered Equity ETF | $ | — | $ | — | 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, 2018.
23
AI Powered Equity ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018
September 30, 2018
Late Year Ordinary Loss | Post- October Capital Loss | |||||||
AI Powered Equity ETF | $ | — | $ | — |
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, 2018, the following table shows the reclassifications made:
Undistributed Accumulated Net Investment Loss | Accumulated Net Realized Loss | Paid-In Capital | ||||||||||
AI Powered Equity ETF | $ | 3,764 | $ | (1,276,976 | ) | $ | 1,273,212 |
The tax character of distribution paid during the period ended September 30, 2018 was $610,275 from ordinary income.
NOTE 9 – LEGAL MATTERS
The Trust, the trustees of the Trust, the Adviser and certain officers of the Adviser are defendants in an action filed May 2, 2017 in the Superior Court of New Jersey captioned PureShares, LLC d/b/a PureFunds et al. v. ETF Managers Group, LLC et al., Docket No. C-63-17. The PureShares action alleges claims based on disputes arising out of contractual relationships with the Adviser. The action seeks damages in unspecified amounts and injunctive relief based on breach of contract, wrongful termination, and several other theories. At the outset of the litigation, and again a few weeks later, plaintiffs sought temporary injunctive relief. Both motions were denied, and the matter is now proceeding through pretrial discovery. The defendants believe the lawsuit is without merit and intend to vigorously defend themselves against the allegations.
The Adviser, its parent, Exchange Traded Managers Group, LLC and its chief executive officer are defendants in a case filed on October 26, 2017 in the United States District Court for the Southern District of New York by NASDAQ, Inc. captioned Nasdaq, Inc. v. Exchange Traded Managers Group, LLC et al., Case 1:17-cv-08252. This action arises out of related facts and circumstances in the New Jersey litigation and asserts claims for breach of contract, wrongful termination and certain other theories with respect to the same exchange traded Fund discussed above. The defendants in the Southern District actions believe the lawsuit is without merit and intend to vigorously defend themselves against the allegations and to assert counterclaims against NASDAQ for breaches of its duties under the related index license agreement and various other agreements. Management of the Trust and the Fund, after consultation with legal counsel, believes that the resolution of these matters will not have a material adverse effect on the Fund’s financial statements.
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. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments to the financial statements.
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AI Powered Equity ETF
To the Board of Trustees of ETF Managers Trust
and the Shareholders of AI Powered Equity ETF:
and the Shareholders of AI Powered Equity ETF:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of AI Powered Equity ETF (the “Fund”) (a series of ETF Managers Trust) as of September 30, 2018, the related statements of operations, changes in net assets, and financial highlights for the period from October 18, 2017 (commencement of operations) through September 30, 2018 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Funds as of September 30, 2018, and the results of its operations, changes in net assets and financial highlights for the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of September 30, 2018 by correspondence with the custodian. We believe that our audit provides a reasonable basis for our opinion.
We have served as the auditor of one or more series of the Trust since 2013.
/s/ WithumSmith+Brown, PC
New York, New York
November 29, 2018
25
AI Powered Equity ETF
AI Powered Equity ETF
The following Frequency Distribution of Premiums and Discounts chart is provided to show the frequency at which the closing price for each Fund is at a premium or discount to its daily net asset value (NAV). The chart presented represents past performance and cannot be used to predict future results.
AI Powered Equity ETF | October 18, 2017* through September 30, 2018 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 0 | 0.0 | ||||||
Greater Than or equal to 0.75% And Less Than 1.00% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 1 | 0.4 | ||||||
Greater Than or Equal to 0.00% And Less Than 0.25% | 167 | 69.6 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 72 | 30.0 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 0 | 0.0 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 0 | 0.0 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 0 | 0.0 | ||||||
Less than -1.00% | 0 | 0.0 |
* First day of secondary market trading
26
AI Powered Equity ETF
Six Months Ended September 30, 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 management 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 (April 1, 2018 to September 30, 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
Annualized | ||||||||||||||||
Expense Ratio | ||||||||||||||||
Beginning | Ending | During the | ||||||||||||||
Account | Account Value | Expenses | Period April 1 – | |||||||||||||
Value April | September 30, | Paid During | September 30, | |||||||||||||
1, 2018 | 2018 | the Period^ | 2018 | |||||||||||||
Actual | $ | 1,000.00 | $ | 1,134.60 | $ | 4.01 | 0.75 | % | ||||||||
Hypothetical (5% annual) | $ | 1,000.00 | $ | 1,021.31 | $ | 3.80 | 0.75 | % |
^ | 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 183/365 (to reflect the period from April 1, 2018 to September 30, 2018). |
27
AI Powered Equity ETF
September 30, 2018 (Unaudited)
FEDERAL TAX INFORMATION (Unaudited)
Qualified Dividend Income/Dividends Received Dedumattction
For the fiscal year ended September 30, 2018, certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Reconciliation Act of 2003. The percentage of dividends declared from ordinary income designated as qualified dividend income was as follows:
Fund Name | QDI |
AI Powered Equity ETF | 9.77% |
For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received deduction for the fiscal year ended September 30, 2018 was as follows:
Fund Name | DRD |
AI Powered Equity ETF | 9.77% |
Short Term Capital Gain
The percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions under Internal Revenue Section 871 (k)(2)(C) for the Fund was as follows:
Fund Name | Short-Term Capital Gain |
AI Powered Equity ETF | 3.54% |
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AI Powered Equity ETF
SUPPLEMENTARY INFORMATION
September 30, 2018 (Unaudited) (Continued)
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. The Fund’s portfolio holdings are posted on the Fund’s website at www.AIEQetf.com daily.
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.
29
AI Powered Equity ETF
SUPPLEMENTARY INFORMATION
September 30, 2018 (Unaudited) (Continued)
Set forth below are the names, birth years, positions with the Trust, length of term of office, and the principal occupations and other directorships held during at least the last five years of each of the persons currently serving as a Trustee of the Trust, as well as information about each officer. The business address of each Trustee and officer is 30 Maple Street, 2nd Floor, Summit, New Jersey 07901. The SAI includes additional information about Fund directors and is available, without charge, upon request by calling 1-844-ETF-MGRS (1-844-383-6477).
Name and Year of Birth | Position(s) Held with the Trust, Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen By Trustee | Other Directorships Held by Trustee During Past 5 Years |
Interested Trustee* and Officers | ||||
Samuel Masucci, III (1962) | Trustee, Chairman of the Board and President (since 2012); Secretary (since 2014) | Chief Executive Officer, Exchange Traded Managers Group, LLC (since 2013); Chief Executive Officer (since 2016), ETF Managers Group, LLC; Chief Executive Officer, ETF Managers Capital LLC (commodity pool operator) (since 2014); Chief Executive Officer (2012–2016) and Chief Compliance Officer (2012– 2014), Factor Advisors, LLC (investment adviser); President and Chief Executive Officer, Factor Capital Management LLC (2012– 2014) (commodity pool operator). | 10 | None |
Reshma J. Amin (1978) | Chief Compliance Officer (since 2016) | Chief Compliance Officer, ETF Managers Group LLC (since 2016); Partner, Crow & Cushing (law firm) (2007–2016). | n/a | n/a |
John A. Flanagan (1946) | Treasurer (since 2015) | President, John A. Flanagan CPA, LLC (accounting services) (since 2010); Treasurer, ETF Managers Trust (since 2015); Principal Financial Officer, ETF Managers Capital, LLC (commodity pool operator) (since 2014); Chief Financial Officer, Macromarkets LLC (exchange traded funds) (2007–2010) | n/a | n/a |
* Mr. Masucci is an interested Trustee by virtue of his role as the Chief Executive Officer of the Adviser.
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AI Powered Equity ETF
SUPPLEMENTARY INFORMATION
September 30, 2018 (Unaudited) (Continued)
Board of Trustees (Continued)
Name and Year of Birth | Position(s) Held with the Trust, Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen By Trustee | Other Directorships Held by Trustee During Past 5 Years |
Independent Trustees | ||||
Jared Chase (1955) | Trustee (since 2018) | Chairman, State Street Global Alliance LLC, State Street Corporation (2007- 2012); Head of Global Treasury, Liability Management, Money Markets & Derivatives, State Street Corporation (2004-2007) | 10 | None |
Terry Loebs (1963) | Trustee (since 2014) | Founder and Managing Member, Pulsenomics LLC (index product development and consulting firm) (since 2011); Managing Director, MacroMarkets, LLC (exchange-traded products firm) (2006–2011). | 10 | None |
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AI Powered Equity ETF
SUPPLEMENTARY INFORMATION
September 30, 2018 (Unaudited) (Continued)
ETF MANAGERS TRUST
ETF Managers Trust, (the “Trust”) has adopted the following privacy policies in order to safeguard the personal information of the Trust’s customers and consumers in accordance with Regulation S-P as promulgated by the U.S. Securities and Exchange Commission.
Trust officers are responsible for ensuring that the following policies and procedures are implemented:
1) The Trust is committed to protecting the confidentiality and security of the information they collect and will handle personal customer and consumer information only in accordance with Regulation S-P and any other applicable laws, rules and regulations(1). The Trust will ensure: (a) the security and confidentiality of customer records and information; (b) that customer records and information are protected from any anticipated threats and hazards; and (c) that customer records and information are protected from unauthorized access or use.
2) The Trust conducts its business affairs through its trustees, officers and third parties that provide services pursuant to agreements with the Trust. The Trust has no employees. It is anticipated that the trustees and officers of the Trust who are not employees of service providers of the Trust will not have access to customer records and information in the performance of their normal responsibilities for the Trust.
3) The Trust may share customer information with its affiliates, subject to the customers’ right to prohibit such sharing.
4) The Trust may share customer information with unaffiliated third parties only in accordance with the requirements of Regulation S-P. Pursuant to this policy, the Trust will not share customer information with unaffiliated third parties other than as permitted by law, unless authorized to do so by the customer.
Consistent with these policies, the Trust has adopted the following procedures:
1) The Trust will determine that the policies and procedures of its affiliates and Service Providers are reasonably designed to safeguard customer information and only permit appropriate and authorized access to and use of customer information through the application of appropriate administrative, technical and physical protections.
2) The Trust will direct each of its Service Providers to adhere to the privacy policy of the Trust and to its privacy policies with respect to all customer information of the Trust and to take all actions reasonably necessary so that the Trust is in compliance with the provisions of Regulation S-P, including, as applicable, the development and delivery of privacy notices and the maintenance of appropriate and adequate records.
3) The Trust requires its Service Providers to provide periodic reports to the Trust’s Board of Trustees outlining their privacy policies and the implementation of such policies. Each Service Provider is required to promptly report to the Trust’s Board any material changes to its privacy policy before, or promptly after, the adoption of such changes
(1) | Generally, the Funds have institutional clients which are not considered “customers” for purposes of regulation S-P. |
32
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 doing business as U.S. Bank Global Fund Services
615 East Michigan Street, Milwaukee, Wisconsin 53202
615 East Michigan Street, Milwaukee, Wisconsin 53202
Securities Lending Agent
U.S Bank, National Association
Securities Lending
800 Nicolet Mall
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
Annual Report
September 30, 2018
September 30, 2018
Rogers AI Global Macro ETF
Ticker: BIKR
The fund is a series of ETF Managers Trust.
Rogers AI Global Macro ETF
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Rogers AI Global Macro ETF
On behalf of the entire team, we want to express our appreciation for the confidence you have placed in the Rogers AI Global Macro Exchange-Traded Fund (“BIKR” or the “Fund”). The following information pertains to the fiscal period from the Fund’s inception, June 21, 2018, to September 30, 2018.
The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Rogers AI Global Macro Index (the “Index”). The Index comprises single country ETFs and a short term U.S. Treasury ETF.
Over the period, the total return for the Fund was -0.16%, while the total return for the Index was .75%. The difference was primarily attributable to Fund expenses that are not a part of the Index. The best performers on the basis of contribution to return were the iShares MSCI Mexico ETF and the iShares MSCI Brazil ETF, while the worst performers were the Global X MSCI Argentina ETF and iShares MSCI Netherlands ETF.
We thank you for your interest in the Fund. You can find further details about BIKR by visiting www.bikretf.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
Cumulative Returns | Since Inception | Value of $10,000 | ||||||
Period Ended September 30, 2018 | (6/21/2018) | at 9/30/2018 | ||||||
Rogers AI Global Macro ETF (NAV) | -0.16 | % | $ | 9,984 | ||||
Rogers AI Global Macro ETF (Market) | -0.04 | % | 9,996 | |||||
S&P 500 Index | 5.84 | % | 10,584 | |||||
Rogers AI Global Macro Index | 0.75 | % | 8,677 | |||||
Total Fund Operating Expenses1 | 0.75 | % |
1. The expense ratio is taken from the Fund’s most recent prospectus dated June 8, 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 June 21, 2018, 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 index returns do not reflect fees or expenses and are not available for direct investment.
3
Rogers AI Global Macro ETF
% of Total | |||
Security | Investments | ||
1 | iShares 1-3 Year Treasury Bond ETF | 23.88% | |
2 | iShares MSCI Brazil ETF | 4.03% | |
3 | iShares China Large-Cap ETF | 3.61% | |
4 | iShares MSCI Canada ETF | 2.91% | |
5 | iShares MSCI Mexico ETF | 2.85% | |
6 | iShares MSCI Malaysia ETF | 2.84% | |
7 | iShares Core S&P Total US Stock Market ETF | 2.68% | |
8 | Global X MSCI Greece ETF | 2.24% | |
9 | Global X MSCI Nigeria ETF | 2.24% | |
10 | Global X MSCI Pakistan ETF | 1.98% | |
Top Ten Holdings = 49.27% of Total Investments | |||
* Current Fund holdings may not be indicative of future Fund holdings. |
4
Rogers AI Global Macro 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.
The Rogers AI Global Macro ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the Rogers AI Global Macro Index.
The Fund will incur higher and duplicative expenses when it invests in other investment companies such as ETFs. There is also the risk that the Fund may suffer losses due to the investment practices of the underlying funds. When the Fund invests in other investment companies, the Fund will be subject to substantially the same risks as those associated with the direct ownership of securities held by such investment companies.
To the extent the Fund invests a significant portion of its assets, directly or indirectly, in the securities of companies of a single country or region, it is more likely to be impacted by events or conditions affecting that country or region. Returns on investments in foreign stocks could be more volatile than, or trail the returns on, investments in U.S. stocks.
The Fund relies heavily on proprietary quantitative models as well as information and data supplied by third parties. Models may have aspects that are predictive in nature. The use of predictive models has inherent risks.
5
Rogers AI Global Macro ETF
As of September 30, 2018 (Unaudited)
Rogers AI Global Macro ETF | ||||
As a percent of Net Assets: | ||||
United States | 99.7 | % | ||
Short-Term and other Net Assets (Liabilities) | 0.3 | |||
100 | % |
6
Rogers AI Global Macro ETF
September 30, 2018
Shares | Value | |||||||
Investment Companies – 99.7% | ||||||||
EXCHANGE TRADED FUNDS - 99.7% | ||||||||
Global X MSCI Argentina ETF | 577 | $ | 15,360 | |||||
Global X MSCI Colombia ETF | 2,779 | 27,790 | ||||||
Global X MSCI Greece ETF | 18,109 | 150,124 | ||||||
Global X MSCI Nigeria ETF | 8,302 | 149,851 | ||||||
Global X MSCI Norway ETF | 3,746 | 57,014 | ||||||
Global X MSCI Pakistan ETF | 12,488 | 132,498 | ||||||
Global X MSCI Portugal ETF | 5,292 | 64,351 | ||||||
iShares 1-3 Year Treasury Bond ETF(b) | 19,227 | 1,597,570 | ||||||
iShares China Large-Cap ETF | 5,635 | 241,291 | ||||||
iShares Core S&P Total US Stock Market ETF | 2,692 | 179,368 | ||||||
iShares MSCI Australia ETF(b) | 1,191 | 26,345 | ||||||
iShares MSCI Austria ETF | 5,127 | 117,306 | ||||||
iShares MSCI Belgium ETF | 1,905 | 36,519 | ||||||
iShares MSCI Brazil ETF(b) | 7,996 | 269,705 | ||||||
iShares MSCI Canada ETF | 6,770 | 194,841 | ||||||
iShares MSCI Chile ETF | 1,546 | 70,049 | ||||||
iShares MSCI Denmark ETF | 899 | 58,048 | ||||||
iShares MSCI Finland ETF | 1,209 | 50,149 | ||||||
iShares MSCI France ETF | 898 | 28,188 | ||||||
iShares MSCI Germany ETF | 1,588 | 47,227 | ||||||
iShares MSCI Hong Kong ETF | 2,045 | 48,916 | ||||||
iShares MSCI India ETF | 465 | 15,099 | ||||||
iShares MSCI Indonesia ETF | 1,259 | 28,919 | ||||||
iShares MSCI Ireland ETF | 2,156 | 96,794 | ||||||
iShares MSCI Israel ETF | 1,244 | 69,676 | ||||||
iShares MSCI Italy ETF | 2,208 | 61,073 | ||||||
iShares MSCI Japan ETF | 397 | 23,911 | ||||||
iShares MSCI Malaysia ETF | 5,877 | 190,121 | ||||||
iShares MSCI Mexico ETF(b) | 3,720 | 190,576 | ||||||
iShares MSCI Netherlands ETF | 1,190 | 35,926 | ||||||
iShares MSCI New Zealand ETF | 1,576 | 76,594 | ||||||
iShares MSCI Peru ETF | 478 | 17,648 | ||||||
iShares MSCI Philippines ETF | 264 | 7,933 | ||||||
iShares MSCI Poland ETF | 1,293 | 30,851 | ||||||
iShares MSCI Russia ETF | 1,011 | 35,577 | ||||||
iShares MSCI Singapore ETF | 1,401 | 34,002 | ||||||
iShares MSCI South Korea ETF | 777 | 53,046 | ||||||
iShares MSCI Spain ETF | 3,422 | 101,325 | ||||||
iShares MSCI Sweden ETF | 1,012 | 33,214 | ||||||
iShares MSCI Switzerland ETF(b) | 900 | 31,221 | ||||||
iShares MSCI Taiwan ETF | 3,195 | 120,452 | ||||||
iShares MSCI Thailand ETF | 918 | 86,567 | ||||||
iShares MSCI Turkey ETF(b) | 1,996 | 47,525 | ||||||
iShares MSCI United Kingdom ETF | 830 | 28,320 | ||||||
TOTAL EXCHANGE TRADED FUNDS (Cost $4,964,404) | 4,978,880 |
The accompanying notes are an integral part of these financial statements.
7
Rogers AI Global Macro ETF
Schedule of Investments
September 30, 2018 (Continued)
Shares | Value | |||||||
SHORT-TERM INVESTMENTS - 0.4% | ||||||||
Money Market Funds - 0.4% | ||||||||
Invesco Advisers, Inc. STIT - Treasury Portfolio - Institutional Class, 1.90%(a) | 17,628 | $ | 17,628 | |||||
TOTAL SHORT-TERM INVESTMENTS (Cost $17,628) | 17,628 | |||||||
INVESTMENTS PURCHASED WITH SECURITIES LENDING COLLATERAL - 33.9% | ||||||||
Mount Vernon Liquid Assets Portfolio, LLC, 2.31%(a) | 1,693,660 | |||||||
TOTAL INVESTMENTS PURCHASED WITH SECURITIES | ||||||||
LENDING COLLATERAL (Cost 1,693,660) | 1,693,660 | |||||||
Total Investments (Cost $6,675,692) - 134.0% | 6,690,168 | |||||||
Liabilities in Excess of Other Assets - (34.0)% | (1,698,633 | ) | ||||||
TOTAL NET ASSETS - 100.0% | $ | 4,991,535 |
Percentages are stated as a percent of net assets.
(a) The rate quoted is the annualized seven-day yield at September 30, 2018.
(b) All or a portion of this security is out on loan as of September 30, 2018.
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, doing business as U.S. Bank Global Fund Services ("Fund Services").
The accompanying notes are an integral part of these financial statements.
8
Rogers AI Global Macro ETF
Rogers AI Global Macro ETF | ||||
ASSETS | ||||
Investments in securities, at value* | $ | 6,690,168 | ||
Receivables: | ||||
Dividends and interest receivable | 823 | |||
Securities lending income receivable | 686 | |||
Receivable for investments sold | 1,042,307 | |||
Total Assets | 7,733,984 | |||
LIABILITIES | ||||
Collateral received for securities loaned (Note 7) | 1,693,660 | |||
Payables: | ||||
Payable for investments purchased | 1,045,731 | |||
Management fees payable | 3,058 | |||
Total Liabilities | 2,742,449 | |||
Net Assets | $ | 4,991,535 | ||
NET ASSETS CONSIST OF: | ||||
Paid-in Capital | $ | 5,013,686 | ||
Total Distributable Earnings | (22,151 | ) | ||
Net Assets | $ | 4,991,535 | ||
*Identified Cost: | ||||
Investments in securities | $ | 6,675,692 | ||
Shares Outstanding^ | 200,000 | |||
Net Asset Value, Offering and Redemption Price per Share | $ | 24.96 |
^ | No par value, unlimited number of shares authorized |
The accompanying notes are an integral part of these financial statements.
9
Rogers AI Global Macro ETF
Rogers AI Global Macro ETF 1 | ||||
INVESTMENT INCOME | ||||
Income: | ||||
Dividends from unaffiliated securities | $ | 6,421 | ||
Interest | 21 | |||
Securities lending income | 1,188 | |||
Total Investment Income | 7,630 | |||
Expenses: | ||||
Management fees | 7,949 | |||
Total Expenses | 7,949 | |||
Net Investment Loss | (319 | ) | ||
REALIZED & UNREALIZED LOSS ON INVESTMENTS | ||||
Net Realized Loss on: | ||||
Unaffiliated investments | (36,627 | ) | ||
Net Realized Loss on Investments and Foreign Currency | (36,627 | ) | ||
Net Change in Unrealized Appreciation of: | ||||
Unaffiliated investments | 14,476 | |||
Net Change in Unrealized Appreciation of Investments and Foreign Currency | 14,476 | |||
Net Realized and Unrealized Loss on Investments | (22,151 | ) | ||
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | (22,470 | ) |
1 | Fund commenced operations on June 21, 2018. The information presented is for the period from June 21, 2018 to September 30, 2018. |
The accompanying notes are an integral part of these financial statements.
10
Rogers AI Global Macro ETF
Period Ended September 30, 2018 1 | ||||
OPERATIONS | ||||
Net investment loss | $ | (319 | ) | |
Net realized loss on investments | (36,627 | ) | ||
Net change in unrealized appreciation of investments | 14,476 | |||
Net decrease in net assets resulting from operations | (22,470 | ) | ||
DISTRIBUTIONS TO SHAREHOLDERS | ||||
Total distributions from distributable earnings | — | |||
CAPITAL SHARE TRANSACTIONS | ||||
Net increase in net assets derived from net change in outstanding shares(a) | 5,014,005 | |||
Net increase in net assets | 4,991,535 | |||
NET ASSETS | ||||
Beginning of Period | — | |||
End of Period | $ | 4,991,535 |
(a) Summary of share transactions is as follows:
Period Ended September 30, 2018(1) | ||||||||
Shares | Amount | |||||||
Shares Sold | 200,000 | $ | 5,014,005 | |||||
Shares Redeemed | — | — | ||||||
200,000 | $ | 5,014,005 | ||||||
Beginning Shares | — | |||||||
Ending Shares | 200,000 |
1 | Fund commenced operations on June 21, 2018. The information presented is for the period from June 21, 2018 to September 30, 2018. |
The accompanying notes are an integral part of these financial statements.
11
Rogers AI Global Macro ETF
For a capital share outstanding throughout the period
Period Ended September 30, 2018 1 | ||||
Net Asset Value, Beginning of Period | $ | 25.00 | ||
Loss from Investment Operations: | ||||
Net investment income | — | |||
Net realized and unrealized loss on investments | (0.04 | ) | ||
Total from investment operations | (0.04 | ) | ||
Less Distributions: | ||||
Distributions from net investment income | — | |||
Net asset value, end of period | $ | 24.96 | ||
Total Return | -0.16 | %2 | ||
Ratios/Supplemental Data: | ||||
Net assets at end of period (000's) | $ | 4,992 | ||
Expenses to Average Net Assets | 0.75 | %3 | ||
Net Investment Loss to Average Net Assets | -0.03 | %3 | ||
Portfolio Turnover Rate | 93 | %2 |
1 | Commencement of operations on June 21, 2018. |
2 | Not annualized. |
3 | Annualized. |
The accompanying notes are an integral part of these financial statements.
12
Rogers AI Global Macro ETF
NOTE 1 – ORGANIZATION
Rogers AI Global Macro 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 Rogers AI Global Macro Index (the “Index”). The Fund commenced operations on June 21, 2018.
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 Fund’s semiannual and annual reports, which are filed with the SEC.
13
Rogers AI Global Macro ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
September 30, 2018 (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 September 30, 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. |
14
Rogers AI Global Macro ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
September 30, 2018 (Continued)
The following is a summary of the inputs used to value the Fund’s net assets as of September 30, 2018:
Rogers AI Global Macro ETF
Assets^ | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Exchange Traded Funds | $ | 4,978,880 | $ | — | $ | — | $ | 4,978,880 | ||||||||
Short-Term Investments | 17,628 | — | — | 17,628 | ||||||||||||
Investments Purchased with Securities Lending Collateral* | — | — | — | 1,693,660 | ||||||||||||
Total Investments in Securities | $ | 4,996,508 | $ | — | $ | — | $ | 6,690,168 |
For further information regarding security characteristics, see the Schedule of Investments.
* | 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 2018 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.
As of September 30, 2018, 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 Fund may be subject to income, withholding or other taxes imposed by foreign countries. |
15
Rogers AI Global Macro ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
September 30, 2018 (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 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 Rogers AI Global Macro 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.
Emerging Markets Securities Risk. The Fund’s investments may expose the Fund’s portfolio to the risks of investing in emerging markets. Investments in emerging markets are subject to greater risk of loss than investments in developed markets. This is due to, among other things, greater market volatility, lower trading volume, political and economic instability, greater risk of market shutdown and more governmental limitations on foreign investments than typically found in developed markets. In addition, less developed markets are more likely to experience problems with the clearing and settling of trades and the holding of securities by local banks, agents and depositories.
16
Rogers AI Global Macro ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
September 30, 2018 (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.
Fixed Income Risk. The value of the Fund’s investments in fixed income securities will fluctuate with changes in interest rates. Typically, a rise in interest rates causes a decline in the value of fixed income securities owned by the Fund. On the other hand, if rates fall, the value of the fixed income securities generally increases. The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates and the effect of potential government fiscal policy initiatives and resulting market reaction to those initiatives. In general, the market price of fixed income securities with longer maturities will increase or decrease more in response to changes in interest rates than shorter-term securities. The value of the Fund’s direct or indirect investments in fixed income securities may be affected by the inability of issuers to repay principal and interest or illiquidity in debt securities markets.
Fixed-Income Instruments Risks. Changes in interest rates generally will cause the value of fixed-income instruments held by the Fund to vary inversely to such changes. Prices of longer-term fixed-income instruments generally fluctuate more than the prices of shorter-term fixed income instruments as interest rates change. Fixed-income instruments that are fixed-rate are generally more susceptible than floating rate loans to price volatility related to changes in prevailing interest rates. The prices of floating rate fixed-income instruments tend to have less fluctuation in response to changes in interest rates, but will have some fluctuation, particularly when the next interest rate adjustment on such security is further away in time or adjustments are limited in amount over time. The Fund may invest in short-term securities that, when interest rates decline, affect the Fund’s yield as these securities mature or are sold and the Fund purchases new short-term securities with lower yields. An obligor’s willingness and ability to pay interest or to repay principal due in a timely manner may be affected by, among other factors, its cash flow.
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.
Other Investment Companies Risk. The Fund will incur higher and duplicative expenses when it invests in other investment companies such as ETFs. There is also the risk that the Fund may suffer losses due to the investment practices of the underlying funds. When the Fund invests in other investment companies, the Fund will be subject to substantially the same risks as those associated with the direct ownership of securities held by such investment companies. Investments in ETFs are also subject to the following risks: (i) the market price of an ETF’s shares may trade above or below their net asset value; (ii) an active trading market for an ETF’s shares may not develop or be maintained; and (iii) trading of an ETF’s shares may be halted for a number of reasons.
17
Rogers AI Global Macro ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
September 30, 2018 (Continued)
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 management 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 ETFMG Financial, LLC (the “Sponsor”). The sponsor provides marketing support for the Funds, including distributing marketing materials related to the Fund. 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. Ocean Capital Advisors, LLC serves as the index provider for the Fund.
U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services (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 daily average net assets. For the period ended September 30, 2018, the Fund did not incur any 12b-1 expenses.
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Rogers AI Global Macro ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
September 30, 2018 (Continued)
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 September 30, 2018:
Purchases | Sales | |||||||
Rogers AI Global Macro ETF | $ | 3,535,078 | $ | 3,452,873 |
The costs of purchases and sales of in-kind transactions associated with creations and redemptions for the period ended September 30, 2018:
Purchases In-Kind | Sales In-Kind | |||||||
Rogers AI Global Macro ETF | $ | 4,918,826 | $ | — |
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 September 30, 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.
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Rogers AI Global Macro ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
September 30, 2018 (Continued)
As of September 30, 2018, the value of the securities on loan and payable for collateral due to broker were as follows:
Value of Securities on Loan and Collateral Received
Values of | Fund | |||||||
Securities | Collateral | |||||||
Fund | on Loan | Received* | ||||||
Rogers AI Global Macro ETF | $ | 1,655,174 | $ | 1,693,660 |
* | The cash collateral received was invested in the Mount Vernon Liquid Assests Portfolio as shown on the Schedule of Investments, an investment with an overnight and continuous maturity, as shown on the Schedule of Investments. |
NOTE 8 – FEDERAL INCOME TAXES
The components of distributable earnings and cost basis of investments for federal income tax purposes at September 30, 2018 were as follows:
Cost | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Depreciation (Appreciation) | |||||||||||||
Rogers AI Global Macro ETF | $ | 6,693,518 | $ | 55,968 | $ | (59,318 | ) | $ | (3,350 | ) |
Undistributed Ordinary Income | Undistributed Long-term Gain | Total Distributable Earnings | Other Accumulated Loss | Undistributed Long-term Gain | Total Accumulated Gain (Loss) | |||||||||||||||||
$ | — | $ | — | $ | — | $ | (18,801 | ) | $ | — | $ | (22,151 | ) |
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, 2018, the Fund had accumulated capital loss carryovers of:
Capital Loss Carryforward ST | Capital Loss Carryforward LT | Expires | ||||||||
Rogers AI Global Macro ETF | $ | 18,801 | $ | — | 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, 2018.
Late Year Ordinary Loss | Post-October Capital Loss | |||||||
Rogers AI Global Macro ETF | $ | — | $ | — |
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Rogers AI Global Macro ETF
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Continued)
September 30, 2018 (Continued)
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, 2018, the following table shows the reclassifications made:
Undistributed Accumulated Net Investment Loss | Accumulated Net Realized Loss | Paid-In Capital | ||||||||||
Rogers AI Global Macro ETF | $ | 319 | $ | — | $ | (319 | ) |
The Fund did not pay out any ordinary income or capital gains during the period ended September 30, 2018.
NOTE 9 – LEGAL MATTERS
The Trust, the trustees of the Trust, the Adviser and certain officers of the Adviser are defendants in an action filed May 2, 2017 in the Superior Court of New Jersey captioned PureShares, LLC d/b/a PureFunds et al. v. ETF Managers Group, LLC et al., Docket No. C-63-17. The PureShares action alleges claims based on disputes arising out of contractual relationships with the Adviser. The action seeks damages in unspecified amounts and injunctive relief based on breach of contract, wrongful termination, and several other theories. At the outset of the litigation, and again a few weeks later, plaintiffs sought temporary injunctive relief. Both motions were denied, and the matter is now proceeding through pretrial discovery. The defendants believe the lawsuit is without merit and intend to vigorously defend themselves against the allegations.
The Adviser, its parent, Exchange Traded Managers Group, LLC and its chief executive officer are defendants in a case filed on October 26, 2017 in the United States District Court for the Southern District of New York by NASDAQ, Inc. captioned Nasdaq, Inc. v. Exchange Traded Managers Group, LLC et al., Case 1:17-cv-08252. This action arises out of related facts and circumstances in the New Jersey litigation and asserts claims for breach of contract, wrongful termination and certain other theories with respect to the same exchange traded Fund discussed above. The defendants in the Southern District actions believe the lawsuit is without merit and intend to vigorously defend themselves against the allegations and to assert counterclaims against NASDAQ for breaches of its duties under the related index license agreement and various other agreements. Management of the Trust and the Fund, after consultation with legal counsel, believes that the resolution of these matters will not have a material adverse effect on the Fund’s financial statements.
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.
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Rogers AI Global Macro ETF
To the Board of Trustees of ETF Managers Trust
and the Shareholders of Rogers AI Global Macro ETF:
and the Shareholders of Rogers AI Global Macro ETF:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Rogers AI Global Macro ETF (the “Fund”) (a series of ETF Managers Trust) as of September 30, 2018 and the related statement of operations, statement of changes in net assets and financial highlights for the period from June 21, 2018 (commencement of operations) to September 30, 2018 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of September 30, 2018, and the results of its operations, changes in net assets and financial highlights for the period from June 21, 2018 (commencement of operations) to September 30, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of September 30, 2018 by correspondence with the custodian. We believe that our audit provides a reasonable basis for our opinion.
We have served as the auditor of one or more series of the Trust since 2013.
/s/WithumSmith+Brown, PC
New York, New York
November 29, 2018
22
Rogers AI Global Macro ETF
Rogers AI Global Macro ETF
The following Frequency Distribution of Premiums and Discounts chart is provided to show the frequency at which the closing price for each Fund is at a premium or discount to its daily net asset value (NAV). The chart presented represents past performance and cannot be used to predict future results.
Rogers AI Global Macro ETF | June 21, 2018* through September 30, 2018 | |||||||
Premium/Discount Range | Number of Days | Percentage of Total Days | ||||||
Greater than 1.00% | 0 | 0.0 | ||||||
Greater Than or equal to 0.75% And Less Than 1.00% | 0 | 0.0 | ||||||
Greater Than or Equal to 0.50% And Less Than 0.75% | 1 | 1.4 | ||||||
Greater Than or Equal to 0.25% And Less Than 0.50% | 8 | 11.3 | ||||||
Greater Than or Equal to 0.00% And Less Than 0.25% | 31 | 43.7 | ||||||
Less Than or Equal to 0.0% And Greater Than -0.25% | 30 | 42.2 | ||||||
Less Than or Equal to -0.25% And Greater Than -0.50% | 0 | 0.0 | ||||||
Less Than or Equal to -0.50% And Greater Than -0.75% | 1 | 1.4 | ||||||
Less Than or Equal to -0.75% And Greater Than -1.00% | 0 | 0.0 | ||||||
Less than -1.00% | 0 | 0.0 |
* First day of secondary market trading.
23
Rogers AI Global Macro ETF
APPROVAL OF ADVISORY AGREEMENT AND BOARD CONSIDERATIONS
For the Period Ended September 30, 2018 (Unaudited)
For the Period Ended September 30, 2018 (Unaudited)
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on April 19, 2018, the Board of Trustees (the “Board”) of ETF Managers Trust (the “Trust”) considered the approval of the Investment Advisory Agreement between ETF Managers Group, LLC (the “Adviser”) and the Trust, on behalf of Rogers AI Global Macro ETF (the “Fund”) (the “Agreement”).
The Agreement 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 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 after the initial two-year term, the Board will call and hold a meeting to decide whether to renew the 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 to be provided to the Fund’s shareholders by the 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 and its 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 meetings held on March 28, 2018 and April 19, 2018, and throughout the year. Among other things, the Adviser provided responses to detailed series of questions, which included information about the Adviser’s operations, service offerings, personnel, compliance program and financial condition. Representatives of the 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 oral presentations and any other information that the Board received at the meeting, and deliberated on the approval of the 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 approval of the Agreement, and the weight to be given to each such factor. The conclusions reached with respect to the 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 to be provided under the Agreement, noting that the Adviser would be providing investment advisory 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 to track the performance of the underlying index; 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 Fund. In considering the nature, extent and quality of the services to be 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 ETFs.
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Rogers AI Global Macro ETF
APPROVAL OF ADVISORY AGREEMENT AND BOARD CONSIDERATIONS
For the Period Ended September 30, 2018 (Unaudited) (Continued)
For the Period Ended September 30, 2018 (Unaudited) (Continued)
The Board further considered other services to be 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 to be provided to the Fund by the 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 other funds in the industry falling within the same style category, or peer group, as the Fund, as determined by the Adviser. The Board considered the Adviser’s methodology for selecting the peer group. The Board noted that the expense ratio for the Fund was higher than the average and median expense ratios for its peer ETFs, but within the range of expense ratios of the peer group.
The Board also noted the importance of the fact that the proposed advisory fee for the Fund was 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 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, including the support that the Adviser would receive from the Fund’s sponsor for paying the expenses of 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 the Fund’s assets grow. The Board determined to evaluate economies of scale on an ongoing basis if the Fund achieved asset growth.
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 Agreement are fair and reasonable; (b) concluded that the Adviser’s fees are reasonable in light of the services that the Adviser will provide to the Fund; and (c) approved the Agreement for an initial term of two years.
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Rogers AI Global Macro ETF
For the Period Ended September 30, 2018 (Unaudited)
As a shareholder of Rogers AI Global Macro 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 management 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 (June 20, 2018 to September 30, 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.
Rogers AI Global Macro ETF
Annualized | ||||||||||||||||
Expense | ||||||||||||||||
Ratio | ||||||||||||||||
Beginning | Ending | During the | ||||||||||||||
Account | Account | Expenses | period | |||||||||||||
Value | Value | Paid | April 1, 2018 | |||||||||||||
June 21, | September, | During the | – September 30, | |||||||||||||
2018 | 2018 | Period | 2018 | |||||||||||||
Actual* | $ | 1,000.00 | $ | 998.40 | $ | 2.09 | 0.75 | % | ||||||||
Hypothetical (5% annual)^ | $ | 1,000.00 | $ | 1,021.31 | $ | 3.80 | 0.75 | % |
* | The Fund commenced operations on June 21, 2018. The amounts shown are based on the 102 days between commencement date and the end of the period. |
^ | The dollar amounts shown as expenses paid during the period are equal to the annualized expense ratio multiplied by the average account value during the period, multiplied by 183/365 (to reflect the period from April 1, 2018 to September 30, 2018). |
26
Rogers AI Global Macro ETF
FEDERAL TAX INFORMATION
(Unaudited)
Qualified Dividend Income/Dividends Received Deduction
For the fiscal year ended September 30, 2018, certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Reconciliation Act of 2003. The percentage of dividends declared from ordinary income designated as qualified dividend income was as follows:
Fund Name | QDI |
Rogers AI Global Macro ETF | 0.00% |
For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received deduction for the fiscal year ended September 30, 2018 was as follows:
Fund Name | DRD |
Rogers AI Global Macro ETF | 0.00% |
Short Term Capital Gain
The percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions under Internal Revenue Section 871 (k)(2)(C) for the Fund was as follows:
Fund Name | Short-Term Capital Gain |
Rogers AI Global Macro ETF | 0.00% |
27
Rogers AI Global Macro ETF
SUPPLEMENTARY INFORMATION (Unaudited)
September 30, 2018
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. The Fund’s portfolio holdings are posted on the Fund’s website at www.bikretf.com daily.
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.bikretf.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.bikretf.com. Read the prospectus carefully before investing.
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Rogers AI Global Macro ETF
Set forth below are the names, birth years, positions with the Trust, length of term of office, and the principal occupations and other directorships held during at least the last five years of each of the persons currently serving as a Trustee of the Trust, as well as information about each officer. The business address of each Trustee and officer is 30 Maple Street, 2nd Floor, Summit, New Jersey 07901. The SAI includes additional information about Fund directors and is available, without charge, upon request by calling 1-844-ETF-MGRS (1-844-383-6477).
Name and Year of Birth | Position(s) Held with the Trust, Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen By Trustee | Other Directorships Held by Trustee During Past 5 Years |
Interested Trustee* and Officers | ||||
Samuel Masucci, III (1962) | Trustee, Chairman of the Board and President (since 2012); Secretary (since 2014) | Chief Executive Officer, Exchange Traded Managers Group, LLC (since 2013); Chief Executive Officer (since 2016), ETF Managers Group, LLC; Chief Executive Officer, ETF Managers Capital LLC (commodity pool operator) (since 2014); Chief Executive Officer (2012–2016) and Chief Compliance Officer (2012– 2014), Factor Advisors, LLC (investment adviser); President and Chief Executive Officer, Factor Capital Management LLC (2012–2014) (commodity pool operator). | 10 | None |
Reshma J. Amin (1978) | Chief Compliance Officer (since 2016) | Chief Compliance Officer, ETF Managers Group LLC (since 2016); Partner, Crow & Cushing (law firm) (2007–2016). | n/a | n/a |
John A. Flanagan (1946) | Treasurer (since 2015) | President, John A. Flanagan CPA, LLC (accounting services) (since 2010); Treasurer, ETF Managers Trust (since 2015); Principal Financial Officer, ETF Managers Capital, LLC (commodity pool operator) (since 2014); Chief Financial Officer, Macromarkets LLC (exchange traded funds) (2007–2010) | n/a | n/a |
* Mr. Masucci is an interested Trustee by virtue of his role as the Chief Executive Officer of the Adviser. |
29
Rogers AI Global Macro ETF
Board of Trustees (Continued)
Name and Year of Birth | Position(s) Held with the Trust, Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen By Trustee | Other Directorships Held by Trustee During Past 5 Years |
Independent Trustees | ||||
Jared Chase (1955) | Trustee (since 2018) | Chairman, State Street Global Alliance LLC, State Street Corporation (2007-2012); Head of Global Treasury, Liability Management, Money Markets & Derivatives, State Street Corporation (2004-2007) | 10 | None |
Terry Loebs (1963) | Trustee (since 2014) | Founder and Managing Member, Pulsenomics LLC (index product development and consulting firm) (since 2011); Managing Director, MacroMarkets, LLC (exchange-traded products firm) (2006–2011). | 10 | None |
30
ETF MANAGERS TRUST
ETF Managers Trust, (the “Trust”) has adopted the following privacy policies in order to safeguard the personal information of the Trust’s customers and consumers in accordance with Regulation S-P as promulgated by the U.S. Securities and Exchange Commission.
Trust officers are responsible for ensuring that the following policies and procedures are implemented:
1) The Trust is committed to protecting the confidentiality and security of the information they collect and will handle personal customer and consumer information only in accordance with Regulation S-P and any other applicable laws, rules and regulations1. The Trust will ensure: (a) the security and confidentiality of customer records and information; (b) that customer records and information are protected from any anticipated threats and hazards; and (c) that customer records and information are protected from unauthorized access or use.
2) The Trust conducts its business affairs through its trustees, officers and third parties that provide services pursuant to agreements with the Trust. The Trust has no employees. It is anticipated that the trustees and officers of the Trust who are not employees of service providers of the Trust will not have access to customer records and information in the performance of their normal responsibilities for the Trust.
3) The Trust may share customer information with its affiliates, subject to the customers’ right to prohibit such sharing.
4) The Trust may share customer information with unaffiliated third parties only in accordance with the requirements of Regulation S-P. Pursuant to this policy, the Trust will not share customer information with unaffiliated third parties other than as permitted by law, unless authorized to do so by the customer.
Consistent with these policies, the Trust has adopted the following procedures:
1) The Trust will determine that the policies and procedures of its affiliates and Service Providers are reasonably designed to safeguard customer information and only permit appropriate and authorized access to and use of customer information through the application of appropriate administrative, technical and physical protections.
2) The Trust will direct each of its Service Providers to adhere to the privacy policy of the Trust and to its privacy policies with respect to all customer information of the Trust and to take all actions reasonably necessary so that the Trust is in compliance with the provisions of Regulation S-P, including, as applicable, the development and delivery of privacy notices and the maintenance of appropriate and adequate records.
3) The Trust requires its Service Providers to provide periodic reports to the Trust’s Board of Trustees outlining their privacy policies and the implementation of such policies. Each Service Provider is required to promptly report to the Trust’s Board any material changes to its privacy policy before, or promptly after, the adoption of such changes.
(1) Generally, the Funds have institutional clients which are not considered “customers” for purposes of regulation S-P.
31
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 doing business as U.S. Bank Global Fund Services
615 East Michigan Street, Milwaukee, Wisconsin 53202
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
Item 2. Code of Ethics.
The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer and principal financial officer. The registrant has not made any amendments to its code of ethics during the period covered by this report. The registrant has not granted any waivers from any provisions of the code of ethics during the period covered by this report.
A copy of the registrant’s Code of Ethics is filed herewith
Item 3. Audit Committee Financial Expert.
The Board believes that the collective knowledge and experience of the members of the audit committee enable the committee to provide appropriate oversight given the Trust's level of financial complexity. In addition, the Board notes that the audit committee has the authority to retain any experts necessary to carry out its duties.
Item 4. Principal Accountant Fees and Services.
The registrant has engaged its principal accountant to perform audit services, audit-related services, tax services and other services during the past fiscal year. “Audit services” refer to performing an audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. “Audit-related services” refer to the assurance and related services by the principal accountant that are reasonably related to the performance of the audit. “Tax services” refer to professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. There were no “Other services” provided by the principal accountant. The following table details the aggregate fees billed or expected to be billed for the last fiscal year for audit fees, audit-related fees, tax fees and other fees by the principal accountant.
FYE 9/30/2018 | FYE 9/30/2017 | |
Audit Fees | $206,500 | $194,500 |
Audit-Related Fees | N/A | N/A |
Tax Fees | $40,000 | $32,500 |
All Other Fees | N/A | N/A |
The audit committee has adopted pre-approval policies and procedures that require the audit committee to pre‑approve all audit and non‑audit services of the registrant, including services provided to any entity affiliated with the registrant.
The percentage of fees billed by WithumSmith+Brown, PC applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows:
FYE 9/30/2018 | FYE 9/30/2017 | |
Audit-Related Fees | 0% | 0% |
Tax Fees | 0% | 0% |
All Other Fees | 0% | 0% |
All of the principal accountant’s hours spent on auditing the registrant’s financial statements were attributed to work performed by full‑time permanent employees of the principal accountant. The following table indicates the non-audit fees billed or expected to be billed by the registrant’s accountant for services to the registrant and to the registrant’s investment adviser (and any other controlling entity, etc.—not sub-adviser) for the past year. The audit committee of the board of trustees/directors has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser is compatible with maintaining the principal accountant's independence and has concluded that the provision of such non-audit services by the accountant has not compromised the accountant’s independence.
Non-Audit Related Fees | FYE 9/30/2018 | FYE 9/30/2017 |
Registrant | N/A | N/A |
Registrant’s Investment Adviser | N/A | N/A |
Item 5. Audit Committee of Listed Registrants.
Not applicable to registrants who are not listed issuers (as defined in Rule 10A-3 under the Securities Exchange Act of 1934).
Item 6. Investments.
Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.
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.
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of trustees.
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. 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. Filed herewith. |
(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 12/6/2018
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 12/6/2018
By (Signature and Title)* /s/ John Flanagan
John Flanagan, Principal Financial Officer/Treasurer
Date 12/6/2018
* Print the name and title of each signing officer under his or her signature.