UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-22819
ETFis Series Trust I |
(Exact name of registrant as specified in charter) |
1540 Broadway, 16th Floor |
New York, NY 10036 |
(Address of principal executive offices) (Zip code) |
ETFis Series Trust I
c/o Corporation Service Company
2711 Centerville Road, Suite 400
Wilmington, DE 19808
(Name and address of agent for service) |
Registrant’s telephone number, including area code: (212) 593-4383
Date of fiscal year end: October 31
Date of reporting period: October 31, 2020
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
ETFis Series Trust I
INFRACAP REIT PREFERRED ETF
VIRTUS INFRACAP U.S. PREFERRED STOCK ETF
VIRTUS LIFESCI BIOTECH CLINICAL TRIALS ETF
VIRTUS LIFESCI BIOTECH PRODUCTS ETF
VIRTUS NEWFLEET MULTI-SECTOR BOND ETF
VIRTUS PRIVATE CREDIT STRATEGY ETF
VIRTUS REAL ASSET INCOME ETF
Virtus WMC International Dividend ETF
(formerly, Virtus WMC Global Factor Opportunities ETF)
INFRACAP MLP ETF
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of each Fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action.
You may elect at any time to receive not only shareholder reports but also other communications such as prospectuses from the Fund electronically, or you alternatively may elect to receive all future shareholder reports in paper free of charge. Please contact your financial intermediary to make your request and to determine whether an election made with the financial intermediary will apply to all funds in which you own shares through that intermediary.
ANNUAL REPORT
October 31, 2020
Table of Contents
| Page (s) |
1 | |
2 | |
27 | |
30 | |
InfraCap REIT Preferred ETF | |
Virtus InfraCap U.S. Preferred Stock ETF | |
Virtus LifeSci Biotech Clinical Trials ETF | |
Virtus LifeSci Biotech Products ETF | |
Virtus Newfleet Multi-Sector Bond ETF | |
Virtus Private Credit Strategy ETF | |
Virtus Real Asset Income ETF | |
Virtus WMC International Dividend ETF (formerly, Virtus WMC Global Factor Opportunities ETF) | |
31 | |
53 | |
55 | |
57 | |
61 | |
62 | |
70 | |
InfraCap MLP ETF | |
82 | |
83 | |
84 | |
85 | |
86 | |
87 | |
88 | |
96 | |
99 | |
100 | |
103 |
1
Dear Fellow ETFis Funds Shareholder:
On behalf of Virtus ETF Advisers LLC (the “Adviser”), I am pleased to present the shareholder report for the ETFis Series Trust I (the “Trust”) for the annual fiscal period ended October 31, 2020.
The Adviser is part of Virtus Investment Partners, a distinctive partnership of boutique investment managers singularly committed to the long-term success of individual and institutional investors.
The report provides financial statements and portfolio information for the following funds within the Trust:
•InfraCap REIT Preferred ETF (PFFR)
•Virtus InfraCap U.S. Preferred Stock ETF (PFFA)
•Virtus LifeSci Biotech Clinical Trials ETF (BBC)
•Virtus LifeSci Biotech Products ETF (BBP)
•Virtus Newfleet Multi-Sector Bond ETF (NFLT)
•Virtus Private Credit Strategy ETF (VPC)
•Virtus Real Asset Income ETF (VRAI)
•Virtus WMC International Dividend ETF (VWID) – formerly the Virtus WMC Global Factor Opportunities ETF traded under symbol VGFO
•InfraCap MLP ETF (AMZA)
Over the months of March and April 2020, many investors faced heightened volatility. While the risks and uncertainty may continue, our commitment to the shareholders of our ETFs remains our highest priority.
On behalf of Virtus ETF Advisers LLC (the “Adviser”) and our fund Sub-Advisers, thank you for your investment. If you have questions, please contact your financial adviser, or call 1-888-383-0553. For more information about the fund and the other ETFs we offer, we invite you to visit our website, www.virtusetfs.com.
Sincerely,
William Smalley
President
ETFis Series Trust I
This material must be accompanied or preceded by the prospectus.
2
InfraCap REIT Preferred ETF
Management’s Discussion of Operations
Overview
The InfraCap REIT Preferred ETF (the “Fund”) seeks to track the investment results, before fees and expenses, of an index composed of preferred shares listed on U.S. Exchanges and issued by Real Estate Investment Trusts (“REITs”), as represented by the Indxx REIT Preferred Stock Index (“the Index”). Although the Fund generally intends to replicate the component securities of the Index, the Fund may utilize a representative sampling strategy when a replication strategy might be detrimental to shareholders. The Fund may invest in a representative sample of securities included in the Index that collectively has a profile similar to the Index. If the Fund uses a representative sampling strategy, the Fund may or may not own all of the securities that are included in the Index.
Market Update
In the fiscal year ended October 31, 2020, the Fund’s total return based on net asset value was -8.06%, while the Index returned -8.22% during the same period.
During the period, the nationwide implementation of business shutdowns and strict social distancing measures in an effort to slow the spread of the COVID-19 pandemic directly impacted REITs across all segments. Two of the Fund’s REIT positions, Ashford Hospitality Trust (“Ashford”) and Hersha Hospitality Trust (“Hersha”), contributed significantly to the Fund’s negative returns during the period. Ashford and Hersha are both hotel-focused REITs that utilize significant leverage. Both issuers experienced significant business disruptions and unprecedented declines in room occupancy and revenue per available room as a result of COVID-19. The Fund held multiple issues of Ashford preferreds, which were down -65.97% on average over the period. As of October 31, 2020, the Fund’s position in all issues of Ashford preferreds was 0.58%. The Fund held two issues of Hersha, Series D and Series E, which were down -30.15% and -33.04%, respectively, over the period.
Two of the strongest contributors to the Fund during the period were Farmland Partners, Inc. (“Farmland Partners”) and Rexford Industrial Realty (“Rexford”). Farmland Partners is a farmland-focused REIT that targets long-term farm tenants and high-quality farmland. Rexford is an industrial-focused REIT that owns and operates properties throughout Southern California’s infill markets. The Fund held one issue of each of Farmland Partners and Rexford, Series B and Series C, which were up 10.21% and 9.93%, respectively, over the period.
Preferred shares are fixed income securities, and prices are influenced by changes in long-term interest rates. During the fiscal year, the yield on the 30-year U.S. Treasury bond fell 52 basis points, from 2.17% to 1.65%. Yields on preferred stocks rose during this period, which we believe reflects investor concern over credit quality and the duration of the COVID-19 pandemic.
Dividend Payment
In the fiscal year ended October 31, 2020, the Fund made monthly dividend payments in the amount of $0.12 per share and paid a special dividend of $0.02 per share in December 2019. While the Fund plans to continue paying monthly dividends, dividends are not guaranteed. The Fund seeks to maintain relatively stable monthly distributions although the amount of income earned by the Fund varies from period-to-period. To achieve this, the Fund may distribute less than the full amount of income earned during a specific period, preserving income for distribution in future periods. Consequently, the amount of income distributed in any one period may be more or less than the actual amount of income earned in that period.
Outlook
We believe REIT preferred securities offer an attractive way to access current market dislocations resulting from the COVID-19 pandemic. Economies appear to be returning to normal operations and federal monetary policy and stimulus have supported market recovery. As interest rates remain low, we believe preferred securities will continue to offer attractive yields and investors can access REIT preferred securities at discounted prices.
The preceding information is the opinion of the investment adviser and sub-adviser. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Statements of fact are from sources considered reliable, but the investment adviser and sub-adviser make no representation or warranty as to their completeness or accuracy. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized.
3
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
InfraCap REIT Preferred ETF (continued)
EXPOSURE BY RATING (%) as of 10/31/20
A- | | 5.0% |
BBB+ | | 0.8% |
BBB | | 12.5% |
BBB- | | 8.0% |
BB+ | | 8.6% |
BB | | 5.8% |
B | | 0.7% |
B- | | 0.6% |
NR | | 56.2% |
Credit quality ratings on underlying securities of the Fund are received from S&P, Moody’s, and Fitch and converted to the equivalent S&P major rating category. This breakdown is provided by Infrastructure Capital Advisors, LLC and takes the median rating of the three agencies when all three agencies rate a security, the lower of the two ratings if only two agencies rate a security, and one rating if that is all that is provided. Unrated securities do not necessarily indicate low quality. A credit rating below investment-grade is represented by a rating of BB and below. Ratings and portfolio credit quality may change over time. This discussion includes information based on data and calculations sourced from Bloomberg and index constituents. While we believe that the data is reliable, we have not sought, nor have we received, permission from any third-party to include their information.
Performance as of 10/31/2020
| | Average Annual Total Return | | ||||
| | Fund | | Fund | | Indxx REIT | |
1 Year | | (8.06)% | | (9.17)% | | (8.22)% | |
Since Inception2 | | 2.23% | | 2.02% | | 2.72% | |
1 The Indxx REIT Preferred Stock Index is a market cap weighted index designed to provide diversified exposure to high yielding liquid preferred securities issued by Real Estate Investment Trusts listed in the U.S. The index is calculated on a total return basis. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.
2February 7, 2017.
Performance data quoted represents past performance and past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. For the most current month-end performance data please visit www.virtusetfs.com or call toll free (800) 243-4361. Market price returns are based on the mid-point of the highest bid and lowest offer for Fund shares as of the scheduled close of regular trading on the New York Stock Exchange Arca (“NYSE”), ordinarily 4:00 p.m. Eastern time, on each day during which the NYSE is open for trading, and do not represent the returns an investor would receive if shares were traded at other times.
Preferred Stocks: Preferred stocks may decline in price, fail to pay dividends, or be illiquid.
Real Estate Investments: The Fund may be negatively affected by factors specific to the real estate market, including interest rates, leverage, property, and management.
Industry/Sector Concentration: A fund that focuses its investments in a particular industry or sector will be more sensitive to conditions that affect that industry or sector than a non-concentrated fund.
Non-Diversified: The Fund is non-diversified and may be more susceptible to factors negatively impacting its holdings to the extent that each security represents a larger portion of the Fund’s assets.
4
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
InfraCap REIT Preferred ETF (continued)
Passive Strategy/Index Risk: A passive investment strategy seeking to track the performance of the Underlying Index may result in the fund holding securities regardless of market conditions or their current or projected performance. This could cause the Fund’s returns to be lower than if the Fund employed an active strategy.
Correlation to Index: The performance of the Fund and its index may vary somewhat due to factors such as Fund flows, transaction costs, and timing differences associated with additions to and deletions from its index.
Market Volatility: Securities in the Fund may go up or down in response to the prospects of individual companies and general economic conditions. Price changes may be short or long term.
Exchange Traded Funds: The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities.
Market Price/NAV: Shares of ETFs often trade at a discount to their net asset value, which may increase investors’ risk of loss. At the time of sale, an investor’s shares may have a market price that is above or below the Fund’s NAV.
No Guarantee: There is no guarantee that the Fund will meet its objective.
Prospectus: For additional information on risks, please see the Fund’s prospectus. The Fund may not be suitable for all investors.
Value of a $10,000 Investment Since Inception at Net Asset Value
The chart above represents historical performance of a hypothetical investment of $10,000 over the life of the Fund, assuming reinvestment of distributions. Past performance does not guarantee future results.
5
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
Virtus InfraCap U.S. Preferred Stock ETF
Management’s Discussion of Operations
Overview
Virtus InfraCap U.S. Preferred Stock ETF (the “Fund”) seeks to provide current income and, secondarily, capital appreciation through an actively-managed portfolio of high quality U.S. preferred stocks. Callable preferred securities exhibiting a low or negative yield to call are generally excluded from the portfolio. The Fund utilizes options strategies and modest leverage to enhance income and total return.
Market Update
The fiscal year ended October 31, 2020 was characterized by extraordinary volatility in the financial markets. The emergence of the COVID-19 global pandemic in February 2020 led to an economic shutdown and the most rapid collapse in U.S. economic activity in modern history. The Federal Reserve and the U.S. Treasury took dramatic action to stabilize the economy and global financial markets, which was largely successful. Rates on 10-year and 30-year U.S. Treasury bonds plunged to historic lows. The Federal Reserve pledged to keep short-term interest rates near zero through 2023. The economy and financial markets rebounded sharply as a consequence of the monetary and fiscal stimulus, but the pace of the rebound slowed as the fiscal year ended. Cyclical segments of the economy lagged sectors that benefitted from lockdown conditions, such as technology.
During the period, the nationwide implementation of business shutdowns and strict social distancing measures in an effort to slow the spread of the COVID-19 pandemic impacted preferred securities across nearly all asset classes. A significant contributor to the Fund’s underperformance as compared to the Fund’s benchmark index during the period was the Fund’s holdings in non-investment grade preferred securities, which were particularly impacted by the COVID-19 pandemic. Two issuers of non-investment grade securities in particular, Ashford Hospitality Trust (“Ashford”) and GasLog Partners LP (“GasLog”) were significant detractors during the period. Ashford is a hotel-focused real estate investment trust (REITs) that utilizes significant leverage. GasLog is an owner, operator, and manager of liquid natural gas carriers and also utilizes significant leverage. Both issuers experienced significant business disruptions and declines in revenues as a result of the COVID-19 pandemic. The Fund held multiple issues of Ashford preferreds, which were down -65.97% on average over the period. As of October 31, 2020, the Fund’s position in all issues of Ashford preferreds was .86%. The Fund held multiple issues of GasLog, specifically Series A and Series B, which were down - 43.76%% and -40.10% over the period.
Two of the Fund’s strongest contributors during the period were NextEra Energy Inc. (“Nextera”) and National General Holdings Corp. (“National General”). Nextera is a diversified clean energy company that focuses on alternative energy sources including wind, solar and nuclear power units. National General is an insurance provider that offers specialty insurance coverage through its various subsidiaries. The Fund held one issue of each of Nextera (NEEPO) and National General (NGHCN), which were up 13.89% and 13.53%, respectively, over the period.
In the twelve months ending October 31, 2020, the Fund’s total return based on net asset value was -18.37%. The Fund’s benchmark index, the S&P U.S. Preferred Stock Index, returned 3.02% during the same period.
The Fund’s portfolio composition emphasizes issuers that own long-lived assets that generate free cash flow. Preferred stocks issued by property REITs and pipelines comprised about 41% and 12% of the Fund’s total assets, respectively, at fiscal year-end. This compares to weightings of approximately 7% and 2% in the benchmark index. Such overweighting negatively contributed to Fund performance during the period. The Fund also had weightings in preferred stocks from utilities and other industrial companies of about 13% and 12%, respectively. This compares to weightings of 13% and 2% for the benchmark index. The Fund was underweighted in financial companies relative to the benchmark index (11% vs. 46% of the Fund’s total assets), but overweight in mortgage REITs (20% vs. 3% of the Fund’s total assets). Such underweighting of financials negatively contributed to Fund performance during the period.
Approximately 51% of the Fund’s total assets were fixed-to-floating rate preferred stocks at fiscal year-end. This compares to about 25% for the benchmark index. These securities have a fixed rate coupon at issue but become a floating rate security after a specified period of time, typically five or ten years after issuance. This structure provides investors with some protection from a rising interest rate environment while offering a higher current yield than that available on securities with coupon rates that float currently. During the period, this overweighting negatively contributed to Fund performance.
6
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
Virtus InfraCap U.S. Preferred Stock ETF (continued)
Dividend Payments
In the fiscal year ended October 31, 2020, dividend payments were impacted by the market environment. During the first four months of the fiscal year, the Fund made monthly dividend payments in the amount of $0.19 per share and also paid a special dividend of $0.36 per share in December 2019. In March 2020, as a consequence of market disruption related to the COVID-19 pandemic, the Fund reduced leverage and temporarily halted option trading activity. This temporary change reduced the amount of income available for distribution, and the monthly dividend rate was set at $0.15 per share to reflect the current economic environment. While the Fund plans to continue paying monthly dividends, dividends are not guaranteed.
The Fund’s dividend policy is reviewed on an annual basis with the expectation that the announced dividend rate can be sustained for a period of 12 – 24 months. The Fund’s targeted dividend is expected to be covered by its investment company taxable income (which includes ordinary income and short-term capital gains less expenses). For the purpose of calculating income available for distribution, some cash payments from REITs or MLPs treated as Return of Capital for tax or GAAP purposes may be included. Expenses include an 80 basis point advisory fee, leverage costs, and other miscellaneous fees.
The Fund seeks to maintain relatively stable monthly distributions although the amount of income earned by the Fund varies from period-to-period. To achieve this, the Fund may distribute less than the full amount of income earned during a specific period to preserve income for distribution in future periods. Consequently, the amount of income distributed in any one period may be more or less than the actual amount of income earned in that period.
The Fund’s current indicated yield based on its closing price on the New York Stock Exchange on October 31, 2020 ($19.05) was 9.45%. The Fund’s current indicated yield based on its Net Asset Value (NAV) per share ($19.26) was 9.34%.
Use of Leverage
As described in the Fund’s prospectus, the Fund may use modest leverage to help achieve its current income objective. The leverage ratio is expected to be maintained in a range of 10-35% of the Fund’s total assets over the long term. The COVID-19 pandemic disrupted the capital markets and caused the prices of non-investment grade securities to plunge. In response to the crisis, the Fund reduced leverage from 19% of NAV as of February 28, 2020 to 10% of NAV as of March 31, 2020. As of October 31, 2020, borrowing amounted to 28.1% of the Fund’s net asset value. The Fund’s use of leverage negatively impacted Fund performance during the period.
The Fund’s cost of borrowing fell during the fiscal year, and borrowed funds generated an attractive positive spread. The Fund borrows at a 120 basis point premium to the 3-month LIBOR rate. The 3-month LIBOR rate fell to 0.22% on October 31, 2020 from 1.90% on October 31, 2019.
Use of Options
As described in the Fund’s prospectus, the Fund may utilize options strategies to boost the amount of income available to distribute to shareholders. The primary activity is covered call writing, which is focused on a small number of common stocks and ETFs owned by the Fund. However, due to high volatility and market conditions, option activity contributed negatively to Fund performance and the Fund reduced the frequency of this activity.
Outlook
The Fund’s manager believes the preferred stock asset class is inefficiently priced and offers active managers the opportunity to add to benchmark returns. The Fund’s manager places special emphasis on maximizing the Fund’s yield-to-call. The Fund’s manager believes that avoiding issues that are callable and trading at prices above the call price will assist in achieving that result. Many preferred stock investors, especially passive funds, ignore the risk of owning issues with a negative yield-to-call.
After collapsing to historic lows, long-term U.S. Treasury rates are moving modestly higher, as confidence in global economic growth appears to be building. The Fund’s manager believes wide interest rate spreads over long-duration U.S. Treasury bonds offer protection from interest rate increases. The Fund’s manager also believes the correlation between the U.S. Treasury bond price moves and price swings in preferred stocks is likely to be moderated by the wide spreads. The Fund’s manager further believes the environment to invest in non-investment grade securities will be favorable in 2021 as spreads widen from long-term U.S. Treasury rate increases.
The preceding information is the opinion of the investment adviser and sub-adviser. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Statements of fact are from sources considered reliable, but the investment adviser and sub-adviser make no representation or warranty as to their completeness or accuracy. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized. This discussion includes information based on data and calculations sourced from Bloomberg and index constituents. While we believe that the data is reliable, we have not sought, nor have we received, permission from any third-party to include their information.
7
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
Virtus InfraCap U.S. Preferred Stock ETF (continued)
Performance as of 10/31/2020
| | Average Annual Total Return | | ||||
| | Fund | | Fund | | S&P U.S. | |
1 Year | | (18.37)% | | (19.22)% | | 3.02% | |
Since Inception2 | | (0.97)% | | (1.20)% | | 6.04% | |
1 The S&P U.S. Preferred Stock Index measures performance of the U.S. preferred stock market. Preferred stocks pay dividends at a specified rate and receive preference over common stocks in terms of dividend payments and liquidation of assets. The index is calculated on a total return basis with dividend reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.
2May 15, 2018.
Performance data quoted represents past performance and past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. For the most current month-end performance data please visit www.virtusetfs.com or call toll free (800) 243-4361. Market price returns are based on the mid-point of the highest bid and lowest offer for Fund shares as of the scheduled close of regular trading on the New York Stock Exchange Arca (“NYSE”), ordinarily 4:00 p.m. Eastern time, on each day during which the NYSE is open for trading, and do not represent the returns an investor would receive if shares were traded at other times.
Preferred Stocks: Preferred stocks may decline in price, fail to pay dividends, or be illiquid.
Derivatives: Investments in derivatives such as futures, options, forwards, and swaps may increase volatility or cause a loss greater than the principal investment.
Leverage: When a fund leverages its portfolio, the value of its shares may be more volatile and all other risks may be compounded.
Non-Diversified: The Fund is non-diversified and may be more susceptible to factors negatively impacting its holdings to the extent that each security represents a larger portion of the Fund’s assets.
Sector Focus: To the extent the Fund has significant exposure to one or more sectors, this may make the Fund particularly susceptible to adverse economic, political or regulatory occurrences and changes affecting companies in those sectors.
Exchange Traded Funds: The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities.
Market Price/NAV: Shares of ETFs often trade at a discount to their net asset value, which may increase investors’ risk of loss. At the time of sale, an investor’s shares may have a market price that is above or below the Fund’s NAV.
No Guarantee: There is no guarantee that the Fund will meet its objective.
Prospectus: For additional information on risks, please see the Fund’s prospectus. The Fund may not be suitable for all investors.
8
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
Virtus InfraCap U.S. Preferred Stock ETF (continued)
Value of a $10,000 Investment Since Inception at Net Asset Value
The chart above represents historical performance of a hypothetical investment of $10,000 over the life of the Fund, assuming reinvestment of distributions. Past performance does not guarantee future results.
9
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
Virtus LifeSci Biotech Clinical Trials ETF
The Virtus LifeSci Biotech Clinical Trials ETF (the “Fund”) seeks to track the investment results, before fees and expenses, of the LifeSci Biotechnology Clinical Trials Index (the “Index”), which is composed of U.S.-listed biotechnology stocks with a lead drug in the clinical trial stage of development.
For the fiscal year ended October 31, 2020, the Fund’s total return based on market price was 47.50%. The Fund’s total return based on net asset value was 47.50%. The Index returned 49.25% during the same period.
Top performing stocks for the Fund’s fiscal year included Forty-Seven, which traded higher after the company agreed to be acquired by Gilead for $95.50 per share in cash. ChemoCentryx, a biopharmaceutical company that engages in the development and commercialization of medicines, contributed positively to Fund returns. ChemoCentryx focuses on inflammatory disorders, autoimmune diseases, and cancer. Its drug candidates, including Avacopan and CCX140, selectively block a specific chemoattractant receptor, leaving the rest of the immune system intact. In addition, the Fund benefited from its position in Moderna, which is developing an mRNA vaccine to fight COVID-19. Moderna is exploring potential optimizations to their processes for generating some of the key raw materials used in the manufacturing of its mRNA vaccines.
Detractors from the Fund’s performance during the 12-month period included NextCure, which engages in the development of small molecule therapeutics for the treatment of patients with cancer. Other detractors were Tricida, a pharmaceutical company that focuses on the development and commercialization of TRC101. This product is a non-absorbed, orally administered polymer drug that is designed to treat metabolic acidosis in patients with chronic kidney disease. Orchard Therapeutics PLC, a clinical stage company engaged in the discovery, development, and commercialization of gene therapies for patients with rare disorders, also detracted from returns.
The preceding information is the opinion of the investment adviser. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Statements of fact are from sources considered reliable, but the investment adviser makes no representation or warranty as to their completeness or accuracy. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized.
Performance as of 10/31/2020
| | Average Annual Total Return | | ||||||
| | Fund | | Fund | | LifeSci | | S&P 500® | |
1 Year | | 47.50% | | 47.50% | | 49.25% | | 9.71% | |
5 Years | | 7.66% | | 7.66% | | 8.42% | | 11.71% | |
Since Inception3 | | 8.14% | | 8.12% | | 8.81% | | 11.20% | |
1 The LifeSci Biotechnology Clinical Trials Index is designed to track the performance of U.S.-listed biotechnology stocks with a lead drug in the clinical trial stage of development, typically a Phase 1, Phase 2 or Phase 3 trial, but prior to receiving marketing approval. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.
2 The S&P 500® Index is a free-float market capitalization-weighted index of 500 of the largest U.S. companies. The index is calculated on a total return basis with dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.
3December 16, 2014.
Performance data quoted represents past performance and past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. For the most current month-end performance data please visit www.virtusetfs.com or call toll free (800) 243-4361. Market price returns are based on the mid-point of the highest bid and lowest offer for Fund shares as of the scheduled close of regular trading on the New York Stock Exchange Arca (“NYSE”), ordinarily 4:00 p.m. Eastern time, on each day during which the NYSE is open for trading, and do not represent the returns an investor would receive if shares were traded at other times.
10
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
Virtus LifeSci Biotech Clinical Trials ETF (continued)
Biotechnology Industry Risk: The Fund’s assets will be concentrated in investments in the securities of issuers engaged primarily in the biotechnology industry. Companies within the biotechnology industry spend heavily on research and development, which may not necessarily lead to commercially successful products in the near or long term. In order to fund operations, these companies may require financing from the capital markets, which may not always be available on satisfactory terms or at all. The biotechnology industry is also subject to significant governmental regulation, and the need for governmental approvals, including, without limitation, FDA approval. The securities of biotechnology companies, especially those of smaller or newer companies, tend to be more volatile than those of companies with larger capitalizations or markets generally.
Industry/Sector Concentration: A fund that focuses its investments in a particular industry or sector will be more sensitive to conditions that affect that industry or sector than a non-concentrated fund.
Correlation to Index: The performance of the Fund and its index may vary somewhat due to factors such as Fund flows, transaction costs, and timing differences associated with additions to and deletions from its index.
Exchange Traded Funds: The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities.
Market Price/NAV: Shares of ETFs often trade at a discount to their net asset value, which may increase investors’ risk of loss. At the time of sale, an investor’s shares may have a market price that is above or below the Fund’s NAV.
No Guarantee: There is no guarantee that the Fund will meet its objective.
Prospectus: For additional information on risks, please see the Fund’s prospectus. The Fund may not be suitable for all investors.
Value of a $10,000 Investment Since Inception at Net Asset Value
The chart above represents historical performance of a hypothetical investment of $10,000 over the life of the Fund, assuming reinvestment of distributions. Past performance does not guarantee future results.
11
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
Virtus LifeSci Biotech Products ETF
The Virtus LifeSci Biotech Products ETF (the “Fund”) seeks to track the investment results, before fees and expenses, of the LifeSci Biotechnology Products Index (the “Index”), which is composed of U.S.-listed biotechnology stocks with at least one drug therapy approved by the U.S. Food & Drug Administration (“FDA”) for marketing.
For the fiscal year ended October 31, 2020, the Fund’s total return based on market price was 27.44%. The Fund’s total return based on net asset value was 27.27%. The Index returned 28.44% during the same period.
The biggest driver of returns for the Fund was mergers & acquisitions (“M&A”) activity. During the 12-month period, Momenta Pharmaceuticals agreed to be acquired by Johnson & Johnson for $52.50 per share in cash. Immunomedics, which focuses on monoclonal antibody-based products for the targeted treatment of cancer, traded higher after Gilead Sciences announced a definitive agreement to acquire the company for $20.4 billion in cash via tender offer. Other top contributors included Ultragenyx Pharmaceutical, a biopharmaceutical company that engages in the identification, acquisition, development, and commercialization of novel products for the treatment of serious rare and ultra-rare genetic diseases. The company’s products include Mepsevii, which is used to treat Mucopolysaccharidosis VII, and Crysvita, an antibody used for the treatment of XLH.
Detractors from relative Fund performance included Intercept Pharmaceuticals, a biopharmaceutical company that engages in the research, development, and commercialization of novel therapeutics for treating chronic liver diseases. Radius Health, a biopharmaceutical company, made a negative contribution to Fund returns. The company engages in developing and commercializing endocrine therapeutics in the areas of osteoporosis and oncology. Other detractors included Portola Pharmaceuticals, which develops biopharmaceutical therapeutic products. Portola was acquired by Alexion Pharmaceuticals for $1.4 billion in cash, via tender offer. Under the terms of the agreement, Alexion would pay $18 in cash for every target share acquired.
The preceding information is the opinion of the investment adviser. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Statements of fact are from sources considered reliable, but the investment adviser makes no representation or warranty as to their completeness or accuracy. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized.
Performance as of 10/31/2020
| | Average Annual Total Return | | ||||||
| | Fund | | Fund | | LifeSci | | S&P 500® | |
1 Year | | 27.27% | | 27.44% | | 28.44% | | 9.71% | |
5 Years | | 9.90% | | 9.92% | | 10.84% | | 11.71% | |
Since Inception3 | | 12.10% | | 12.11% | | 13.03% | | 11.20% | |
1 The LifeSci Biotechnology Products Index is designed to track the performance of U.S.-listed biotechnology stocks with at least one drug therapy approved by the FDA for marketing. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.
2 The S&P 500® Index is a free-float market capitalization-weighted index of 500 of the largest U.S. companies. The index is calculated on a total return basis with dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.
3December 16, 2014.
Performance data quoted represents past performance and past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. For the most current month-end performance data please visit www.virtusetfs.com or call toll free (800) 243-4361. Market price returns are based on the mid-point of the highest bid and lowest offer for Fund shares as of the scheduled close of regular trading on the New York Stock Exchange Arca (“NYSE”), ordinarily 4:00 p.m. Eastern time, on each day during which the NYSE is open for trading, and do not represent the returns an investor would receive if shares were traded at other times.
12
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
Virtus LifeSci Biotech Products ETF (continued)
Biotechnology Industry Risk: The Fund’s assets will be concentrated in investments in the securities of issuers engaged primarily in the biotechnology industry. Companies within the biotechnology industry spend heavily on research and development, which may not necessarily lead to commercially successful products in the near or long term. In order to fund operations, these companies may require financing from the capital markets, which may not always be available on satisfactory terms or at all. The biotechnology industry is also subject to significant governmental regulation, and the need for governmental approvals, including, without limitation, FDA approval. The securities of biotechnology companies, especially those of smaller or newer companies, tend to be more volatile than those of companies with larger capitalizations or markets generally.
Industry/Sector Concentration: A fund that focuses its investments in a particular industry or sector will be more sensitive to conditions that affect that industry or sector than a non-concentrated fund.
Correlation to Index: The performance of the Fund and its index may vary somewhat due to factors such as Fund flows, transaction costs, and timing differences associated with additions to and deletions from its index.
Exchange Traded Funds: The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities.
Market Price/NAV: Shares of ETFs often trade at a discount to their net asset value, which may increase investors’ risk of loss. At the time of sale, an investor’s shares may have a market price that is above or below the Fund’s NAV.
No Guarantee: There is no guarantee that the Fund will meet its objective.
Prospectus: For additional information on risks, please see the Fund’s prospectus. The Fund may not be suitable for all investors.
Value of a $10,000 Investment Since Inception at Net Asset Value
The chart above represents historical performance of a hypothetical investment of $10,000 over the life of the Fund, assuming reinvestment of distributions. Past performance does not guarantee future results.
13
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
Virtus Newfleet Multi-Sector Bond ETF
The Virtus Newfleet Multi-Sector Bond ETF (the “Fund”) seeks to provide a high level of current income and, secondarily, capital appreciation.
How did the markets perform during the Fund’s fiscal year ended October 31, 2020?
The fiscal year ended October 31, 2020 included a variety of market conditions, but the most influential were the emergence of a global pandemic, the associated economic and earnings fallout, and both the fiscal and monetary policy response.
In the final quarter of 2019, investors maintained their appetite for risk assets. Fixed income markets responded favorably to monetary easing by global central banks, positive developments on the trade front, and signs of stability in economic data. Geopolitical developments including trade, Middle East tensions, and European politics, as well as central bank headlines, all continued to be significant market movers. During this period, spread sectors outperformed U.S. Treasuries, led by higher-volatility sectors such as corporate high yield, bank loans, and emerging market debt. In a change from the first three quarters of 2019, lower quality within these sectors outperformed higher quality. Within spread sectors, corporate credit outperformed securitized sectors such as commercial mortgage-backed securities and asset-backed securities.
In stark contrast, the first quarter of 2020 saw volatility spike to levels not reached since the financial crisis of 2008-09. The quarter will be remembered for the emergence of COVID-19 as the first global pandemic since the H1N1 swine flu of 2009-10. The ultimate human and economic toll are still unknown, as the event continues to unfold, however, governments and central banks responded in unprecedented fashion to help blunt the effects of the virus. The containment measures implemented through the end of the fiscal year were unambiguously negative for local, regional, and global economic growth. However, markets rebounded from the lows they reached during the second quarter of 2020.
The spread of the coronavirus, its negative effect on global economic growth, and the fear it created in the market caused fixed income spreads to widen significantly during March. Valuations cheapened meaningfully, reaching levels not seen since 2008-09. Cheaper valuations and an active approach by both monetary and fiscal authorities proved a powerful combination, setting the stage for improved financial market performance off the March 2020 lows.
During the first quarter of 2020, U.S. Treasuries outperformed spread sectors. The underperformers were led by higher-volatility sectors such as corporate high yield, bank loans, and emerging market debt. In the seven months since, the fixed income markets experienced a significant rebound, with spread sectors outperforming U.S. Treasuries led by those sectors that experienced the greatest degree of underperformance during the first quarter.
The Federal Reserve (the Fed) lowered its target interest rate twice during the 12-month period. On two separate occasions in March, in response to the pandemic, the Fed cut by a total of 1.25% to a range of 0–0.25%.
During the 12-month period, the Treasury yield curve steepened, shifting broadly lower, more so on the front end.
What factors affected the Fund’s performance during its fiscal year?
For the fiscal year ended October 31, 2020, the Fund’s total return based on market price was 4.75%. The Fund’s total return based on net asset value was 4.51%. The Fund’s benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index, returned 6.19% during the same period.
The outperformance of U.S. Treasuries relative to spread sectors was the key driver of the Fund’s relative underperformance for the fiscal year ended October 30, 2020. Among fixed income sectors, the Fund’s allocations to high yield bank loans and emerging market high yield detracted from performance during the period.
The Fund’s allocation to and issue selection within non-agency residential mortgage-backed securities positively contributed to performance for the fiscal year. Issue selection within taxable municipals and the allocation to corporate high yield were also beneficial during the period.
The preceding information is the opinion of the investment adviser and sub-adviser. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Statements of fact are from sources considered reliable, but the investment adviser and sub-adviser make no representation or warranty as to their completeness or accuracy. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized.
14
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
Virtus Newfleet Multi-Sector Bond ETF (continued)
Performance as of 10/31/2020
| | Average Annual Total Return | | ||||
| | Fund | | Fund | | Bloomberg | |
1 Year | | 4.51% | | 4.75% | | 6.19% | |
5 Years | | 4.59% | | 4.63% | | 4.08% | |
Since Inception2 | | 4.48% | | 4.51% | | 4.05% | |
1The Bloomberg Barclays U.S. Aggregate Bond Index measures the U.S. investment grade fixed rate bond market. The index is calculated on a total return basis. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.
2August 10, 2015.
Performance data quoted represents past performance and past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. For the most current month-end performance data please visit www.virtusetfs.com or call toll free (800) 243-4361. Market price returns are based on the mid-point of the highest bid and lowest offer for Fund shares as of the scheduled close of regular trading on the New York Stock Exchange Arca (“NYSE”), ordinarily 4:00 p.m. Eastern time, on each day during which the NYSE is open for trading, and do not represent the returns an investor would receive if shares were traded at other times.
Credit & Interest: Debt securities are subject to various risks, the most prominent of which are credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt securities may rise or fall in response to changes in interest rates, and this risk may be enhanced with longer-term maturities.
High Yield-High Risk Fixed Income Securities: There is a greater level of credit risk and price volatility involved with high yield securities than investment grade securities.
Foreign & Emerging Markets: Investing internationally, especially in emerging markets, involves additional risks such as currency, political, accounting, economic, and market risk.
ABS/MBS: Changes in interest rates can cause both extension and prepayment risks for asset- and mortgage-backed securities. These securities are also subject to risks associated with the repayment of underlying collateral.
Bank Loans: Loans may be unsecured or not fully collateralized, may be subject to restrictions on resale and/or trade infrequently on the secondary market. Loans can carry significant credit and call risk, can be difficult to value and have longer settlement times than other investments, which can make loans relatively illiquid at times.
Market Price/NAV: Shares of ETFs often trade at a discount to their net asset value, which may increase investors’ risk of loss. At the time of sale, an investor’s shares may have a market price that is above or below the Fund’s NAV.
No Guarantee: There is no guarantee that the Fund will meet its objective.
Prospectus: For additional information on risks, please see the Fund’s prospectus. The Fund may not be suitable for all investors.
15
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
Virtus Newfleet Multi-Sector Bond ETF (continued)
Value of a $10,000 Investment Since Inception at Net Asset Value
The chart above represents historical performance of a hypothetical investment of $10,000 over the life of the Fund, assuming reinvestment of distributions. Past performance does not guarantee future results.
16
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
Virtus Private Credit Strategy ETF
The Virtus Private Credit Strategy ETF (the “Fund”) strives to deliver an alternative source of yield to traditional fixed income by focusing on the private credit market, particularly companies involved in lending to non-investment grade, small- to mid-sized U.S. companies.
The Fund seeks to track the investment results, before fees and expenses, of the Indxx Private Credit Index (the “Index”), which is comprised of U.S.-listed business development companies (“BDCs”) and closed-end funds that provide significant exposure to private credit.
For the fiscal year ended October 31, 2020, the Fund’s total return based on market price was -21.74%. The Fund’s total return based on net asset value was -21.70%. The Index returned -20.85% during the same period.
The best performing groups for the Fund during the 12-month period were BDCs that are involved in debt and equity financing to lower middle-market companies. These included TriplePoint Venture Growth BDC, which focuses on companies operating in the fields of biofuels, business applications software, and wireless communications equipment, and Goldman Sachs BDC, a specialty finance company that offers senior secured, unitranche, junior secured, and mezzanine debt, as well as equity investments. BlackRock Debt Strategies Fund, a diversified, closed-end management investment company, was another top contributor. Its investment objective is to provide current income by investing primarily in a diversified portfolio of U.S. companies’ debt instruments, including corporate loans.
Events related to the ongoing pandemic challenged the liquidity profile of many of the securities held in the Fund. Detractors from relative performance included Apollo Investment Corp., a closed-end, externally managed, non-diversified management investment company that engages in the provision of financial solutions. Apollo’s portfolio includes investments in debt, including secured and unsecured debt of private middle-market companies. BlackRock Capital Investment Corp., a debt-focused BDC, also detracted from the Fund’s returns. BlackRock Capital Investment Corp. invests in middle market companies in the U.S. and Canada that operate across a broad range of sectors. The focus is on companies with revenues ranging from $50 million to $1 billion, strong management teams, defensible market positions, and positive cash flows. Another detractor was Capitala Finance Corp., a BDC that provides capital to lower and traditional middle market businesses, which was removed in the third quarter as it no longer met the financial requirements of the Index.
The preceding information is the opinion of the investment adviser. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Statements of fact are from sources considered reliable, but the investment adviser makes no representation or warranty as to their completeness or accuracy. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized.
Performance as of 10/31/2020
| | Average Annual Total Return | | ||||
| | Fund | | Fund | | Indxx | |
| (21.70)% | | (21.74)% | | (20.85)% | | |
Since Inception2 | | (10.70)% | | (10.72)% | | (9.88)% | |
1 The Indxx Private Credit Index is an index of listed business development companies (“BDCs”) and closed end funds (“CEFs”) with a private credit focus. The Index is designed to serve as a broad-based benchmark for long-only investments in private credit. The Index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.
2February 7, 2019.
Performance data quoted represents past performance and past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. For the most current month-end performance data please visit www.virtusetfs.com or call toll free (800) 243-4361. Market price returns are based on the mid-point of the highest bid and lowest offer for Fund shares as of the scheduled close of regular trading on the New York Stock Exchange Arca (“NYSE”), ordinarily 4:00 p.m. Eastern time, on each day during which the NYSE is open for trading, and do not represent the returns an investor would receive if shares were traded at other times.
Private Credit Funds: Private credit funds that invest in closed-end funds and business development companies bear the risk of these underlying assets, including liquidity, industry, currency, valuation and credit risks.
Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk.
17
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
Virtus Private Credit Strategy ETF (continued)
Credit & Interest: Debt securities are subject to various risks, the most prominent of which are credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt securities may rise or fall in response to changes in interest rates, and this risk may be enhanced with longer-term maturities.
High Yield-High Risk Fixed Income Securities: There is a greater level of credit risk and price volatility involved with high yield securities than investment grade securities.
Non-Diversified: The Fund is non-diversified and may be more susceptible to factors negatively impacting its holdings to the extent that each security represents a larger portion of the Fund’s assets.
Passive Strategy/Index Risk: A passive investment strategy seeking to track the performance of the Underlying Index may result in the fund holding securities regardless of market conditions or their current or projected performance. This could cause the Fund’s returns to be lower than if the Fund employed an active strategy.
Fund of Funds: Because the Fund can invest in other funds, it indirectly bears its proportionate share of the operating expenses and management fees of the underlying fund(s).
Correlation to Index: The performance of the Fund and its index may vary somewhat due to factors such as Fund flows, transaction costs, and timing differences associated with additions to and deletions from its index.
Closed-End Funds: Closed-end funds may trade at a discount from their net asset values, which may affect whether the fund will realize gains or losses. They may also employ leverage, which may increase volatility.
Exchange Traded Funds: The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities.
Market Price/NAV: Shares of ETFs often trade at a discount to their net asset value, which may increase investors’ risk of loss. At the time of sale, an investor’s shares may have a market price that is above or below the Fund’s NAV.
No Guarantee: There is no guarantee that the Fund will meet its objective.
Prospectus: For additional information on risks, please see the Fund’s prospectus. The Fund may not be suitable for all investors.
Value of a $10,000 Investment Since Inception at Net Asset Value
The chart above represents historical performance of a hypothetical investment of $10,000 over the life of the Fund, assuming reinvestment of distributions. Past performance does not guarantee future results.
18
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
Virtus Real Asset Income ETF
The Virtus Real Asset Income ETF (the “Fund”) aims to provide passive exposure to high income-producing real asset securities. The Fund seeks to track the investment results, before fees and expenses, of the Indxx Real Asset Income Index (the “Index”), which is comprised of U.S.-listed securities with a history of dividend growth across three real asset categories:
•real estate, including real estate development and real estate investment trusts (“REITs”);
•natural resources, including oil, coal, precious metals, steel, agricultural commodities, and forest products; and
•infrastructure, including electric utilities, telecoms, transportation and master limited partnerships (MLPs).
For the fiscal year ended October 31, 2020, the Fund’s total return based on market price was -21.81%. The Fund’s total return based on net asset value was -21.53%. The Index returned -21.29% during the same period.
The best performers for the Fund during the 12-month period were primarily metals and mining names, including Delek Logistics Partners, which owns and operates logistics and marketing assets for crude oil, intermediate, and refined products. The firm gathers, transports, and stores crude oil. Another successful holding was Newmont Corp., which engages in the production of gold. Newmont operates through the following geographical segments: North America, South America, Australia, and Africa. In addition, Southern Copper Corp. contributed positively to performance. The company engages in the development, production, and exploration of copper, molybdenum, zinc, and silver. It operates through the following segments: Peruvian Operations, Mexican Open-Pit Operations, and Mexican Underground Operations.
The largest detractors from Fund performance were found largely in oil refining and REITs. These names were impacted by the pandemic, as well as the shift by investors to alternative energy sources. The real asset sector experienced declines in line with the broad market in light of the pandemic and related economic concerns. Negative contributors included Washington Prime Group, which engages in the ownership, management, acquisition, and development of retail properties, and CVR Energy, a holding company that engages in the provision of petroleum refining and marketing business. Another top detractor was SL Green Realty Corp., which operates as a REIT. The firm’s business includes the acquisition, development, ownership, management, and operation of commercial and residential real estate properties.
The preceding information is the opinion of the investment adviser. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Statements of fact are from sources considered reliable, but the investment adviser makes no representation or warranty as to their completeness or accuracy. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized.
Performance as of 10/31/2020
| | Average Annual Total Return | | ||||
| | Fund | | Fund | | Indxx Real | |
1 Year | | (21.53)% | | (21.81)% | | (21.29)% | |
Since Inception2 | | (12.15)% | | (12.32)% | | (11.74)% | |
1 The Indxx Real Asset Income Index tracks the performance of US-listed securities in the Real Asset space (Real Estate, Natural Resources and Infrastructure) emphasizing dividend growth. The Index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.
2February 7, 2019.
Performance data quoted represents past performance and past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. For the most current month-end performance data please visit www.virtusetfs.com or call toll free (800) 243-4361. Market price returns are based on the mid-point of the highest bid and lowest offer for Fund shares as of the scheduled close of regular trading on the New York Stock Exchange Arca (“NYSE”), ordinarily 4:00 p.m. Eastern time, on each day during which the NYSE is open for
trading, and do not represent the returns an investor would receive if shares were traded at other times.
Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk.
19
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
Virtus Real Asset Income ETF (continued)
Equity REITs: The Fund may be negatively affected by factors specific to the real estate market, including interest rates, leverage, property, and management.
Natural Resources: A fund that focuses its investments in natural resources companies will be more sensitive to conditions affecting their business or operations.
Infrastructure: A fund that focuses its investments in infrastructure-related companies will be more sensitive to conditions affecting their business or operations.
Non-Diversified: The Fund is non-diversified and may be more susceptible to factors negatively impacting its holdings to the extent that each security represents a larger portion of the Fund’s assets.
MLPs: Investments in Master Limited Partnerships may be adversely impacted by tax law changes, regulation, or factors affecting underlying assets.
Passive Strategy/Index Risk: A passive investment strategy seeking to track the performance of the Underlying Index may result in the fund holding securities regardless of market conditions or their current or projected performance. This could cause the Fund’s returns to be lower than if the Fund employed an active strategy.
Correlation to Index: The performance of the Fund and its index may vary somewhat due to factors such as Fund flows, transaction costs, and timing differences associated with additions to and deletions from its index.
Exchange Traded Funds: The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities.
Market Price/NAV: Shares of ETFs often trade at a discount to their net asset value, which may increase investors’ risk of loss. At the time of sale, an investor’s shares may have a market price that is above or below the Fund’s NAV.
No Guarantee: There is no guarantee that the Fund will meet its objective.
Prospectus: For additional information on risks, please see the Fund’s prospectus. The Fund may not be suitable for all investors.
Value of a $10,000 Investment Since Inception at Net Asset Value
The chart above represents historical performance of a hypothetical investment of $10,000 over the life of the Fund, assuming reinvestment of distributions. Past performance does not guarantee future results.
20
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
Virtus WMC International Dividend ETF
Management’s Discussion of Fund Performance for one-year period through 10/31/2020
During the period presented, the Virtus WMC Global Factor Opportunities ETF (NYSE: VGFO) transitioned to the Virtus WMC International Dividend ETF (NYSE: VWID) (the “Fund”) effective July 20, 2020 (the “Repositioning”). As such, the below commentary reflects performance of the Fund utilizing the VGFO strategy for the period 11/01/2019 – 7/19/2020 and performance of the Fund utilizing the VWID strategy for the period 7/20/2020 – 10/31/2020.
Virtus WMC Global Factor Opportunities ETF (11/01/2019 – 7/19/2020)
Prior to the Repositioning, the Fund was an actively managed ETF that employed a dynamic, global multi-factor strategy that combined a quantitative investment approach with active management. Wellington Management’s proprietary value1, momentum2, and quality3 factors were used to drive stock selection within four distinct world regions—the U.S., Japan, Europe, and Emerging Markets—to create a diversified portfolio which sought to adapt to changes in the risk environment.
Despite extreme levels of volatility following the COVID-19 sell-off in the first quarter of 2020, global equities rose during the period presented, as measured by the MSCI All Country World Index. During the period, U.S. and Emerging Market stocks finished higher, while Europe and Japan equities declined. Growth and momentum factors performed best across all four regions, as companies that tend to screen well for these factors are also the types of companies that were poised to do well during a pandemic-type environment. This includes higher growth companies in the technology, communication services, and biotechnology industries. Meanwhile, higher quality and low volatility factors were mixed across regions, and did not provide the expected level of protection. Value factors performed the worst in each region, underperforming during the first quarter sell-off and lagging during the subsequent recovery.
During the period November 1, 2019 through July 19, 2020, the Fund’s net asset value (“NAV”) increased by 1.42%, underperforming its benchmark, the MSCI All Country World Index (net), which rose by 3.91%. The Fund’s Europe and Emerging Markets allocations outperformed their regional benchmarks during this period, while the Fund’s U.S. and Japan allocations trailed their benchmarks.
Underperformance relative to the MSCI All Country World Index during the period November 1, 2019 through July 19, 2020 was due to narrow market leadership in the U.S., where the outperformance of the largest benchmark constituents, notably Apple, Amazon, Facebook, Google, and Microsoft, drove market returns. The Fund’s underweight exposure to these mega-cap technology names was the most significant headwind to relative returns during this period. In particular, not owning Apple and holding a relative underweight exposure to Microsoft and Google accounted for a majority of the negative excess returns during this period.
______________
1Value factor is defined as one that captures the extent to which a stock is priced inexpensively in the market.
2Momentum factor is defined as one that captures sustained relative performance.
3Quality factor is defined as one based on low volatility.
Virtus WMC International Dividend ETF (7/20/2020 – 10/31/2020)
The Fund is designed to provide a higher dividend yield than is generally provided by equity markets in developed ex-U.S. countries while seeking to be more diversified than traditional equity income approaches. The Fund targets a beta of 0.9 to core equities. Portfolio securities are selected if we believe their high yield characteristics will help meet the Fund’s income objective, or due to their perceived ability to help diversify risks in the portfolio. The names that we believe help diversify risk are often those that are members of the core index (the MSCI World ex USA Index) but not the high yield benchmark (the MSCI World ex USA High Dividend Yield Index), and that exhibit characteristics that high yielding stocks in the aggregate tend to lack, such as growth.
During the period July 20, 2020 through October 31, 2020, high yielding non-U.S. equities posted negative absolute returns and underperformed core equities (as measured by the MSCI World ex USA High Dividend Yield Index and the MSCI World ex USA Index, respectively). Higher yielding segments of the market that make up a larger portion of the equity income universe than core, such as insurance companies and energy stocks, underperformed during this period. Meanwhile, higher growth stocks, which are the companies that do not typically pay dividends and are therefore not often found in the equity income universe, outperformed. Headwinds from these exposures resulted in weaker absolute returns for dividend paying stocks relative to core equities during this period.
During the period July 20, 2020 through October 31, 2020, the Fund’s NAV decreased by 6.66%, underperforming its benchmark, the MSCI World ex USA High Dividend Yield Index (net), which declined by 5.91%.
The Fund’s structurally lower beta exposure was the main detractor from relative returns during this period. Because we believe that equity income allocations should provide some defensive characteristics relative to core equities, the portfolio targets a below-market beta. While it is our opinion that this positioning is generally beneficial over a full market cycle, this structural underweight exposure was a headwind during this period.
21
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
Virtus WMC International Dividend ETF (continued)
The preceding information is the opinion of the investment adviser and sub-adviser. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Statements of fact are from sources considered reliable, but the investment adviser and sub-adviser make no representation or warranty as to their completeness or accuracy. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized.
Performance as of 10/31/2020
| | Average Annual Total Return | | ||||||
| | Fund | | Fund | | MSCI World | | MSCI | |
1 Year | | (6.20)% | | (6.13)% | | (15.21)% | | 4.89% | |
Since Inception4 | | 1.30% | | 1.43% | | (3.74)% | | 5.68% | |
1The MSCI World Ex USA High Dividend Yield Index (net) is based on the MSCI World Index, its parent index, and includes large and mid cap stocks across 48 Developed Markets (DM) and Emerging Market (EM) countries. The index is designed to reflect the performance of equities in the parent index (excluding REITs) with higher dividend income and quality characteristics than average dividend yields that are both sustainable and persistent. The index also applies quality screens and reviews 12-month past performance to omit stocks with potentially deteriorating fundamentals that could force them to cut or reduce dividends. The index is calculated on a total return basis with net dividends reinvested; it is unmanaged; its returns do not reflect any fees, expenses or sales charges; and it is not available for direct investment.
2 Effective July 20, 2020, the Virtus WMC International Dividend ETF changed its benchmark index from the MSCI All Country World Index to the MSCI World ex USA High Dividend Yield Index.
3 The MSCI All Country World Index (net) is a free float-adjusted market capitalization-weighted index that measures equity performance of developed and emerging markets. The index is calculated on a total return basis with net dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.
4October 10, 2017.
Performance data quoted represents past performance and past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. For the most current month-end performance data please visit www.virtusetfs.com or call toll free (800) 243-4361. Market price returns are based on the mid-point of the highest bid and lowest offer for Fund shares as of the scheduled close of regular trading on the Cboe BZX Exchange, Inc. (“Cboe”), ordinarily 4:00 p.m. Eastern time, on each day during which the Cboe is open for trading, and do not represent the returns an investor would receive if shares were traded at other times. Prior to July 15, 2020, the market price returns were based on the mid-point of the highest bid and lowest offer for Fund shares as of the scheduled close of regular trading on the New York Stock Exchange Arca (“NYSE”), ordinarily 4:00 p.m. Eastern time, on each day during which the NYSE is open for trading, and do not represent the returns an investor would receive if shares were traded at other times.
Dividend Paying Securities: Issuers that have paid regular dividends or distributions may not continue to do so in the future and can fall out of favor with the market, which may cause the portfolio to underperform. Securities with higher dividend yields can be sensitive to interest rate movements: when interest rates rise, the prices of these securities may fall.
Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk.
Foreign & Emerging Markets: Investing internationally, especially in emerging markets, involves additional risks such as currency, political, accounting, economic, and market risk.
Geographic Concentration: Events negatively affecting the fiscal stability of a state, country, or region will cause the value of the Fund’s shares to decrease. Because the Fund concentrates its assets in a state, country, or region, the Fund is more vulnerable to those areas’ financial, economic, or other political developments.
Equity REITs: The Fund may be negatively affected by factors specific to the real estate market, including interest rates, leverage, property, and management.
Exchange Traded Funds: The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities.
22
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
Virtus WMC International Dividend ETF (continued)
Market Price/NAV: Shares of ETFs often trade at a discount to their net asset value, which may increase investors’ risk of loss. At the time of sale, an investor’s shares may have a market price that is above or below the Fund’s NAV.
Derivatives: Investments in derivatives such as futures, options, forwards, and swaps may increase volatility or cause a loss greater than the principal investment.
No Guarantee: There is no guarantee that the Fund will meet its objective.
Prospectus: For additional information on risks, please see the Fund’s prospectus. The Fund may not be suitable for all investors.
Value of a $10,000 Investment Since Inception at Net Asset Value
The chart above represents historical performance of a hypothetical investment of $10,000 over the life of the Fund, assuming reinvestment of distributions. Past performance does not guarantee future results.
23
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
InfraCap MLP ETF
Management’s Discussion of Operations
Overview
InfraCap MLP ETF (the “Fund”) is an actively-managed portfolio of midstream energy master limited partnerships (“MLPs”) and related general partners. The Fund also utilizes options strategies and leverage to enhance income and total return.
The Fund focuses on the midstream MLP sector because most of these companies have a long-term history of relatively stable and growing cash distributions. These companies are typically involved in the production, gathering, transportation, storage, and processing of oil, natural gas, natural gas liquids, and refined products.
Market Update
Fiscal year 2020 witnessed unparalleled volatility in WTI Crude Oil prices which led to a collapse in midstream MLP stock prices. The emergence of the COVID-19 pandemic produced the sharpest decline in global economic activity ever recorded, and demand for crude oil and refined products plummeted. WTI Crude Oil prices fell from the low $60’s per barrel to an all-time low in the futures market to negative $37 per barrel. Domestic drilling activity and crude oil production fell sharply as inventories rose. As the economy began its rebound, the pipelines continued to be challenged by shrinkage in demand.
During the period, the nationwide implementation of business shutdowns and strict social distancing measures in an effort to slow the spread of COVID-19, which impacted supply and demand dynamics in refined products. Two of the Fund’s positions, NGL Energy Partners LP (“NGL”) and Noble Midstream Partners LP (“Noble”) contributed significantly to the Fund’s negative returns during the period. NGL is a diversified midstream MLP that utilizes crude oil logistics, water solutions, and liquid and refined products to service producers and end-users. Noble is a growth-oriented midstream MLP that provides services from the DJ Basin and the Permian Basin. Both issuers experienced significant business disruptions from the decrease in demand for products and dramatic fall in prices for refined products. NGL and Noble were down -75.14% and -64.55%, respectively, over the period.
Two of the Fund’s stronger performing issuers during the period were Williams Company Inc. (“Williams”) and Cheniere Energy Partners LP (“Cheniere”). Williams benefited from having various revenue sources (midstream, clean energy, and gathering and processing) while Cheniere benefited from holding long-term natural gas contracts. Williams and Cheniere were only down -8.48% and -12.40%, respectively, over the period.
In the fiscal year ended October 31, 2020, the Fund’s total return based on net asset value was -62.67%. The Fund’s benchmark index, the Alerian MLP Infrastructure Index, returned -44.85% during same period, while the S&P 500 Index returned 9.71%.
Companies in the MLP sector cut operating costs, slashed capital spending and reduced cash distributions to unit holders. Debt reduction became a priority. The impact on midstream MLP operating results proved modest, but the industry benchmark index, the Alerian MLP Infrastructure Index, traded down 67% at its low on March 18, 2020.
Fund leverage was reduced rapidly as market conditions turned unfavorable, with the objective of capital preservation. This action served to minimize the negative impact of carrying leverage in the selloff. At the end of the fiscal year, many MLPs sold at prices that appeared to be below their respective historic valuations relative to most fundamental metrics.
Dividend Payments
The Fund effected a reverse split of its issued and authorized outstanding shares, with a 1-for-10 ratio, on March 31, 2020. Per share dividend rates referenced below apply to post-split shares.
In response to the COVID-19 pandemic and subsequent impact on the supply and demand dynamics for crude oil and refined products, the Fund modified its dividend policy in March 2020. Under the new policy, the Fund reviews its distribution rate on a monthly basis. The prior policy called for semi-annual adjustments, occurring in July and January.
In January 2020, the Fund revised its distribution rate to reflect reductions in distributions from portfolio companies in the period leading up to the announcement. The monthly rate was reduced from $0.80 per share (post-split) to $0.60 per share.
From March 2020, monthly distribution rates ranged from $0.23 per share to $0.30 per share for the remainder of the fiscal year.
24
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
InfraCap MLP ETF (continued)
Use of Leverage
The Fund’s policy is to maintain its leverage ratio in a range of 10-35% over the long term. While the Fund made efforts to significantly reduce its leverage during the period, its use of leverage negatively contributed to Fund performance during the period. The MLP sector crashed as a result of the Covid-19 pandemic and a price war between OPEC members. In response to this crash, the Fund reduced leverage from approximately 33% of NAV as of February 28, 2020 to 6% of NAV as of March 31, 2020. This action allowed the Fund to preserve capital and limit its underperformance relative to the Fund’s benchmark index during the period. Leverage fluctuated within the targeted range during the fiscal year, consistent with the Fund’s investment objective to seek total return. Total leverage represented 28.1% of net assets at year-end, which was near the upper end of the long-term target range. The Fund’s cost of borrowing fell during the fiscal year while the yield on midstream MLPs rose, substantially widening the spread on borrowed funds. The Fund borrows at a 120 basis point premium to the 3-month LIBOR rate, which fell to 0.22% on October 31, 2020 from 1.90% on October 31, 2019. The yield on the Fund’s benchmark index, the Alerian MLP Infrastructure Index, rose to 13% on October 31, 2020, as compared to 9.4% on October 31, 2019.
Use of Options
The Fund seeks to generate additional income for distribution to investors by writing call and put options. The primary activity is writing “covered” call options on positions held by the Fund. However, due to high volatility, market conditions for covered call options were unfavorable to Fund performance for much of the fiscal year and as a result, the Fund’s manager reduced the frequency of this activity.
During the fiscal year, the Fund’s emphasis was on writing short-duration covered call options, and the average maturity of the option portfolio was less than 18 days. The Fund’s manager used these option strategies to seek to maximize the capture of premium decay and manage short term risks.
We believe consolidation within the MLP sector enhanced the liquidity in the single-stock options market as larger MLPs typically have more liquid markets for issued options.
Outlook
The Covid-19 pandemic caused midstream MLP stock prices to crash despite having relatively stable businesses, particularly relative to more impacted sectors such as airlines, hotels, and restaurants. The fee-based contracts utilized in the midstream MLP sector have helped certain companies protect their cash flow generation. We believe that the stable cash flows seen in the MLP sector have allowed for less volatility compared to the broader energy sector. We also believe that, in 2021, MLPs should benefit from an increase in commodity prices resulting from a weaker dollar, supportive fiscal and monetary policies, and increased oil demand as economies reopen.
The Fund maintains positions in large capitalization integrated pipelines and storage companies with stronger contractual protection and visible market demand. We believe these companies are less vulnerable during heightened periods of price volatility and are best suited to take advantage of opportunities that exist in the current market environment.
We continue to believe that global monetary policy should support our higher oil price view. We suspect that rapid increases in domestic and global GDP growth will further draw down inventories and support higher spot prices. Central banks from the world’s largest economies have continued to pursue stimulative monetary policies. In addition, the Federal Reserve is pursuing an extremely aggressive quantitative easing program. We believe that a return to normal business activity and a surge in consumer travel is likely to drive oil prices higher and support MLP stock prices in 2021.
The preceding information is the opinion of the investment adviser and sub-adviser. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Statements of fact are from sources considered reliable, but the investment adviser and sub-adviser make no representation or warranty as to their completeness or accuracy. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized. This discussion includes information based on data and calculations sourced from Bloomberg and index constituents. While we believe that the data is reliable, we have not sought, nor have we received, permission from any third-party to include their information.
25
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
InfraCap MLP ETF (continued)
Performance as of 10/31/2020
| | Average Annual Total Return | | ||||||
| | Fund | | Fund | | Alerian MLP | | S&P 500® Index2 | |
1 Year | | (62.67)% | | (62.51)% | | (44.85)% | | 9.71% | |
5 Years | | (23.81)% | | (23.88)% | | (13.15)% | | 11.71% | |
Since Inception3 | | (25.76)% | | (25.76)% | | (16.21)% | | 11.12% | |
1 The Alerian MLP Infrastructure Index is a composite of energy infrastructure Master Limited Partnerships (MLPs), whose constituents earn the majority of their cash flow from the transportation, storage, and processing of energy commodities. The index is calculated using a float-adjusted, capitalization-weighted methodology on a total-return basis. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.
2 The S&P 500® Index is a free-float market capitalization-weighted index of 500 of the largest U.S. companies. The index is calculated on a total return basis with dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.
3October 1, 2014.
Performance data quoted represents past performance and past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. For the most current month-end performance data please visit www.virtusetfs.com or call toll free (800) 243-4361. Market price returns are based on the mid-point of the highest bid and lowest offer for Fund shares as of the scheduled close of regular trading on the New York Stock Exchange Arca (“NYSE”), ordinarily 4:00 p.m. Eastern time, on each day during which the NYSE is open for trading, and do not represent the returns an investor would receive if shares were traded at other times.
MLPs: Investments in Master Limited Partnerships may be adversely impacted by tax law changes, regulation, or factors affecting underlying assets.
Industry/Sector Concentration: A fund that focuses its investments in a particular industry or sector will be more sensitive to conditions that affect that industry or sector than a non-concentrated fund.
Interest Rate Risk: As yield-based investments, MLPs carry interest rate risk and may underperform in rising interest rate environments. Additionally, when investors have heightened fears about the economy, the risk spread between MLPs and competing investment options can widen, which may have an adverse effect on the stock price of MLPs. Rising interest rates may increase the potential cost of MLPs financing projects or cost of operations, and may affect the demand for MLP investments, either of which may result in lower performance by or distributions from the Fund’s MLP investments.
Leverage: When a fund leverages its portfolio, the value of its shares may be more volatile and all other risks may be compounded.
Derivatives: Investments in derivatives such as futures, options, forwards, and swaps may increase volatility or cause a loss greater than the principal investment.
Non-Diversified: The Fund is non-diversified and may be more susceptible to factors negatively impacting its holdings to the extent that each security represents a larger portion of the Fund’s assets.
Short Sales: The Fund may engage in short sales, and may experience a loss if the price of a borrowed security increases before the date on which the Fund replaces the security.
Exchange Traded Funds: The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities.
Market Price/NAV: Shares of ETFs often trade at a discount to their net asset value, which may increase investors’ risk of loss. At the time of sale, an investor’s shares may have a market price that is above or below the Fund’s NAV.
No Guarantee: There is no guarantee that the Fund will meet its objective.
Prospectus: For additional information on risks, please see the Fund’s prospectus. The Fund may not be suitable for all investors.
26
Management’s Discussion of Fund Performance (unaudited) (continued)
October 31, 2020
InfraCap MLP ETF (continued)
Value of a $10,000 Investment Since Inception at Net Asset Value
The chart above represents historical performance of a hypothetical investment of $10,000 over the life of the Fund, assuming reinvestment of distributions. Past performance does not guarantee future results.
27
Asset Allocation as of 10/31/2020 (based on net assets)
InfraCap REIT Preferred ETF | | ||
Real Estate | | 60.5 | % |
Financials | | 38.2 | % |
Other Assets in Excess of Liabilities | | 1.3 | % |
Total | | 100.0 | % |
| | ||
Virtus InfraCap U.S. Preferred Stock ETF | | ||
Real Estate | | 41.4 | %* |
Financials | | 37.6 | %* |
Energy | | 18.3 | % |
Utilities | | 16.4 | % |
Industrials | | 7.6 | % |
Consumer Discretionary | | 5.0 | % |
Communication Services | | 1.7 | % |
Materials | | 0.1 | % |
Liabilities in Excess of Other Assets | | (28.1 | )% |
Total | | 100.0 | % |
| | | |
Virtus LifeSci Biotech Clinical Trials ETF | | | |
Health Care | | 98.9 | % |
Materials | | 0.5 | % |
Money Market Fund | | 9.9 | % |
Liabilities in Excess of Other Assets | | (9.3 | )% |
Total | | 100.0 | % |
| | | |
Virtus LifeSci Biotech Products ETF | | | |
Health Care | | 98.8 | % |
Money Market Fund | | 6.2 | % |
Liabilities in Excess of Other Assets | | (5.0 | )% |
Total | | 100.0 | % |
*Amounts represent investments in particular sectors. No industry within these sectors represented more than 25% of the Fund’s total assets at the time of investment.
28
Portfolio Composition (unaudited) (continued)
October 31, 2020
Asset Allocation as of 10/31/2020 (based on net assets)
Virtus Newfleet Multi-Sector Bond ETF | | | |
Corporate Bonds | | 42.2 | % |
Foreign Bonds | | 19.5 | % |
Term Loans | | 12.5 | % |
U.S. Government Securities | | 8.7 | % |
Mortgage Backed Securities | | 8.0 | % |
Asset Backed Securities | | 4.3 | % |
Exchange Traded Funds | | 1.6 | % |
Municipal Bonds | | 1.1 | % |
Common Stocks | | 0.2 | % |
Warrant | | 0.1 | % |
Money Market Fund | | 1.0 | % |
Other Assets in Excess of Liabilities | | 0.8 | % |
Total | | 100.0 | % |
| | | |
Virtus Private Credit Strategy ETF | | | |
Financials | | 56.4 | % |
Closed-End Funds | | 40.7 | % |
Money Market Fund | | 22.9 | % |
Liabilities in Excess of Other Assets | | (20.0 | )% |
Total | | 100.0 | % |
| | | |
Virtus Real Asset Income ETF | | | |
Real Estate | | 32.3 | % |
Materials | | 18.7 | % |
Utilities | | 11.7 | % |
Communication Services | | 6.3 | % |
Money Market Fund | | 4.2 | % |
Industrials | | 1.3 | % |
Consumer Staples | | 1.0 | % |
Energy | | 26.1 | % |
Liabilities in Excess of Other Assets | | (1.6 | )% |
Total | | 100.0 | % |
29
Portfolio Composition (unaudited) (continued)
October 31, 2020
Asset Allocation as of 10/31/2020 (based on net assets)
Virtus WMC International Dividend ETF | | | |
Financials | | 22.3 | % |
Communication Services | | 19.5 | % |
Health Care | | 11.3 | % |
Consumer Staples | | 10.7 | % |
Utilities | | 8.1 | % |
Information Technology | | 6.7 | % |
Energy | | 5.8 | % |
Industrials | | 4.5 | % |
Materials | | 4.5 | % |
Real Estate | | 3.2 | % |
Consumer Discretionary | | 2.2 | % |
Right | | 0.0 | %* |
Other Assets in Excess of Liabilities | | 1.2 | % |
Total | | 100.0 | % |
| | | |
InfraCap MLP ETF | | | |
Energy | | 128.0 | % |
Written Options | | 0.0 | %* |
Liabilities in Excess of Other Assets | | (28.0 | )% |
Total | | 100.0 | % |
*Amount rounds to less than 0.05%.
30
We believe it is important for you to understand the impact of costs on your investment. All funds have operating expenses. As a shareholder of the InfraCap REIT Preferred ETF, Virtus InfraCap U.S. Preferred Stock ETF, Virtus LifeSci Biotech Clinical Trials ETF, Virtus LifeSci Biotech Products ETF, Virtus Newfleet Multi-Sector Bond ETF, Virtus Private Credit Strategy ETF, Virtus Real Asset Income ETF, Virtus WMC International Dividend ETF and InfraCap MLP ETF (each, a “Fund”) you may incur two types of costs: (1) transaction costs, which include brokerage commissions that you pay when purchasing or selling shares of a Fund; and (2) ongoing costs, which include advisory fees and other fund expenses, if any. The following example is intended to help you understand your ongoing costs (in dollars and cents) of investing in a Fund 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 throughout the entire period (May 1, 2020 to October 31, 2020).
Actual expenses
The first line under each Fund in the table below provides information about actual account values 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 for your Fund 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 under each Fund in the table provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each 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 each 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 under each Fund in the table is useful in comparing ongoing Fund costs only and will not help you determine the relative total costs of owning different funds.
In addition, if these transactional costs were included, your costs would have been higher.
| | Beginning | | Ending | | Annualized | | Expenses Paid | |
InfraCap REIT Preferred ETF | | | | | | | | | |
Actual | | $1,000.00 | | $1,105.75 | | 0.45% | | $2.38 | |
Hypothetical(1) | | $1,000.00 | | $1,022.87 | | 0.45% | | $2.29 | |
Virtus InfraCap U.S. Preferred Stock ETF | | | | | | | | | |
Actual | | $1,000.00 | | $1,182.44 | | 0.80% | | $4.39 | |
Hypothetical(1) | | $1,000.00 | | $1,021.11 | | 0.80% | | $4.06 | |
Virtus LifeSci Biotech Clinical Trials ETF | | | | | | | | | |
Actual | | $1,000.00 | | $1,105.71 | | 0.79% | | $4.19 | |
Hypothetical(1) | | $1,000.00 | | $1,021.16 | | 0.79% | | $4.02 | |
Virtus LifeSci Biotech Products ETF | | | | | | | | | |
Actual | | $1,000.00 | | $1,101.14 | | 0.79% | | $4.18 | |
Hypothetical(1) | | $1,000.00 | | $1,021.16 | | 0.79% | | $4.02 | |
Virtus Newfleet Multi-Sector Bond ETF | | | | | | | | | |
Actual | | $1,000.00 | | $1,094.14 | | 0.49% | | $2.58 | |
Hypothetical(1) | | $1,000.00 | | $1,022.67 | | 0.49% | | $2.49 | |
Virtus Private Credit Strategy ETF | | | | | | | | | |
Actual | | $1,000.00 | | $1,082.61 | | 0.75% | | $3.93 | |
Hypothetical(1) | | $1,000.00 | | $1,021.37 | | 0.75% | | $3.81 | |
Virtus Real Asset Income ETF | | | | | | | | | |
Actual | | $1,000.00 | | $1,007.12 | | 0.55% | | $2.77 | |
Hypothetical(1) | | $1,000.00 | | $1,022.37 | | 0.55% | | $2.80 | |
Virtus WMC International Dividend ETF | | | | | | | | | |
Actual | | $1,000.00 | | $1,034.86 | | 0.49% | | $2.51 | |
Hypothetical(1) | | $1,000.00 | | $1,022.67 | | | $2.49 | | |
InfraCap MLP ETF | | | | | | | | | |
Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | $1,000.00 | | $828.64 | | 0.95% | | $4.37 | |
Hypothetical(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | $1,000.00 | | $1,020.36 | | 0.95% | | $4.82 | |
1Assuming 5% return before expenses.
2Annualized expense ratios reflect expenses net of waived fees or reimbursed expenses, if applicable.
3Expenses are calculated using each Fund’s annualized expense ratio, multiplied by the average account value for the period, multiplied by 184/366 (to reflect the six-month period).
The accompanying notes are an integral part of these financial statements.
31
Security Description | | | | ||
| | | | | |
| | | | | |
| | | | | |
| | | | | |
AG Mortgage Investment Trust, Inc., Series C, 8.00% | | 11,016 | | | |
AGNC Investment Corp., Series C, 7.00% | | 36,420 | | | |
AGNC Investment Corp., Series D, 6.88% | | 26,015 | | | |
AGNC Investment Corp., Series E, 6.50% | | 44,619 | | | |
Annaly Capital Management, Inc., Series D, 7.50% | | 51,067 | | | |
Annaly Capital Management, Inc., Series F, 6.95% | | 79,037 | | | |
Annaly Capital Management, Inc., Series G, 6.50% | | 47,018 | | | |
Annaly Capital Management, Inc., Series I, 6.75% | | 49,216 | | | |
Apollo Global Management, Inc., Series A, 6.38% | | 29,947 | | | |
Apollo Global Management, Inc., Series B, 6.38% | | 32,389 | | | |
Arch Capital Group Ltd., Series F, 5.45% | | 35,694 | | | |
Capstead Mortgage Corp., Series E, 7.50% | | 28,505 | | | |
Chimera Investment Corp., Series A, 8.00% | | 16,037 | | | |
Chimera Investment Corp., Series B, 8.00% | | 35,607 | | | |
Chimera Investment Corp., Series C, 7.75% | | 28,716 | | | |
Chimera Investment Corp., Series D, 8.00% | | 21,832 | | | |
Exantas Capital Corp., 8.63% | | 14,461 | | | |
Invesco Mortgage Capital, Inc., Series A, 7.75% | | 15,364 | | | |
Invesco Mortgage Capital, Inc., Series B, 7.75% | | 17,308 | | | |
Invesco Mortgage Capital, Inc., Series C, 7.50% | | 31,542 | | | |
MFA Financial, Inc., 8.00% | | 11,254 | | | |
MFA Financial, Inc., Series B, 7.50% | | 22,483 | | | |
New Residential Investment Corp., Series A, 7.50% | | 17,250 | | | |
New Residential Investment Corp., Series B, 7.13% | | 31,649 | | | |
New York Mortgage Trust, Inc., Series D, 8.00% | | 18,125 | | | |
PennyMac Mortgage Investment Trust, Series A, 8.13% | | 12,993 | | | |
PennyMac Mortgage Investment Trust, Series B, 8.00% | | 21,804 | | | |
Ready Capital Corp., 6.20% | | 11,460 | | | |
Two Harbors Investment Corp., Series A, 8.13% | | 16,028 | | | |
Two Harbors Investment Corp., Series B, 7.63% | | 31,796 | | | |
Two Harbors Investment Corp., Series C, 7.25% | | 33,308 | | | |
Two Harbors Investment Corp., Series E, 7.50% | | 22,367 | | | |
Total Financials | | | | | |
| |||||
| | | | | |
American Finance Trust, Inc., Series A, 7.50% | | 19,631 | | | |
American Homes 4 Rent, Series D, 6.50% | | 29,386 | | | |
American Homes 4 Rent, Series E, 6.35% | | 25,033 | | | |
American Homes 4 Rent, Series F, 5.88% | | 16,822 | | | |
American Homes 4 Rent, Series G, 5.88% | | 12,599 | | | |
American Homes 4 Rent, Series H, 6.25% | | 12,662 | | | |
Ashford Hospitality Trust, Inc., Series F, 7.38% | | 12,749 | | | |
Ashford Hospitality Trust, Inc., Series G, 7.38% | | 16,469 | | | |
Ashford Hospitality Trust, Inc., Series H, 7.50% | | 10,092 | | | |
Ashford Hospitality Trust, Inc., Series I, 7.50% | | 14,342 | | | |
Bluerock Residential Growth REIT, Inc., Series A, 8.25% | | 12,226 | | | |
Brookfield Property Partners LP, Series A-1, 6.50% | | 20,044 | | | |
Brookfield Property Partners LP, Series A2, 6.38% | | 26,845 |
Security Description | | | | ||
| | | | | |
PREFERRED STOCKS (continued) | | | | | |
| | | | | |
Real Estate (continued) | | | | | |
Brookfield Property REIT, Inc., Series A, 6.38% | | 27,717 | | | |
Cedar Realty Trust, Inc., Series C, 6.50% | | 13,222 | | | |
Colony Capital, Inc., Series H, 7.13% | | 32,337 | | | |
Colony Capital, Inc., Series I, 7.15% | | 39,839 | | | |
Colony Capital, Inc., Series J, 7.13% | | 36,241 | | | |
Digital Realty Trust, Inc., Series J, 5.25% | | 21,593 | | | |
Digital Realty Trust, Inc., Series K, 5.85% | | 22,842 | | | |
Diversified Healthcare Trust, 5.63% | | 37,061 | | | |
Diversified Healthcare Trust, 6.25% | | 26,632 | | | |
EPR Properties, Series G, 5.75% | | 17,256 | | | |
Farmland Partners, Inc., Series B, 6.00%(1) | | 16,249 | | | |
Federal Realty Investment Trust, Series C, 5.00% | | 16,455 | | | |
Global Net Lease, Inc., Series A, 7.25% | | 19,082 | | | |
Hersha Hospitality Trust, Series D, 6.50% | | 20,492 | | | |
Hersha Hospitality Trust, Series E, 6.50% | | 10,760 | | | |
iStar, Inc., Series I, 7.50% | | 14,047 | | | |
Kimco Realty Corp., Series L, 5.13% | | 24,644 | | | |
Kimco Realty Corp., Series M, 5.25% | | 29,284 | | | |
Monmouth Real Estate Investment Corp., Series C, 6.13% | | 43,062 | | | |
National Retail Properties, Inc., Series F, 5.20% | | 37,036 | | | |
National Storage Affiliates Trust, Series A, 6.00% | | 23,827 | | | |
Office Properties Income Trust, 5.88% | | 33,553 | | | |
Pebblebrook Hotel Trust, Series C, 6.50% | | 13,670 | | | |
Pebblebrook Hotel Trust, Series D, 6.38% | | 13,638 | | | |
Pebblebrook Hotel Trust, Series F, 6.30% | | 16,344 | | | |
PS Business Parks, Inc., Series W, 5.20% | | 20,709 | | | |
PS Business Parks, Inc., Series X, 5.25% | | 25,188 | | | |
PS Business Parks, Inc., Series Y, 5.20% | | 21,918 | | | |
Public Storage, Series B, 5.40% | | 13,128 | | | |
Public Storage, Series C, 5.13% | | 8,536 | | | |
Public Storage, Series D, 4.95% | | 14,001 | | | |
Public Storage, Series E, 4.90% | | 15,039 | | | |
Public Storage, Series F, 5.15% | | 12,034 | | | |
Public Storage, Series G, 5.05% | | 12,872 | | | |
Public Storage, Series H, 5.60% | | 12,234 | | | |
Public Storage, Series I, 4.88% | | 13,485 | | | |
QTS Realty Trust, Inc., Series A, 7.13% | | 11,615 | | | |
Rexford Industrial Realty, Inc., Series C, 5.63% | | 9,547 | | | |
Saul Centers, Inc., Series E, 6.00% | | 12,517 | | | |
SITE Centers Corp., Series A, 6.38% | | 19,307 | | | |
SITE Centers Corp., Series K, 6.25% | | 16,525 | | | |
Spirit Realty Capital, Inc., Series A, 6.00% | | 19,041 | | | |
Summit Hotel Properties, Inc., Series E, 6.25% | | 17,241 | | | |
Sunstone Hotel Investors, Inc., Series E, 6.95% | | 12,457 | | | |
Taubman Centers, Inc., Series J, 6.50% | | 21,325 | | | |
Taubman Centers, Inc., Series K, 6.25% | | 18,577 | | | |
UMH Properties, Inc., Series C, 6.75% | | 26,835 | | | |
Urstadt Biddle Properties, Inc., Series K, 5.88% | | 12,054 | | | |
VEREIT, Inc., Series F, 6.70% | | 62,661 | | | |
Vornado Realty Trust, Series K, 5.70% | | 32,677 | | |
Schedule of Investments — InfraCap REIT Preferred ETF (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
32
Security Description | | | | ||
| | | | | |
PREFERRED STOCKS (continued) | | | | | |
| | | | | |
Real Estate (continued) | | | | | |
Vornado Realty Trust, Series L, 5.40% | | 32,772 | | | |
Vornado Realty Trust, Series M, 5.25% | | 34,402 | | | |
Total Real Estate | | | | | |
| |||||
TOTAL INVESTMENTS — 98.7% | | | | | |
(Cost $51,150,968) | | | | 51,420,592 | |
Other Assets in Excess of Liabilities — 1.3% | | | | 683,091 | |
Net Assets — 100.0% | | | | $52,103,683 | |
(1)Represents step coupon security. Rate shown reflects the rate in effect as of October 31, 2020.
The following table summarizes valuation of the Fund’s investments under the fair value hierarchy levels as of October 31, 2020.
Schedule of Investments — Virtus InfraCap U.S. Preferred Stock ETF
October 31, 2020
The accompanying notes are an integral part of these financial statements.
33
Security Description | | | | ||
| | | | | |
| | | | | |
| | | | | |
| | | | | |
AT&T, Inc., Series C, 4.75% | | 3,506 | | | |
GCI Liberty, Inc., Series A, 7.00%(1) | | 16,731 | | | |
Qwest Corp., 6.13%(1) | | 28,867 | | | |
Qwest Corp., 6.50%(1) | | 7,748 | | | |
Qwest Corp., 6.75%(1) | | 726 | | | |
Telephone and Data Systems, Inc., 5.88%(1) | | 38,329 | | | |
United States Cellular Corp., 6.95% | | 2,994 | | | |
Total Communication Services | | | | | |
| |||||
| | | | | |
Ford Motor Co., 6.00%(1) | | 169,681 | | | |
Ford Motor Co., 6.20%(1) | | 108,415 | | | |
Franchise Group, Inc., Series A, 7.50% | | 5,204 | | | |
TravelCenters of America, Inc., 8.00%(1) | | 2,551 | | | |
Total Consumer Discretionary | | | | | |
| |||||
| | | | | |
DCP Midstream LP, Series B, 7.88%(1) | | 354,672 | | | |
DCP Midstream LP, Series C, 7.95%(1) | | 84,804 | | | |
Enbridge, Inc., Series B, 6.38% (Canada)(1) | | 3,695 | | | |
Energy Transfer Operating LP, Series C, 7.38%(1) | | 41,797 | | | |
Energy Transfer Operating LP, Series D, 7.63%(1) | | 53,194 | | | |
Energy Transfer Operating LP, Series E, 7.60%(1) | | 51,515 | | | |
GasLog Partners LP, Series A, 8.63% (Greece)(1) | | 136,836 | | | |
GasLog Partners LP, Series B, 8.20% (Greece)(1) | | 115,381 | | | |
Golar LNG Partners LP, Series A, 8.75% | | 19,718 | | | |
Hoegh LNG Partners LP, Series A, 8.75% | | 31,170 | | | |
NuStar Energy LP, Series A, 8.50%(1) | | 237,871 | | | |
NuStar Energy LP, Series B, 7.63%(1) | | 184,839 | | | |
NuStar Energy LP, Series C, 9.00%(1) | | 209,621 | | | |
Targa Resources Partners LP, Series A, 9.00% | | 5,130 | | | |
Total Energy | | | | | |
| |||||
| | | | | |
AG Mortgage Investment Trust, Inc., Series C, 8.00%(1) | | 33,343 | | | |
AGNC Investment Corp., Series D, 6.88%(1) | | 22,234 | | | |
AGNC Investment Corp., Series E, 6.50%(1) | | 23,281 | | | |
AGNC Investment Corp., Series F, 6.13%(1) | | 31,968 | | | |
American Equity Investment Life Holding Co., Series A, 5.95%(1) | | 199,115 | | | |
Annaly Capital Management, Inc., | | 8,460 | | | |
Annaly Capital Management, Inc., Series G, 6.50%(1) | | 48,802 | | | |
Annaly Capital Management, Inc., Series I, 6.75%(1) | | 13,004 | | | |
Arch Capital Group Ltd., Series E, 5.25% | | 523 | | | |
ARMOUR Residential REIT, Inc., Series C, 7.00%(1) | | 92,298 | | | |
Athene Holding Ltd., Series A, 6.35%(1) | | 3,632 | | | |
B Riley Financial, Inc., 6.38%(1) | | 43,683 | | | |
B Riley Financial, Inc., 6.88%(1) | | 4,204 | | | |
B Riley Financial, Inc., 7.50%(1) | | 6,274 | | | |
B Riley Financial, Inc., Series B, 7.38%(1) | | 10,483 |
Security Description | | | | ||
| | | | | |
PREFERRED STOCKS (continued) | | | | | |
| | | | | |
Financials (continued) | | | | | |
BancorpSouth Bank, Series A, 5.50%(1) | | 1,099 | | | |
Brookfield Finance, Inc., Series 50, 4.63% (Canada)*(1) | | 5,066 | | | |
Capital One Financial Corp., Series I, 5.00%(1) | | 365 | | | |
Capital One Financial Corp., Series J, 4.80%(1) | | 44,762 | | | |
Chimera Investment Corp., Series A, 8.00%(1) | | 70,120 | | | |
Chimera Investment Corp., Series B, 8.00%(1) | | 91,111 | | | |
Chimera Investment Corp., Series C, 7.75%(1) | | 61,112 | | | |
Chimera Investment Corp., Series D, 8.00%(1) | | 106,527 | | | |
CIT Group, Inc., Series B, 5.63%(1) | | 66,947 | | | |
Compass Diversified Holdings, Series A, 7.25% (1) | | 104,281 | | | |
Compass Diversified Holdings, Series B, 7.88% (1) | | 45,551 | | | |
Dynex Capital, Inc., Series C, 6.90%(1) | | 3,615 | | | |
Ellington Financial, Inc., 6.75%(1) | | 138,023 | | | |
Enstar Group Ltd., Series D, 7.00%(1) | | 53,076 | | | |
Equitable Holdings, Inc., Series A, 5.25%(1) | | 28 | | | |
First Horizon National Corp., Series D, 6.10%(1) | | 12,498 | | | |
First Republic Bank, Series K, 4.13% | | 210 | | | |
Global Indemnity Group LLC, 7.88%(1) | | 1,216 | | | |
GMAC Capital Trust I, Series 2, 6.07% | | 2,860 | | | |
Invesco Mortgage Capital, Inc., Series B, 7.75%(1) | | 17,480 | | | |
Invesco Mortgage Capital, Inc., Series C, 7.50%(1) | | 75,997 | | | |
Merchants Bancorp, Series B, 6.00%(1) | | 5,591 | | | |
MFA Financial, Inc., Series B, 7.50%(1) | | 65,073 | | | |
MFA Financial, Inc., Series C, 6.50%(1) | | 149,137 | | | |
National General Holdings Corp., Series C, 7.50%(1) | | 6,325 | | | |
Navient Corp., 6.00%(1) | | 4,204 | | | |
New Residential Investment Corp., Series C, 6.38%(1) | | 6,060 | | | |
New York Community Capital Trust V, 6.00% | | 1,539 | | | |
New York Mortgage Trust, Inc., Series B, 7.75%(1) | | 33,399 | | | |
New York Mortgage Trust, Inc., Series C, 7.88%(1) | | 21,874 | | | |
New York Mortgage Trust, Inc., Series D, 8.00%(1) | | 175,632 | | | |
New York Mortgage Trust, Inc., Series E, 7.88%(1) | | 122,540 | | | |
PennyMac Mortgage Investment Trust, Series A, 8.13%(1) | | 58,882 | | ��� | |
PennyMac Mortgage Investment Trust, Series B, 8.00%(1) | | 117,958 | | | |
Prospect Capital Corp., 6.25%(1) | | 4,547 | | | |
SLM Corp., Series B, 1.95%(1) | | 4,204 | | | |
Sterling Bancorp, Series A, 6.50%(1) | | 1,713 | | | |
Synchrony Financial, Series A, 5.63%(1) | | 48,792 | | | |
Synovus Financial Corp., Series D, 6.30%(1) | | 1,665 | | | |
Synovus Financial Corp., Series E, 5.88%(1) | | 3,690 | | | |
TCF Financial Corp., Series C, 5.70%(1) | | 1,342 | | | |
Texas Capital Bancshares, Inc., Series A, 6.50% | | 523 | | | |
Two Harbors Investment Corp., Series B, 7.63%(1) | | 94,150 | | | |
Two Harbors Investment Corp., Series C, 7.25%(1) | | 151,013 | | | |
US Bancorp, Series L, 3.75%* | | 10,000 | | | |
Valley National Bancorp, Series A, 6.25%(1) | | 1,176 | | | |
Valley National Bancorp, Series B, 5.50%(1) | | 1,545 | | | |
Wells Fargo & Co., Series Q, 5.85%(1) | | 12,673 | | | |
Wintrust Financial Corp., Series D, 6.50%(1) | | 5,591 | | | |
Zions Bancorp NA, Series H, 5.75%(1) | | 1,387 | | | |
Total Financials | | | | | |
|
Schedule of Investments — Virtus InfraCap U.S. Preferred Stock ETF (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
34
*Non-income producing security.
(1)Substantially all the securities, or a portion thereof, have been pledged as collateral for borrowings. The aggregate market value of the collateral at October 31, 2020 was $121,228,066.
The following table summarizes valuation of the Fund’s investments under the fair value hierarchy levels as of October 31, 2020.
| | Level 1 | | Level 2 | | Level 3 | | Total | |
Asset Valuation Inputs | | | | | | | | | |
Preferred Stocks | | $187,515,069 | | $— | | $— | | $187,515,069 | |
Total | | $187,515,069 | | $— | | $— | | $187,515,069 | |
Security Description | | | | ||
| | | | | |
PREFERRED STOCKS (continued) | | | | | |
| | | | | |
| | | | | |
Atlas Corp., Series G, 8.20% (Canada)(1) | | 13,416 | | | |
Atlas Corp., Series H, 7.88% (Canada)(1) | | 20,190 | | | |
Atlas Corp., Series I, 8.00% (Canada)(1) | | 147,304 | | | |
Fortress Transportation and Infrastructure Investors LLC, Series B, 8.00%(1) | | 112,151 | | | |
Triton International Ltd., 6.88% (Bermuda)(1) | | 53,366 | | | |
Triton International Ltd., 7.38% (Bermuda)(1) | | 129,023 | | | |
Triton International Ltd., 8.00% (Bermuda)(1) | | 17,642 | | | |
Total Industrials | | | | | |
| |||||
| | | | | |
International Flavors & Fragrances, Inc., 6.00%(1) | | 4,452 | | 172,025 | |
| |||||
| | | | | |
American Finance Trust, Inc., Series A, 7.50%(1) | | 367,299 | | | |
Armada Hoffler Properties, Inc., Series A, 6.75% | | 11,520 | | | |
Ashford Hospitality Trust, Inc., Series F, 7.38%(1) | | 67,669 | | | |
Ashford Hospitality Trust, Inc., Series G, 7.38%(1) | | 42,820 | | | |
Ashford Hospitality Trust, Inc., Series H, 7.50%(1) | | 26,123 | | | |
Ashford Hospitality Trust, Inc., Series I, 7.50%(1) | | 88,082 | | | |
Braemar Hotels & Resorts, Inc., Series B, 5.50%(1) | | 497,603 | | | |
Braemar Hotels & Resorts, Inc., Series D, 8.25%(1) | | 7,561 | | | |
Brookfield Property Partners LP, Series A, 5.75%(1) | | 80,764 | | | |
Brookfield Property Partners LP, Series A-1, 6.50%(1) | | 27,380 | | | |
Brookfield Property Partners LP, Series A2, 6.38%(1) | | 34,067 | | | |
City Office REIT, Inc., Series A, 6.63%(1) | | 3,839 | | | |
Colony Capital, Inc., Series H, 7.13%(1) | | 161,408 | | | |
Colony Capital, Inc., Series I, 7.15%(1) | | 219,525 | | | |
Colony Capital, Inc., Series J, 7.13%(1) | | 63,810 | | | |
DiamondRock Hospitality Co., 8.25%(1) | | 90,500 | | | |
Diversified Healthcare Trust, 5.63%(1) | | 3,448 | | | |
EPR Properties, Series C, 5.75%(1) | | 33,890 | | | |
EPR Properties, Series E, 9.00%(1) | | 101,724 | | | |
EPR Properties, Series G, 5.75%(1) | | 97,993 | | | |
Equity Commonwealth, Series D, 6.50%(1) | | 91,353 | | | |
Global Net Lease, Inc., Series A, 7.25%(1) | | 106,748 | | | |
Global Net Lease, Inc., Series B, 6.88%(1) | | 65,520 | | | |
iStar, Inc., Series D, 8.00%(1) | | 8,768 | | | |
iStar, Inc., Series I, 7.50%(1) | | 156,529 | | | |
Kimco Realty Corp., Series M, 5.25%(1) | | 1,896 | | | |
Lexington Realty Trust, Series C, 6.50%(1) | | 5,162 | |
| | | | | |
Real Estate (continued) | | | | | |
Monmouth Real Estate Investment Corp., Series C, 6.13%(1) | | 24,458 | | | |
Office Properties Income Trust, 5.88%(1) | | 2,774 | | | |
Pebblebrook Hotel Trust, Series C, 6.50%(1) | | 10,071 | | | |
Pebblebrook Hotel Trust, Series D, 6.38%(1) | | 4,641 | | | |
Pebblebrook Hotel Trust, Series F, 6.30%(1) | | 16,799 | | | |
Public Storage, Series N, 3.88%* | | 10,134 | | | |
RLJ Lodging Trust, Series A, 1.95%(1) | | 227,998 | | | |
Saul Centers, Inc., Series E, 6.00%(1) | | 107,527 | | | |
SITE Centers Corp., Series A, 6.38%(1) | | 13,693 | | | |
Spirit Realty Capital, Inc., Series A, 6.00% | | 461 | | | |
Summit Hotel Properties, Inc., Series E, 6.25%(1) | | 14,256 | | | |
Taubman Centers, Inc., Series J, 6.50%(1) | | 10,060 | | | |
Taubman Centers, Inc., Series K, 6.25%(1) | | 41,882 | | | |
UMH Properties, Inc., Series C, 6.75%(1) | | 8,358 | | | |
Urstadt Biddle Properties, Inc., Series K, 5.88%(1) | | 45,573 | | | |
VEREIT, Inc., Series F, 6.70% | | 4 | | | |
Vornado Realty Trust, Series L, 5.40%(1) | | 3,807 | | | |
Vornado Realty Trust, Series M, 5.25%(1) | | 4,736 | | | |
Total Real Estate | | | | | |
| |||||
| | | | | |
American Electric Power Co., Inc., 6.13%(1) | | 730 | | | |
CenterPoint Energy, Inc., Series B, 7.00%(1) | | 159,923 | | | |
Dominion Energy, Inc., Series A, 7.25%(1) | | 26,174 | | | |
DTE Energy Co., 6.25%(1) | | 46,887 | | | |
Essential Utilities, Inc., 6.00%(1) | | 1,956 | | | |
NextEra Energy, Inc., 4.87%(1) | | 5,588 | | | |
SCE Trust II, 5.10% | | 1,222 | | | |
SCE Trust III, Series H, 5.75% | | 58,492 | | | |
SCE Trust IV, Series J, 5.38% | | 35,885 | | | |
SCE Trust V, Series K, 5.45% | | 12,227 | | | |
SCE Trust VI, 5.00% | | 196,477 | | | |
Sempra Energy, Series B, 6.75%(1) | | 2,756 | | | |
South Jersey Industries, Inc., 5.63%(1) | | 1,556 | | | |
South Jersey Industries, Inc., 7.25%(1) | | 28,466 | | | |
Southern Co., Series 2019, 6.75%(1) | | 73,314 | | | |
Southern Co., Series C, 4.20%*(1) | | 20,824 | | | |
Total Utilities | | | | | |
| |||||
TOTAL INVESTMENTS — 128.1% | | | | | |
(Cost $196,230,700) | | | | 187,515,069 | |
Liabilities in Excess of Other Assets — (28.1)% | | | | (41,118,295 | ) |
Net Assets — 100.0 | | | | $146,396,774 | |
Schedule of Investments — Virtus LifeSci Biotech Clinical Trials ETF
October 31, 2020
The accompanying notes are an integral part of these financial statements.
35
Security Description | | ||||
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Adaptimmune Therapeutics PLC*(1) | | 29,450 | | | |
Adverum Biotechnologies, Inc.* | | 13,730 | | | |
Agenus, Inc.* | | 83,874 | | | |
Akebia Therapeutics, Inc.* | | 26,161 | | | |
Akero Therapeutics, Inc.* | | 12,048 | | | |
Alector, Inc.* | | 10,002 | | | |
Allakos, Inc.*(2) | | 4,322 | | | |
Allogene Therapeutics, Inc.*(2) | | 7,228 | | | |
AnaptysBio, Inc.* | | 15,796 | | | |
Apellis Pharmaceuticals, Inc.* | | 9,447 | | | |
Applied Therapeutics, Inc.*(2) | | 7,191 | | | |
Aprea Therapeutics, Inc. (Sweden)*(2) | | 9,543 | | | |
Arcus Biosciences, Inc.* | | 10,518 | | | |
Arcutis Biotherapeutics, Inc.* | | 11,474 | | | |
Ardelyx, Inc.* | | 44,423 | | | |
Arena Pharmaceuticals, Inc.* | | 4,781 | | | |
Arrowhead Pharmaceuticals, Inc.*(2) | | 8,950 | | | |
Arvinas, Inc.* | | 9,332 | | | |
Ascendis Pharma A/S (Denmark)*(1) | | 2,104 | | | |
Assembly Biosciences, Inc.* | | 14,018 | | | |
Atara Biotherapeutics, Inc.* | | 31,210 | | | |
Athenex, Inc.*(2) | | 23,847 | | | |
Atreca, Inc. Class A* | | 16,790 | | | |
Avrobio, Inc.* | | 13,349 | | | |
Axsome Therapeutics, Inc.*(2) | | 4,055 | | | |
BioCryst Pharmaceuticals, Inc.*(2) | | 68,231 | | | |
Biohaven Pharmaceutical Holding Co., Ltd.* | | 4,436 | | | |
BioNTech SE (Germany)*(1) | | 6,043 | | | |
Bioxcel Therapeutics, Inc.*(2) | | 6,158 | | | |
Black Diamond Therapeutics, Inc.* | | 8,472 | | | |
Bluebird Bio, Inc.* | | 4,570 | | | |
Bridgebio Pharma, Inc.*(2) | | 10,212 | | | |
Calithera Biosciences, Inc.* | | 57,294 | | | |
Cara Therapeutics, Inc.* | | 19,448 | | | |
CEL-SCI Corp.* | | 22,661 | | | |
ChemoCentryx, Inc.* | | 4,494 | | | |
Compugen Ltd. (Israel)*(2) | | 21,035 | | | |
Constellation Pharmaceuticals, Inc.* | | 8,491 | | | |
Corbus Pharmaceuticals Holdings, Inc.*(2) | | 42,358 | | | |
Cortexyme, Inc.*(2) | | 6,501 | | | |
Crinetics Pharmaceuticals, Inc.* | | 18,397 | | | |
CRISPR Therapeutics AG (Switzerland)*(2) | | 4,896 | | | |
Cue Biopharma, Inc.* | | 11,454 | | | |
Cytokinetics, Inc.* | | 13,692 | | | |
CytomX Therapeutics, Inc.* | | 36,774 | | | |
Deciphera Pharmaceuticals, Inc.*(2) | | 5,392 | | | |
Denali Therapeutics, Inc.* | | 11,837 | | | |
Dicerna Pharmaceuticals, Inc.* | | 14,591 | | | |
Dynavax Technologies Corp.*(2) | | 51,270 | | | |
Editas Medicine, Inc.*(2) | | 10,843 |
Security Description | | ||||
| | | | | |
COMMON STOCKS (continued) | | | | | |
| | | | | |
Health Care (continued) | | | | | |
Eidos Therapeutics, Inc.* | | 6,406 | | | |
Fate Therapeutics, Inc.* | | 9,524 | | | |
FibroGen, Inc.* | | 7,668 | | | |
Frequency Therapeutics, Inc.*(2) | | 14,686 | | | |
G1 Therapeutics, Inc.*(2) | | 15,873 | | | |
Geron Corp.*(2) | | 180,697 | | | |
Gossamer Bio, Inc.*(2) | | 23,866 | | | |
Harpoon Therapeutics, Inc.*(2) | | 16,599 | | | |
Homology Medicines, Inc.* | | 19,716 | | | |
IGM Biosciences, Inc.*(2) | | 4,685 | | | |
ImmunoGen, Inc.* | | 66,683 | | | |
Intellia Therapeutics, Inc.*(2) | | 15,126 | | | |
Intra-Cellular Therapies, Inc.* | | 14,534 | | | |
Iovance Biotherapeutics, Inc.*(2) | | 9,925 | | | |
Kadmon Holdings, Inc.* | | 64,064 | | | |
Karuna Therapeutics, Inc.* | | 3,155 | | | |
Kezar Life Sciences, Inc.* | | 60,487 | | | |
Kiniksa Pharmaceuticals Ltd. Class A* | | 13,597 | | | |
Kodiak Sciences, Inc.*(2) | | 5,049 | | | |
Krystal Biotech, Inc.* | | 6,501 | | | |
Kura Oncology, Inc.* | | 17,956 | | | |
MacroGenics, Inc.* | | 14,610 | | | |
Madrigal Pharmaceuticals, Inc.*(2) | | 2,734 | | | |
Marinus Pharmaceuticals, Inc.*(2) | | 30,616 | | | |
MEI Pharma, Inc.* | | 83,874 | | | |
MeiraGTx Holdings PLC* | | 22,183 | | | |
Mersana Therapeutics, Inc.* | | 14,687 | | | |
Mirati Therapeutics, Inc.* | | 2,869 | | | |
Mirum Pharmaceuticals, Inc.*(2) | | 16,580 | | | |
Moderna, Inc.*(2) | | 4,724 | | | |
Molecular Templates, Inc.* | | 20,692 | | | |
MyoKardia, Inc.* | | 3,117 | | | |
Myovant Sciences Ltd.*(2) | | 17,403 | | | |
NextCure, Inc.*(2) | | 12,335 | | | |
NGM Biopharmaceuticals, Inc.*(2) | | 14,131 | | | |
Novavax, Inc.*(2) | | 6,426 | | | |
Odonate Therapeutics, Inc.* | | 7,726 | | | |
Orchard Therapeutics PLC | | 38,266 | | | |
Ovid therapeutics, Inc.*(2) | | 55,764 | | | |
Oyster Point Pharma, Inc.* | | 10,173 | | | |
Phathom Pharmaceuticals, Inc.*(2) | | 5,929 | | | |
Precision BioSciences, Inc.*(2) | | 39,126 | | | |
Prevail Therapeutics, Inc.* | | 18,779 | | | |
Protagonist Therapeutics, Inc.* | | 18,090 | | | |
Prothena Corp. PLC (Ireland)* | | 30,272 | | | |
Provention Bio, Inc.* | | 20,405 | | | |
RAPT Therapeutics, Inc.* | | 13,597 | | | |
Reata Pharmaceuticals, Inc. Class A*(2) | | 1,798 | | | |
REGENXBIO, Inc.* | | 8,318 | | | |
Relmada Therapeutics, Inc.*(2) | | 6,234 | | |
Schedule of Investments — Virtus LifeSci Biotech Clinical Trials ETF (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
36
Security Description | | ||||
| | | | | |
COMMON STOCKS (continued) | | | | | |
| | | | | |
Health Care (continued) | | | | | |
REVOLUTION Medicines, Inc.* | | 8,108 | | | |
Rhythm Pharmaceuticals, Inc.* | | 14,610 | | | |
Rigel Pharmaceuticals, Inc.* | | 162,625 | | | |
Rocket Pharmaceuticals, Inc.*(2) | | 16,140 | | | |
Rubius Therapeutics, Inc.*(2) | | 48,306 | | | |
Sangamo Therapeutics, Inc.* | | 26,639 | | | |
Selecta Biosciences, Inc.*(2) | | 109,233 | | | |
Sorrento Therapeutics, Inc.*(2) | | 63,489 | | | |
SpringWorks Therapeutics, Inc.*(2) | | 6,807 | | | |
Syndax Pharmaceuticals, Inc.* | | 18,894 | | | |
Syros Pharmaceuticals, Inc.*(2) | | 33,084 | | | |
TG Therapeutics, Inc.* | | 17,019 | | | |
Translate Bio, Inc.*(2) | | 19,564 | | | |
Tricida, Inc.* | | 11,474 | | | |
Turning Point Therapeutics, Inc.* | | 4,781 | | | |
uniQure NV (Netherlands)* | | 4,647 | | | |
Verastem, Inc.* | | 166,316 | | | |
Viela Bio, Inc.*(2) | | 6,253 | | | |
Viking Therapeutics, Inc.*(2) | | 40,369 | | | |
Vir Biotechnology, Inc.*(2) | | 8,548 | | | |
Voyager Therapeutics, Inc.* | | 24,133 | | | |
WaVe Life Sciences Ltd.*(2) | | 30,407 | |
| | | | | |
Health Care (continued) | | | | | |
XBiotech, Inc.*(2) | | 22,011 | | | |
Xencor, Inc.* | | 10,288 | | | |
Xenon Pharmaceuticals, Inc. (Canada)* | | 24,383 | | | |
Y-mAbs Therapeutics, Inc.* | | 6,941 | | | |
ZIOPHARM Oncology, Inc.*(2) | | 94,125 | | | |
Zymeworks, Inc. (Canada)* | | 8,568 | | | |
Total Health Care | | | | | |
| | | | | |
| | | | ||
Amyris, Inc.*(2) | | 75,250 | | | |
Total Common Stocks | | | | | |
(Cost $41,037,059) | | | | | |
| |||||
SECURITIES LENDING COLLATERAL - 9.9% | | | | | |
Money Market Fund — 9.9% | | | | | |
Dreyfus Government Cash Management Fund, Institutional Shares, 0.02%(3)(4) | | | | | |
(Cost $3,668,454) | | 3,668,454 | | | |
| |||||
TOTAL INVESTMENTS — 109.3% | | | | | |
(Cost $44,705,513) | | | | 40,460,096 | |
Liabilities in Excess of Other Assets — (9.3)% | | | | (3,442,329 | ) |
Net Assets — 100.0% | | | | $37,017,767 | |
*Non-income producing security.
(1)American Depositary Receipts.
(2)All or a portion of the security was on loan. The aggregate market value of securities on loan was $9,809,472; total market value of collateral held by the Fund was $10,475,594. Market value of the collateral held includes non-cash U.S. Treasury securities having a value of $6,807,140.
(3)Represents securities purchased with cash collateral received for securities on loan.
(4)The rate shown reflects the seven-day yield as of October 31, 2020.
The following table summarizes valuation of the Fund’s investments under the fair value hierarchy levels as of October 31, 2020.
| | Level 1 | | Level 2 | | Level 3 | | Total | |
Asset Valuation Inputs | | | | | | | | | |
Common Stocks | | $36,791,642 | | $— | | $— | | $36,791,642 | |
Money Market Fund | | 3,668,454 | | — | | — | | 3,668,454 | |
Total | | $40,460,096 | | $— | | $— | | $40,460,096 | |
| |
Schedule of Investments — Virtus LifeSci Biotech Products ETF
October 31, 2020
The accompanying notes are an integral part of these financial statements.
37
| | | |||
| | | | | |
| | | | | |
| | | | | |
| | | | | |
ACADIA Pharmaceuticals, Inc.* | | 13,863 | | | |
Acceleron Pharma, Inc.* | | 6,665 | | | |
Agios Pharmaceuticals, Inc.* | | 13,481 | | | |
Alexion Pharmaceuticals, Inc.* | | 5,819 | | | |
Alnylam Pharmaceuticals, Inc.* | | 5,065 | | | |
Amgen, Inc. | | 2,933 | | | |
Amicus Therapeutics, Inc.* | | 58,154 | | | |
| 3,883 | | | ||
Biogen, Inc.* | | 2,272 | | | |
BioMarin Pharmaceutical, Inc.* | | 6,016 | | | |
Blueprint Medicines Corp.* | | 9,099 | | | |
Clovis Oncology, Inc.*(2) | | 94,030 | | | |
Enanta Pharmaceuticals, Inc.* | | 13,098 | | | |
Epizyme, Inc.*(2) | | 36,641 | | | |
Esperion Therapeutics, Inc.*(2) | | 14,617 | | | |
Exelixis, Inc.* | | 28,387 | | | |
Gilead Sciences, Inc. | | 8,775 | | | |
Global Blood Therapeutics, Inc.* | | 10,143 | | | |
Halozyme Therapeutics, Inc.* | | 27,854 | | | |
Incyte Corp.* | | 6,909 | | | |
Insmed, Inc.*(2) | | 23,380 | | | |
Intercept Pharmaceuticals, Inc.*(2) | | 8,450 | | | |
Ionis Pharmaceuticals, Inc.* | | 10,884 | | | |
Ironwood Pharmaceuticals, Inc.* | | 69,549 | | | |
Karyopharm Therapeutics, Inc.*(2) | | 38,066 | | | |
Ligand Pharmaceuticals, Inc.*(2) | | 5,819 | | | |
Nektar Therapeutics*(2) | | 31,019 | | | |
Neurocrine Biosciences, Inc.* | | 5,541 | |
| | | |||
| | | | | |
COMMON STOCKS (continued) | | | | | |
| | | | | |
Health Care (continued) | | | | | |
Omeros Corp.*(2) | | 43,422 | | | |
PTC Therapeutics, Inc.* | | 12,901 | | | |
Radius Health, Inc.* | | 48,371 | | | |
Regeneron Pharmaceuticals, Inc.* | | 1,078 | | | |
Retrophin, Inc.*(2) | | 41,486 | | | |
Sage Therapeutics, Inc.*(2) | | 17,549 | | | |
Sarepta Therapeutics, Inc.* | | 3,999 | | | |
Seagen, Inc.* | | 4,208 | | | |
Theravance Biopharma, Inc.* | | 25,177 | | | |
Ultragenyx Pharmaceutical, Inc.*(2) | | 9,343 | | | |
United Therapeutics Corp.* | | 5,506 | | | |
Vanda Pharmaceuticals, Inc.* | | 59,568 | | | |
Vertex Pharmaceuticals, Inc.* | | 2,365 | | | |
Total Health Care | | | | | |
| |||||
Total Common Stocks | | | | | |
(Cost $27,456,261) | | | | | |
| |||||
SECURITIES LENDING COLLATERAL — 6.2% | | ||||
Money Market Fund — 6.2% | | | | | |
Dreyfus Government Cash Management Fund, Institutional Shares, 0.02%(3)(4) | | | | | |
(Cost $1,647,249) | | 1,647,249 | | | |
| |||||
TOTAL INVESTMENTS — 105.0% | | | | | |
(Cost $29,103,510) | | | | 27,819,229 | |
Liabilities in Excess of Other Assets — (5.0)% | | | | (1,314,293 | ) |
Net Assets — 100.0% | | | | $26,504,936 | |
*Non-income producing security.
(1)American Depositary Receipts.
(2)All or a portion of the security was on loan. The aggregate market value of securities on loan was $5,473,487; total market value of collateral held by the Fund was $5,634,001. Market value of the collateral held includes non-cash U.S. Treasury securities having a value of $3,986,752.
(3)Represents securities purchased with cash collateral received for securities on loan.
(4)The rate shown reflects the seven-day yield as of October 31, 2020.
The following table summarizes valuation of the Fund’s investments under the fair value hierarchy levels as of October 31, 2020.
| | Level 1 | | Level 2 | | Level 3 | | Total | |
Asset Valuation Inputs | | | | | | | | | |
Common Stocks | | $26,171,980 | | $— | | $— | | $26,171,980 | |
Money Market Fund | | 1,647,249 | | — | | — | | 1,647,249 | |
Total | | $27,819,229 | | $— | | $— | | $27,819,229 | |
Schedule of Investments — Virtus Newfleet Multi-Sector Bond ETF
October 31, 2020
The accompanying notes are an integral part of these financial statements.
38
| | | |||
| | | | | |
| | | | | |
| | | | | |
| | | | | |
ANGI Group LLC, 3.88%, 08/15/28(1) | | | | ||
Cars.com, Inc., 6.38%, 11/01/28(1) | | | | ||
CCO Holdings LLC / CCO Holdings Capital Corp., 4.50%, 08/15/30(1) | | | | ||
| | | |||
Clear Channel Worldwide Holdings, Inc., 9.25%, 02/15/24 | | | | ||
Clear Channel Worldwide Holdings, Inc., 5.13%, 08/15/27(1) | | | | ||
Consolidated Communications, Inc., 6.50%, 10/01/22 | | | | ||
Consolidated Communications, Inc., 6.50%, 10/01/28(1) | | | | ||
Diamond Sports Group LLC / Diamond Sports Finance Co., 5.38%, 08/15/26(1) | | | | ||
Diamond Sports Group LLC / Diamond Sports Finance Co., 6.63%, 08/15/27(1) | | | | ||
DISH DBS Corp., 5.88%, 07/15/22 | | | | ||
DISH DBS Corp., 7.75%, 07/01/26 | | | | ||
Frontier Communications Corp., 8.50%, 04/01/26(1)(2) | | | | ||
iHeartCommunications, Inc., 8.38%, 05/01/27 | | | | ||
Level 3 Financing, Inc., 4.25%, 07/01/28(1) | | | | ||
Level 3 Financing, Inc., 3.63%, 01/15/29(1) | | | | ||
Live Nation Entertainment, Inc., 4.75%, 10/15/27(1) | | | | ||
McGraw-Hill Global Education Holdings LLC / McGraw-Hill Global Education Finance, 7.88%, 05/15/24(1) | | | | ||
Nexstar Broadcasting, Inc., 4.75%, 11/01/28(1) | | | | ||
Northwest Fiber LLC / Northwest Fiber Finance Sub, Inc., 10.75%, 06/01/28(1) | | | | ||
Outfront Media Capital LLC / Outfront Media Capital Corp., 6.25%, 06/15/25(1) | | | | ||
Radiate Holdco LLC / Radiate Finance, Inc., 4.50%, 09/15/26(1) | | | | ||
Radiate Holdco LLC / Radiate Finance, Inc., 6.50%, 09/15/28(1) | | | | ||
T-Mobile USA, Inc., 2.55%, 02/15/31(1) | | | | ||
TripAdvisor, Inc., 7.00%, 07/15/25(1) | | | | ||
Twitter, Inc., 3.88%, 12/15/27(1) | | | | ||
Univision Communications, Inc., 5.13%, 02/15/25(1) | | | | ||
Univision Communications, Inc., 6.63%, 06/01/27(1) | | | | ||
Total Communication Services | | | | | |
| | | | | |
| | | | | |
American Axle & Manufacturing, Inc., 6.50%, 04/01/27 | | | | ||
American Builders & Contractors Supply Co., Inc., 4.00%, 01/15/28(1) | | | | ||
Aramark Services, Inc., 6.38%, 05/01/25(1) | | | | ||
Block Financial LLC, 3.88%, 08/15/30 | |
| | | |||
| | | | | |
CORPORATE BONDS (continued) | | | | | |
| | | | | |
Consumer Discretionary (continued) | | | | | |
Caesars Entertainment, Inc., 6.25%, 07/01/25(1) | | | | ||
Caesars Entertainment, Inc., 8.13%, 07/01/27(1) | | | | ||
Carnival Corp., 11.50%, 04/01/23(1) | | | | ||
Clarios Global LP / Clarios US Finance Co., 8.50%, 05/15/27(1) | | | | ||
Cooper-Standard Automotive, Inc., 13.00%, 06/01/24(1) | | 20,000 | | | |
Dana, Inc., 5.38%, 11/15/27 | | | | ||
Dave & Buster’s, Inc., 7.63%, 11/01/25(1) | | | | ||
Downstream Development Authority of the Quapaw Tribe of Oklahoma, 10.50%, 02/15/23(1) | | | | ||
Expedia Group, Inc., 6.25%, 05/01/25(1) | | | | ||
Ford Motor Co., 9.00%, 04/22/25 | | | | ||
General Motors Co., 6.80%, 10/01/27 | | | | ||
Golden Nugget, Inc., 8.75%, 10/01/25(1) | | | | ||
Hanesbrands, Inc., 5.38%, 05/15/25(1) | | | | ||
International Game Technology PLC, 5.25%, 01/15/29(1) | | | | ||
KAR Auction Services, Inc., 5.13%, 06/01/25(1) | | | | ||
Lear Corp., 3.80%, 09/15/27 | | | | ||
M/I Homes, Inc., 4.95%, 02/01/28 | | | | ||
Marriott Ownership Resorts, Inc., 4.75%, 01/15/28 | | | | ||
MGM Growth Properties Operating Partnership LP / MGP Finance Co-Issuer, Inc., 4.63%, 06/15/25(1) | | | | ||
MGM Growth Properties Operating Partnership LP / MGP Finance Co-Issuer, Inc., 4.50%, 01/15/28 | | | | ||
Peninsula Pacific Entertainment LLC / Peninsula | | | | ||
PulteGroup, Inc., 7.88%, 06/15/32 | | | | ||
Royal Caribbean Cruises Ltd., 9.13%, 06/15/23(1) | | | | ||
Scientific Games International, Inc., 8.25%, 03/15/26(1) | | | | ||
Station Casinos LLC, 4.50%, 02/15/28(1) | | | | ||
Under Armour, Inc., 3.25%, 06/15/26 | | | | ||
VF Corp., 2.95%, 04/23/30 | | | | ||
Vista Outdoor, Inc., 5.88%, 10/01/23 | | | | ||
Total Consumer Discretionary | | | | | |
| | | | | |
| | | | | |
Albertsons Cos., Inc. / Safeway, Inc. / New Albertsons LP / Albertsons LLC, 3.25%, 03/15/26(1) | | | | ||
Altria Group, Inc., 4.80%, 02/14/29 | | | | ||
Kraft Heinz Foods Co., 3.88%, 05/15/27(1) | | | | ||
Total Consumer Staples | | | | | |
| | | | | |
| | | | | |
FirstCash, Inc., 4.63%, 09/01/28(1) | | | |
Schedule of Investments — Virtus Newfleet Multi-Sector Bond ETF (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
39
| | | |||
| | | | | |
CORPORATE BONDS (continued) | | | | | |
| | | | | |
| | | | | |
Antero Midstream Partners LP / Antero Midstream Finance Corp., 5.75%, 01/15/28(1) | | $35,000 | | $31,234 | |
Apache Corp., 4.63%, 11/15/25 | | | | ||
Blue Racer Midstream LLC / Blue Racer Finance Corp., 6.63%, 07/15/26(1) | | | | ||
Callon Petroleum Co., 6.13%, 10/01/24 | | | | ||
Cheniere Energy Partners LP, 5.63%, 10/01/26 | | | | ||
Cheniere Energy, Inc., 4.63%, 10/15/28(1) | | | | ||
Cimarex Energy Co., 4.38%, 03/15/29 | | | | ||
Citgo Holding, Inc., 9.25%, 08/01/24(1) | | | | ||
Concho Resources, Inc., 2.40%, 02/15/31 | | | | ||
Continental Resources, Inc., 4.38%, 01/15/28 | | | | ||
CrownRock LP / CrownRock Finance, Inc., 5.63%, 10/15/25(1) | | | | ||
EQM Midstream Partners LP, 6.00%, 07/01/25(1) | | | | ||
EQM Midstream Partners LP, 6.50%, 07/01/27(1) | | | | ||
HollyFrontier Corp., 5.88%, 04/01/26 | | | | ||
Kinder Morgan, Inc., Series G, 7.75%, 01/15/32 | | | | ||
Mesquite Energy, Inc., Escrow, 7.25%(3) | | | | ||
NuStar Logistics LP, 6.38%, 10/01/30 | | | | ||
Occidental Petroleum Corp., 2.70%, 08/15/22 | | | | ||
Occidental Petroleum Corp., 5.88%, 09/01/25 | | | | ||
Occidental Petroleum Corp., 3.50%, 08/15/29 | | | | ||
Occidental Petroleum Corp., 6.63%, 09/01/30 | | | | ||
Parsley Energy LLC / Parsley Finance Corp., 4.13%, 02/15/28(1) | | | | ||
Patterson-UTI Energy, Inc., 5.15%, 11/15/29 | | | | ||
Plains All American Pipeline LP / Paa Finance Corp., 3.80%, 09/15/30 | | | | ||
Sabine Pass Liquefaction LLC, 4.20%, 03/15/28 | | | | ||
Targa Resources Partners LP / Targa Resources Partners Finance Corp., 5.88%, 04/15/26 | | | | ||
Targa Resources Partners LP / Targa Resources | | | | ||
Transocean, Inc., 11.50%, 01/30/27 (Cayman Islands)(1) | | | | ||
USA Compression Partners LP / USA Compression Finance Corp., 6.88%, 04/01/26 | | | | ||
WPX Energy, Inc., 4.50%, 01/15/30 | | | | ||
Total Energy | | | | | |
| | | | | |
| | | | | |
Acrisure, LLC / Acrisure Finance, Inc., 8.13%, 02/15/24(1) | | | | ||
Acrisure, LLC / Acrisure Finance, Inc., 7.00%, 11/15/25(1) | | | | ||
Allstate Corp. (The), Series B, 5.75%, 08/15/53 | | | | ||
Athene Global Funding, 2.45%, 08/20/27(1) | | | | ||
Bank of America Corp., 4.20%, 08/26/24 | | | | ||
Bank of New York Mellon Corp. (The), Series G, 4.70%, (US 5 Year CMT T- Note + 4.36%), perpetual(4)(5) | | | | ||
Brighthouse Financial, Inc., 3.70%, 06/22/27 | | |
| | | | | |
Financials (continued) | | | | | |
Brighthouse Financial, Inc., 5.63%, 05/15/30 | | $40,000 | | $47,253 | |
Brightsphere Investment Group, Inc., 4.80%, 07/27/26 | | | | ||
Capital One Financial Corp., 3.75%, 07/28/26 | | | | ||
Charles Schwab Corp. (The), Series G, 5.38%, (US 5 Year CMT T-Note + 4.97%), perpetual(4)(5) | | | | ||
Citadel LP, 4.88%, 01/15/27(1) | | | | ||
Citigroup, Inc., 3.98%, (3-Month USD LIBOR + 1.34%), 03/20/30(4) | | | | ||
Discover Financial Services, Series D, 6.13%, (US 5 Year CMT T- Note + 5.78%), perpetual(4)(5) | | | | ||
Fifth Third Bancorp, Series L, 4.50%, (US 5 Year CMT T- Note + 4.22%), perpetual(4)(5) | | | | ||
Goldman Sachs Group, Inc. (The), 3.85%, 01/26/27 | | | | ||
Icahn Enterprises LP / Icahn Enterprises Finance Corp., 6.25%, 05/15/26 | | | | ||
Jefferies Group LLC / Jefferies Group Capital Finance, Inc., 4.85%, 01/15/27 | | | | ||
JPMorgan Chase & Co., Series HH, 4.60%, (SOFR + 3.13%), perpetual(4)(5) | | | | ||
JPMorgan Chase & Co., 4.01%, (3-Month USD LIBOR + 1.12%), 04/23/29(4) | | | | ||
JPMorgan Chase & Co., 2.96%, (SOFR + 2.52%), 05/13/31(4) | | | | ||
Ladder Capital Finance Holdings LLLP / Ladder Capital Finance Corp., 4.25%, 02/01/27(1) | | | | ||
MetLife, Inc., Series D, 5.88%, (3-Month USD LIBOR + 2.96%), perpetual(4)(5) | | | | ||
Navient Corp., 6.75%, 06/25/25 | | | | ||
NMI Holdings, Inc., 7.38%, 06/01/25(1) | | | | ||
OneMain Finance Corp., 7.13%, 03/15/26 | | | | ||
OneMain Finance Corp., 5.38%, 11/15/29 | | | | ||
PNC Financial Services Group, Inc. (The), | | | | ||
Prudential Financial, Inc., 5.63%, 06/15/43 | | | | ||
Santander Holdings USA, Inc., 4.40%, 07/13/27 | | | | ||
Synovus Financial Corp., 5.90%, (USD 5 Year Swap + 3.38%), 02/07/29(4) | | | | ||
Truist Financial Corp., Series Q, 5.10%, (US 10 Year CMT T- Note + 4.35%), perpetual(4)(5) | | | | ||
Wells Fargo & Co., Series S, 5.90%, (3-Month USD LIBOR + 3.11%), perpetual(4)(5) | | | | ||
Total Financials | | | | | |
| | | | | |
| | | | | |
Akumin, Inc., 7.00%, 11/01/25(1) | | | | ||
Avantor Funding, Inc., 4.63%, 07/15/28(1) | | | | ||
Avantor, Inc., 6.00%, 10/01/24(1) | | | | ||
Bausch Health Americas, Inc., 9.25%, 04/01/26(1) | | | | ||
Bausch Health Americas, Inc., 8.50%, 01/31/27(1) | | | | ||
Centene Corp., 4.63%, 12/15/29 | | | |
Schedule of Investments — Virtus Newfleet Multi-Sector Bond ETF (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
40
| | | |||
| | | | | |
CORPORATE BONDS (continued) | | | | | |
| | | | | |
Health Care (continued) | | | | | |
Change Healthcare Holdings LLC / Change Healthcare Finance, Inc., 5.75%, 03/01/25(1) | | $30,000 | | | |
CHS/Community Health Systems, Inc., 6.63%, 02/15/25(1) | | | | ||
DaVita, Inc., 3.75%, 02/15/31(1) | | | | ||
Encompass Health Corp., 4.50%, 02/01/28 | | | | ||
Encompass Health Corp., 4.75%, 02/01/30 | | | | ||
HCA, Inc., 5.63%, 09/01/28 | | | | ||
Herbalife Nutrition Ltd. / Hlf Financing, Inc., 7.88%, 09/01/25(1) | | | | ||
Jaguar Holding Co. II / Ppd Development LP, 5.00%, 06/15/28(1) | | | | ||
LifePoint Health LLC, 6.75%, 04/15/25(1) | | | | ||
LifePoint Health LLC, 4.38%, 02/15/27(1) | | | | ||
Ortho-Clinical Diagnostics, Inc. / Ortho-Clinical Diagnostics SA, 7.25%, 02/01/28(1) | | | | ||
Par Pharmaceutical, Inc., 7.50%, 04/01/27(1) | | | | ||
Providence Service Corp. (The), 5.88%, 11/15/25(1) | | | | ||
Royalty Pharma PLC, 2.20%, 09/02/30(1) | | | | ||
Royalty Pharma PLC, 3.55%, 09/02/50(1) | | | | ||
Select Medical Corp., 6.25%, 08/15/26(1) | | | | ||
Surgery Center Holdings, Inc., 6.75%, 07/01/25(1) | | | | ||
Surgery Center Holdings, Inc., 10.00%, 04/15/27(1) | | | | ||
Tenet Healthcare Corp., 7.50%, 04/01/25(1) | | | | ||
Tenet Healthcare Corp., 5.13%, 11/01/27(1) | | | | ||
Universal Health Services, Inc., 2.65%, 10/15/30(1) | | | | ||
West Street Merger Sub, Inc., 6.38%, 09/01/25(1) | | | | ||
Total Health Care | | | | | |
| | | | | |
| | | | | |
Allied Universal Holdco LLC / Allied Universal Finance Corp., 6.63%, 07/15/26(1) | | | | ||
American Airlines, Inc., 11.75%, 07/15/25(1) | | | | ||
Aviation Capital Group LLC, 3.50%, 11/01/27(1) | | | | ||
Boeing Co. (The), 5.15%, 05/01/30 | | | | ||
Boeing Co. (The), 3.75%, 02/01/50 | | | | ||
Boeing Co. (The), 5.93%, 05/01/60 | | | | ||
Cornerstone Building Brands, Inc., 6.13%, 01/15/29(1) | | | | ||
CoStar Group, Inc., 2.80%, 07/15/30(1) | | | | ||
Flowserve Corp., 3.50%, 10/01/30 | | | | ||
Fortress Transportation and Infrastructure Investors LLC, 9.75%, 08/01/27(1) | | | | ||
General Electric Co., Series D, 5.00%, (3-Month USD LIBOR + 3.33%), perpetual(4)(5) | | | | ||
Hillenbrand, Inc., 5.00%, 09/15/26 | | | | ||
Howmet Aerospace, Inc., 6.88%, 05/01/25 | | | | ||
Oshkosh Corp., 4.60%, 05/15/28 | | | | ||
Oshkosh Corp., 3.10%, 03/01/30 | | | | ||
PriSo Acquisition Corp., 9.00%, 05/15/23(1) | | |
| | | |||
| | | | | |
| | | | | |
Industrials (continued) | | | | | |
Quanta Services, Inc., 2.90%, 10/01/30 | | $60,000 | | $62,597 | |
Signature Aviation US Holdings, Inc., 4.00%, | | 45,000 | | 43,594 | |
Spirit AeroSystems, Inc., 3.95%, 06/15/23 | | | | ||
Spirit AeroSystems, Inc., 5.50%, 01/15/25(1) | | | | ||
Standard Industries, Inc., 4.38%, 07/15/30(1) | | | | ||
Stanley Black & Decker, Inc., 4.00%, 03/15/60 | | | | ||
TransDigm, Inc., 5.50%, 11/15/27 | | | | ||
Uber Technologies, Inc., 7.50%, 05/15/25(1) | | | | ||
Weekley Homes LLC / Weekley Finance Corp., 4.88%, 09/15/28(1) | | | | ||
WESCO Distribution, Inc., 7.25%, 06/15/28(1) | | | | ||
Total Industrials | | | | | |
| | | | | |
| | | | | |
Banff Merger Sub, Inc., 9.75%, 09/01/26(1) | | | | ||
Black Knight InfoServ LLC, 3.63%, 09/01/28(1) | | | | ||
Broadcom, Inc., 4.15%, 11/15/30 | | | | ||
Citrix Systems, Inc., 3.30%, 03/01/30 | | | | ||
Dell International LLC / EMC Corp., 8.10%, | | | | ||
Flex Ltd., 3.75%, 02/01/26 | | | | ||
HP, Inc., 3.40%, 06/17/30 | | | | ||
J2 Global, Inc., 4.63%, 10/15/30(1) | | | | ||
Leidos, Inc., 2.30%, 02/15/31(1) | | | | ||
Microchip Technology, Inc., 4.25%, 09/01/25(1) | | | | ||
Motorola Solutions, Inc., 4.60%, 02/23/28 | | | | ||
Motorola Solutions, Inc., 4.60%, 05/23/29 | | | | ||
NCR Corp., 5.25%, 10/01/30(1) | | | | ||
Open Text Holdings, Inc., 4.13%, 02/15/30 (Canada)(1) | | | | ||
Science Applications International Corp., 4.88%, 04/01/28(1) | | | | ||
ViaSat, Inc., 5.63%, 09/15/25(1) | | | | ||
VMware, Inc., 3.90%, 08/21/27 | | | | ||
Xerox Holdings Corp., 5.50%, 08/15/28(1) | | | | ||
Total Information Technology | | | | | |
| | | | | |
| | | | | |
Avient Corp., 5.75%, 05/15/25(1) | | | | ||
Cleveland-Cliffs, Inc., 6.75%, 03/15/26(1) | | | | ||
Hecla Mining Co., 7.25%, 02/15/28 | | | | ||
Kaiser Aluminum Corp., 6.50%, 05/01/25(1) | | | | ||
Kaiser Aluminum Corp., 4.63%, 03/01/28(1) | | | | ||
Kraton Polymers LLC / Kraton Polymers Capital Corp., 7.00%, 04/15/25(1) | | | | ||
Mauser Packaging Solutions Holding Co., 7.25%, 04/15/25(1) | | | | ||
Novelis Corp., 4.75%, 01/30/30(1) | | | | ||
Nutrition & Biosciences, Inc., 2.30%, 11/01/30(1) | | | | ||
Olin Corp., 5.63%, 08/01/29 | | | | ||
Schweitzer-Mauduit International, Inc., 6.88%, 10/01/26(1) | | | |
Schedule of Investments — Virtus Newfleet Multi-Sector Bond ETF (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
41
| | | |||
| | | | | |
CORPORATE BONDS (continued) | | | | | |
| | | | | |
Materials (continued) | | | | | |
TPC Group, Inc., 10.50%, 08/01/24(1) | | $10,000 | | $8,370 | |
Trident TPI Holdings, Inc., 9.25%, 08/01/24(1) | | 30,000 | | 31,650 | |
Trident TPI Holdings, Inc., 6.63%, 11/01/25(1) | | | | ||
Tronox, Inc., 6.50%, 05/01/25(1) | | | | ||
U.S. Steel Corp., 12.00%, 06/01/25(1) | | | | ||
Total Materials | | | | | |
| | | | | |
| | | | | |
EPR Properties, 4.75%, 12/15/26 | | | | ||
ESH Hospitality, Inc., 4.63%, 10/01/27(1) | | | | ||
GLP Capital LP / GLP Financing II, Inc., 5.25%, 06/01/25 | | | | ||
GLP Capital LP / GLP Financing II, Inc., 5.75%, 06/01/28 | | | | ||
Iron Mountain, Inc., 4.88%, 09/15/29(1) | | | | ||
Iron Mountain, Inc., 5.25%, 07/15/30(1) | | | | ||
MPT Operating Partnership LP / MPT Finance Corp., 5.00%, 10/15/27 | | | | ||
MPT Operating Partnership LP / MPT Finance Corp., 4.63%, 08/01/29 | | | | ||
Service Properties Trust, 4.38%, 02/15/30 | | | | ||
Spirit Realty LP, 3.20%, 02/15/31 | | | | ||
Uniti Group LP / Uniti Fiber Holdings, Inc. / CSL Capital LLC, 7.88%, 02/15/25(1) | | | | ||
Uniti Group LP / Uniti Group Finance, Inc. / CSL Capital LLC, 8.25%, 10/15/23 | | | | ||
Total Real Estate | | | | | |
| | | | | |
| | | | | |
American Electric Power Co., Inc., 2.30%, 03/01/30 | | | | ||
CMS Energy Corp., 4.75%, (US 5 Year CMT T- Note + 4.12%), 06/01/50(4) | | | | ||
Dominion Energy, Inc., Series C, 3.38%, 04/01/30 | | | | ||
DPL, Inc., 4.35%, 04/15/29 | | | | ||
Edison International, 4.13%, 03/15/28 | | | | ||
Ferrellgas Partners LP / Ferrellgas Partners Finance Corp., 8.63%, 12/31/20(2) | | | | ||
National Fuel Gas Co., 5.50%, 01/15/26 | | | | ||
PG&E Corp., 5.25%, 07/01/30 | | | | ||
Talen Energy Supply, LLC, 6.63%, 01/15/28(1) | | | | ||
TerraForm Power Operating LLC, 5.00%, 01/31/28(1) | | | | ||
Vistra Operations Co. LLC, 3.70%, 01/30/27(1) | | | | ||
Total Utilities | | | | | |
| | | | | |
Total Corporate Bonds | | | | | |
(Cost $7,605,920) | | | | | |
| | | | |
| | | | | |
| | | | | |
Telesat Canada / Telesat LLC, 6.50%, 10/15/27 (Canada)(1) | | $50,000 | | $49,820 | |
Tencent Holdings Ltd., 3.98%, 04/11/29 (China)(1) | | | | ||
Total Communication Services | | | | | |
| | | | | |
| | | | | |
Gateway Casinos & Entertainment Ltd., 8.25%, 03/01/24 (Canada)(1) | | | | ||
| | | | | |
| | | | | |
Anheuser-Busch InBev Worldwide, Inc., 4.75%, 01/23/29 (Belgium) | | | | ||
Bacardi Ltd., 4.70%, 05/15/28 (Bermuda)(1) | | | | ||
BAT Capital Corp., 4.91%, 04/02/30 (United Kingdom) | | | | ||
Kronos Acquisition Holdings, Inc., 9.00%, 08/15/23 (Canada)(1) | | | | ||
Total Consumer Staples | | | | | |
| | | | | |
| | | | | |
BP Capital Markets PLC, 4.88%, (US 5 Year CMT T-Note + 4.40%), perpetual (United Kingdom)(4)(5) | | | | ||
MEG Energy Corp., 7.13%, 02/01/27 (Canada)(1) | | | | ||
Northriver Midstream Finance LP, 5.63%, 02/15/26 (Canada)(1) | | | | ||
Pertamina Persero PT, 6.45%, 05/30/44 (Indonesia)(1) | | | | ||
Petrobras Global Finance BV, 5.60%, 01/03/31 (Brazil) | | | | ||
Petroleos Mexicanos, 5.95%, 01/28/31 (Mexico) | | | | ||
Petroleos Mexicanos, 6.35%, 02/12/48 (Mexico) | | | | ||
Total Energy | | | | | |
| | | | | |
| | | | | |
Bank of Montreal, 3.80%, (USD 5 Year Swap + 1.43%), 12/15/32 (Canada)(4) | | | | ||
Fairfax Financial Holdings Ltd., 4.85%, 04/17/28 (Canada) | | | | ||
Toronto-Dominion Bank (The), 3.63%, (USD 5 Year Swap + 2.21%), 09/15/31 (Canada)(4) | | | | ||
Total Financials | | | | | |
| | | | | |
| | | | | |
Brazilian Government International Bond, 5.63%, 01/07/41 (Brazil) | | | | ||
Colombia Government International Bond, 3.00%, 01/30/30 (Colombia) | | | | ||
Dominican Republic International Bond, 5.95%, 01/25/27 (Dominican Republic)(1) | | | | ||
Israel Government International Bond, 2.75%, 07/03/30 (Israel) | | | | ||
Mexican Bonos, Series M, 6.50%, 06/09/22 (Mexico) | | | | ||
Mexico Government International Bond, 4.50%, 01/31/50 (Mexico) | | | |
Schedule of Investments — Virtus Newfleet Multi-Sector Bond ETF (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
42
| | | |||
| | | | | |
FOREIGN BONDS (continued) | | | | | |
| | | | | |
Government (continued) | | | | | |
Republic of South Africa Government International Bond, 5.65%, 09/27/47 (South Africa) | | $200,000 | | $181,290 | |
Russian Foreign Bond - Eurobond, 4.38%, 03/21/29 (Russia) | | | | ||
Saudi Government International Bond, 3.63%, 03/04/28 (Saudi Arabia)(1) | | | | ||
Turkey Government International Bond, 7.38%, 02/05/25 (Turkey) | | | | ||
Uruguay Government International Bond, 5.10%, 06/18/50 (Uruguay) | | | | ||
Total Government | | | | | |
| | | | | |
| | | | | |
Advanz Pharma Corp., Ltd., 8.00%, 09/06/24 (Canada) | | | | ||
Teva Pharmaceutical Finance Netherlands III BV, 3.15%, 10/01/26 (Israel) | | | | ||
Total Health Care | | | | | |
| | | | | |
| | | | | |
Avolon Holdings Funding Ltd., 4.38%, 05/01/26 (Ireland)(1) | | | | ||
Bombardier, Inc., 8.75%, 12/01/21 (Canada)(1) | | | | ||
Bombardier, Inc., 7.50%, 03/15/25 (Canada)(1) | | | | ||
DP World PLC, 6.85%, 07/02/37 (United Arab Emirates)(1) | | | | ||
GFL Environmental, Inc., 7.00%, 06/01/26 (Canada)(1) | | | | ||
GFL Environmental, Inc., 8.50%, 05/01/27 (Canada)(1) | | | | ||
Norwegian Air Shuttle ASA Pass-Through Trust, Class A, Series 2016-1, 4.88%, 05/10/28 (Norway)(1) | | | | ||
Titan Acquisition Ltd. / Titan Co.-Borrower LLC, 7.75%, 04/15/26 (Multinational)(1) | | | | ||
Total Industrials | | | | | |
| | | | | |
| | | | | |
NOVA Chemicals Corp., 5.00%, 05/01/25 (Canada)(1) | | | | ||
Teck Resources Ltd., 6.13%, 10/01/35 (Canada) | | | | ||
Total Materials | | | | | |
| | | | | |
Total Foreign Bonds | | | | | |
(Cost $3,497,493) | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
AI Convoy Luxembourg Sarl, 4.50%, (6-Month USD LIBOR + 3.50%), 01/18/27(4) | | | | ||
AI Convoy Luxembourg Sarl, 4.50%, (2-Month USD LIBOR + 3.50%), 01/18/27(4) | | | | ||
Mileage Plus Holdings LLC, 6.25%, (3-Month USD LIBOR + 5.25%), 06/21/27(4) | | 30,000 | |
| | | | | |
Aerospace (continued) | | | | | |
TransDigm, Inc., 2.40%, (1-Month USD LIBOR + 2.25%), 12/09/25(4) | | $32,626 | | $30,780 | |
Total Aerospace | | | | | |
| | | | | |
| | | | | |
Aruba Investments Holdings LLC, 0.00%, (3-Month USD LIBOR + 4.00%), 10/28/27(6) | | 15,000 | | | |
H.B. Fuller Co., 2.15%, (1-Month USD LIBOR + 2.00%), 10/21/24(4) | | | | ||
Innophos Holdings, Inc., 3.65%, (1-Month USD LIBOR + 3.50%), 02/05/27(4) | | | | ||
Total Chemicals | | | | | |
| | | | | |
| | | | | |
American Greetings Corp., 5.50%, (1-Month USD LIBOR + 4.50%), 04/06/24(4) | | | | ||
Diamond (BC) B.V., 3.21%, (3-Month USD LIBOR + 3.00%), 09/06/24 (Netherlands)(4) | | | | ||
Diamond (BC) B.V., 3.15%, (1-Month USD LIBOR + 3.00%), 09/06/24 (Netherlands)(4) | | | | ||
Kronos Acquisition Intermediate, Inc. (aka KIK Custom Products), 5.00%, (3-Month USD LIBOR + 4.00%), 05/15/23 (Canada)(4) | | | | ||
Parfums Holding Co., Inc., 4.26%, (3-Month USD LIBOR + 4.00%), 06/28/24(4) | | | | ||
Rodan & Fields, LLC, 4.15%, (1-Month USD LIBOR + 4.00%), 06/16/25 (Kazakhstan)(4) | | | | ||
Total Consumer Non-Durables | | | | | |
| | | | | |
| | | | | |
CITGO Petroleum Corp., 6.00%, (3-Month USD LIBOR + 5.00%), 03/28/24(4) | | | | ||
Hamilton Projects Acquiror LLC, 5.75%, (3-Month USD LIBOR + 4.75%), 06/17/27(4) | | | | ||
Traverse Midstream Partners LLC, 6.50%, (1-Month USD LIBOR + 5.50%), 09/27/24 (Turkey)(4) | | | | ||
Total Energy | | | | | |
| | | | | |
| | | | | |
Asurion, LLC (fka Asurion Corp.), 6.65%, (1-Month USD LIBOR + 6.50%), 08/04/25(4) | | | | ||
Blackhawk Network Holdings, Inc., 3.15%, (1-Month USD LIBOR + 3.00%), 06/15/25(4) | | | | ||
Deerfield Dakota Holding LLC, 4.75%, (1-Month USD LIBOR + 3.75%), 04/09/27(4) | | | | ||
iStar, Inc. (fka iStar Financial, Inc.), 2.89%, (1-Month USD LIBOR + 2.75%), 06/28/23(4) | | | | ||
Ryan Specialty Group LLC, 4.00%, (1-Month USD LIBOR + 3.25%), 09/01/27(4) | | | | ||
Total Financials | | | | | |
| | | | | |
| | | | | |
Chobani LLC, 0.00%, (1-Month USD LIBOR + 3.50%), 10/20/27(6) | | | |
Schedule of Investments — Virtus Newfleet Multi-Sector Bond ETF (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
43
| | | |||
| | | | | |
TERM LOANS (continued) | | | | | |
| | | | | |
Food/Tobacco (continued) | | | | | |
Froneri US, Inc., 2.40%, (1-Month USD LIBOR + 2.25%), 01/29/27(4) | | $34,913 | | $33,729 | |
H-Food Holdings, LLC (aka Hearthside Food Solutions, LLC), 3.84%, (1-Month USD LIBOR + 3.69%), 05/23/25(4) | | | | ||
Milk Specialties Co., 5.00%, (1-Month USD LIBOR + 4.00%), 08/16/23(4) | | | | ||
Shearer’s Foods LLC, 4.75%, (3-Month USD LIBOR + 4.00%), 09/23/27(4) | | | | ||
Total Food/Tobacco | | | | | |
| | | | | |
| | | | | |
Affinity Gaming LLC, 4.25%, (3-Month USD LIBOR + 3.25%), 07/01/23(4) | | | | ||
Aristocrat International Pty Ltd., 4.75%, (3-Month USD LIBOR + 3.75%), 10/19/24(4) | | | | ||
Carnival Corp., 8.50%, (1-Month USD LIBOR + 7.50%), 06/30/25(4) | | | | ||
CCM Merger, Inc., 0.00%, (1-Month USD LIBOR + 3.75%), 10/29/25(6) | | | | ||
Everi Payments, Inc., 3.75%, (1-Month USD LIBOR + 2.75%), 05/09/24(4) | | | | ||
Playa Resorts Holding B.V., 3.75%, (1-Month USD LIBOR + 2.75%), 04/29/24(4) | | | | ||
Pug LLC, 3.65%, (1-Month USD LIBOR + 3.50%), 02/12/27(4) | | | | ||
Scientific Games International, Inc., 2.90%, (1-Month USD LIBOR + 2.75%), 08/14/24(4) | | | | ||
Stars Group Holdings BV, 3.72%, (3-Month USD LIBOR + 3.50%), 07/10/25(4) | | | | ||
Total Gaming/Leisure | | | | | |
| | | | | |
| | | | | |
Accelerated Health Systems, LLC, 3.65%, (1-Month USD LIBOR + 3.50%), 10/31/25(4) | | | | ||
AHP Health Partners, Inc. (aka Ardent Health Partners, LLC), 5.50%, (1-Month USD LIBOR + 4.50%), 06/30/25(4) | | | | ||
Azalea Topco, Inc., 0.00%, (3-Month USD LIBOR + 4.00%), 07/25/26(6) | | | | ||
Azalea Topco, Inc., 4.75%, (3-Month USD LIBOR + 4.00%), 07/25/26(4) | | | | ||
CHG Healthcare Services, Inc. (fka CHG Buyer Corp.), 4.00%, (3-Month USD LIBOR + 3.00%), 06/07/23(4) | | | | ||
Concordia Healthcare Corp., 6.50%, (3-Month USD LIBOR + 5.50%), 09/06/24 (Canada)(4) | | | | ||
Envision Health Care Corp., 3.90%, (1-Month USD LIBOR + 3.75%), 10/10/25(4) | | | | ||
Milano Acquisition Corp., 4.75%, (3-Month USD LIBOR + 4.00%), 08/17/27(4) | | | | ||
Navicure, Inc., 4.75%, (1-Month USD LIBOR + 4.00%), 10/22/26(4) | | | | ||
One Call Corp., 0.00%, (3-Month USD LIBOR + 5.25%), 11/27/22(6) | | |
| | | | | |
Health Care (continued) | | | | | |
Ortho-Clinical Diagnostics, Inc., 3.39%, (1-Month USD LIBOR + 3.25%), 06/30/25(4) | | $30,187 | | $29,234 | |
Packaging Coordinators Midco, Inc., 0.00%, (6-Month USD LIBOR + 3.75%), 09/25/27(6) | | | | ||
PetVet Care Centers LLC, 3.40%, (1-Month USD LIBOR + 3.25%), 02/14/25(4) | | | | ||
PetVet Care Centers LLC, 5.25%, (1-Month USD LIBOR + 4.25%), 02/14/25(4) | | | | ||
Phoenix Guarantor, Inc., 3.89%, (1-Month USD LIBOR + 3.75%), 03/05/26(4) | | | 9,840 | | |
Phoenix Guarantor, Inc., 3.40%, (1-Month USD LIBOR + 3.25%), 03/05/26(4) | | | | ||
Total Health Care | | | | | |
| | | | | |
| | | | | |
CPG International LLC (fka CPG International, | | | | ||
| | | | | |
| | | | | |
Applied Systems, Inc., 8.00%, (3-Month USD LIBOR + 7.00%), 09/19/25(4) | | | | ||
Barracuda Networks, Inc., 0.00%, (3-Month USD LIBOR + 3.25%), 02/12/25(6) | | | | ||
BMC Software Finance, Inc., 4.40%, (1-Month USD LIBOR + 4.25%), 10/02/25(4) | | | | ||
Epicor Software Corp., 5.25%, (1-Month USD LIBOR + 4.25%), 07/30/27(4) | | | | ||
Greeneden US Holdings II LLC, 0.00%, | | | | ||
Hyland Software, Inc., 4.25%, (1-Month USD LIBOR + 3.50%), 07/01/24(4) | | | | ||
RSA Security LLC, 6.00%, (3-Month USD LIBOR + 5.00%), 09/01/27(4) | | | | ||
Sophia LP, 4.50%, (3-Month USD LIBOR + 3.75%), 10/07/27(4) | | | | ||
SS&C Technologies, Inc., 1.90%, (1-Month USD LIBOR + 1.75%), 04/16/25(4) | | | | ||
SS&C Technologies, Inc., 1.90%, (1-Month USD LIBOR + 1.75%), 04/16/25(4) | | | | ||
Ultimate Software Group, Inc. (The), 4.75%, (3-Month USD LIBOR + 4.00%), 05/03/26(4) | | | | ||
Vertiv Group Corp., 3.15%, (1-Month USD LIBOR + 3.00%), 03/02/27(4) | | | | ||
Total Information Technology | | | | | |
| | | | | |
| | | | | |
Alliance Laundry Systems LLC, 0.00%, (3-Month USD LIBOR + 3.50%), 09/30/27(6) | | | | ||
CPI Acquisition, Inc., 5.50%, (3-Month USD LIBOR + 4.50%), 08/17/22(4) | | | | ||
Filtration Group Corp., 4.50%, (1-Month USD LIBOR + 3.75%), 03/29/25(4) | | | | ||
LEB Holdings USA, Inc., 0.00%, (3-Month USD LIBOR + 4.00%), 09/25/27(6) | | | |
Schedule of Investments — Virtus Newfleet Multi-Sector Bond ETF (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
44
| | | |||
| | | | | |
TERM LOANS (continued) | | | | | |
| | | | | |
Manufacturing (continued) | | | | | |
Star US Bidco LLC, 5.25%, (1-Month USD LIBOR + 4.25%), 03/17/27(4) | | $24,938 | | $24,002 | |
US Farathane LLC, 4.50%, (3-Month USD LIBOR + 3.50%), 12/23/21(4) | | | | ||
Weber-Stephen Products LLC, 0.00%, (1-Month USD LIBOR + 3.25%), 10/20/27(6) | | | | ||
Total Manufacturing | | | | | |
| | | | | |
| | | | | |
Diamond Sports Group LLC, 3.40%, (1-Month USD LIBOR + 3.25%), 08/24/26(4) | | 19,800 | | | |
| | | | | |
| | | | | |
CSC Holdings, LLC, 2.40%, (1-Month USD LIBOR + 2.25%), 01/15/26(4) | | | | ||
Intelsat Jackson Holdings SA, 8.63%, (1-Month USD LIBOR + 8.63%), 01/02/24(4) | | | | ||
Radiate Holdco LLC, 4.25%, (1-Month USD LIBOR + 3.50%), 09/10/26(4) | | | | ||
Total Media/Telecom - Cable/Wireless Video | | | | | |
| | | | | |
| | | | | |
Newco Financing Partnership, 0.00%, (2-Month USD LIBOR + 3.50%), 01/31/29(6) | | | | ||
Newco Financing Partnership, 0.00%, (2-Month USD LIBOR + 3.50%), 01/31/29(6) | | | | ||
Total Media/Telecom - Diversified Media | | | | | |
| | | | | |
| | | | | |
Altice France SA/France, 3.84%, (1-Month USD LIBOR + 3.69%), 01/31/26(4) | | | | ||
CenturyLink, Inc., 2.40%, (1-Month USD LIBOR + 2.25%), 03/15/27(4) | | | | ||
Consolidated Communications, Inc., 5.75%, (3-Month USD LIBOR + 4.75%), 10/02/27(4) | | | | ||
Northwest Fiber LLC, 5.64%, (1-Month USD LIBOR + 5.50%), 04/30/27(4) | | | | ||
Total Media/Telecom - Telecommunications | | | | | |
| | | | | |
| |||||
CommScope, Inc., 3.40%, (1-Month USD LIBOR + 3.25%), 04/06/26(4) | | | | ||
| | | | | |
| | | | | |
CNT Holdings I Corp., 0.00%, (3-Month USD LIBOR + 3.75%), 10/16/27(6) | | | | ||
Leslie’s Poolmart, Inc., 3.65%, (1-Month USD LIBOR + 3.50%), 08/16/23(4) | | | | ||
Neiman Marcus Group, Inc. (The), 10.25%, (3-Month PRIME + 7.00%), 10/25/23(2)(4) | | | | ||
PriSo Acquisition Corp., 0.00%, (3-Month USD LIBOR + 3.00%), 05/08/22(6) | | | | ||
Total Retail | | | | | |
| | | | |
| | | | | |
| | | | | |
Amentum Government Services Holdings LLC, 0.00%, (3-Month USD LIBOR + 4.75%), 01/29/27(6) | | | | ||
Cardtronics USA, Inc., 5.00%, (1-Month USD LIBOR + 4.00%), 06/29/27(4) | | 24,938 | | 24,969 | |
Dun & Bradstreet Corp. (The), 3.91%, (1-Month USD LIBOR + 3.75%), 02/06/26(4) | | | | ||
GFL Environmental, Inc., 4.00%, (3-Month USD LIBOR + 3.00%), 05/30/25(4) | | | | ||
Hoya Midco, LLC, 4.50%, (3-Month USD LIBOR + 3.50%), 06/30/24(4) | | | | ||
PI UK Holdco II Limited, 4.50%, (3-Month USD LIBOR + 3.50%), 01/03/25(4) | | | | ||
Sedgwick Claims Management Services, Inc., 4.15%, (1-Month USD LIBOR + 4.00%), 09/03/26(4) | | | | ||
Spin Holdco, Inc., 4.25%, (3-Month USD LIBOR + 3.25%), 11/14/22(4) | | | | ||
TKC Holdings, Inc., 4.75%, (3-Month USD LIBOR + 3.75%), 02/01/23(4) | | | | ||
TKC Holdings, Inc., 4.75%, (2-Month USD LIBOR + 3.75%), 02/01/23(4) | | | | ||
Total Service | | | | | |
| | | | | |
| | | | | |
Cooper-Standard Automotive, Inc., 2.75%, (1-Month USD LIBOR + 2.00%), 11/02/23(4) | | | | ||
KPAE Finance Sub, Inc., 0.00%, (3-Month USD LIBOR + 4.00%), 10/22/27(6) | | | | ||
Total Transportation - Automotive | | | | | |
| | | | | |
| | | | | |
Brookfield WEC Holdings, Inc., 3.75%, (1-Month USD LIBOR + 3.00%), 08/01/25(4) | | | | ||
PG&E Corp., 5.50%, (3-Month USD LIBOR + 4.50%), 06/23/25(4) | | | | ||
Total Utilities | | | | | |
| | | | | |
Total Term Loans | | | | | |
(Cost $2,392,290) | | | | | |
| | | | | |
| | | | | |
U.S. Treasury Note | | | | | |
1.13%, 08/31/21 | | | | ||
0.13%, 05/31/22 | | | | ||
1.25%, 08/31/24 | | | | ||
0.25%, 05/31/25 | | | | ||
1.50%, 02/15/30 | | | | ||
| | | | | |
Total U.S. Government Securities | | | | | |
(Cost $1,604,582) | | | | 1,601,977 | |
| | | | | |
Schedule of Investments — Virtus Newfleet Multi-Sector Bond ETF (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
45
| | | |||
| | | | | |
| |||||
| | | | | |
| |||||
CF Hippolyta LLC, Class A1, Series 2020-1, 1.69%, 07/15/60(1) | | $98,715 | | $100,008 | |
Sutherland Commercial Mortgage Loans, Class A, Series 2017-SBC6, 3.19%, 05/25/37(1)(4)(7) | | | | ||
Total Commercial Mortgage Backed Securities | | | | | |
| | | | | |
| | | | | |
Comm Mortgage Trust, Class B, Series 2020-CBM, 3.10%, 02/10/37(1) | | | | ||
Federal National Mortgage Association, 3.50%, 05/01/49 | | | | ||
Federal National Mortgage Association, 3.50%, 07/01/49 | | | | ||
Towd Point Trust, Class A1, Series 2019-HE1, 1.05%, (1-Month USD LIBOR + 0.90%), 04/25/48(1)(4) | | | | ||
Total Mortgage Backed Security | | | | | |
| | | | | |
| |||||
Ajax Mortgage Loan Trust, Class A1, Series 2019-D, 2.96%, 09/25/65(1)(8) | | | | ||
Arroyo Mortgage Trust, Class A1, Series 2019-2, 3.35%, 04/25/49(1)(4)(7) | | | | ||
Banc of America Funding Trust, Class 5A1, Series 2004-D, 3.78%, 01/25/35(4)(7) | | | | ||
Deephaven Residential Mortgage Trust, Class A2, Series 2017-1A, 2.93%, 12/26/46(1)(4)(7) | | | | ||
Deephaven Residential Mortgage Trust, Class A2, Series 2017-2A, 2.61%, 06/25/47(1)(4)(7) | | | | ||
New Residential Mortgage Loan Trust, Class A1, Series 2016-1A, 3.75%, 03/25/56(1)(4)(7) | | | | ||
RCKT Mortgage Trust, Class A1, Series 2020-1, 3.00%, 02/25/50(1)(4)(7) | | | | ||
Sequoia Mortgage Trust, Class B1, Series 2013-8, 3.51%, 06/25/43(4)(7) | | | | ||
Towd Point Mortgage Trust, Class A2, Series 2018-6, 3.75%, 03/25/58(1)(4)(7) | | | | ||
Verus Securitization Trust, Class A1, Series 2019-2, 3.21%, 05/25/59(1)(4)(7) | | | | ||
Total Residential Mortgage Backed Securities | | | | | |
| | | | | |
Total Mortgage Backed Securities | | | | | |
(Cost $1,455,340) | | | | | |
| | | | | |
| | | | | |
American Credit Acceptance Receivables Trust, Class D, Series 2020-4, 1.77%, 12/14/26(1) | | | | ||
Arbys Funding LLC, Class A2, Series 2020-1A, 3.24%, 07/30/50(1) | | | | ||
Carvana Auto Receivables Trust, Class D, Series 2019-3A, 3.04%, 04/15/25(1) | | | | ||
CCG Receivables Trust, Class B, Series 2019-2, 2.55%, 03/15/27(1) | | | | ||
DT Auto Owner Trust, Class C, Series 2019-2A, 3.18%, 02/18/25(1) | | | | ||
Flagship Credit Auto Trust, Class C, Series 2019-2, 3.09%, 05/15/25(1) | | |
ASSET BACKED SECURITIES (continued) | | | | | |
| | | | | |
Marlette Funding Trust, Class A, Series 2019-4A, 2.39%, 12/17/29(1) | | $51,086 | | $51,568 | |
MVW Owner Trust, Class A, Series 2019-1A, 2.89%, 11/20/36(1) | | 66,985 | | 68,892 | |
United Auto Credit Securitization Trust, Class E, Series 2019-1, 4.29%, 08/12/24(1) | | 80,000 | | 81,654 | |
Veros Automobile Receivables Trust, Class B, Series 2020-1, 2.19%, 06/16/25(1) | | 55,000 | | 55,356 | |
Westlake Automobile Receivables Trust, Class C, Series 2020-3A, 1.24%, 11/17/25(1) | | 45,000 | | 45,122 | |
| | | | | |
Total Asset Backed Securities | | | | | |
(Cost $769,119) | | | | 784,830 | |
| | | | | |
EXCHANGE TRADED FUNDS — 1.6% | | | | | |
| | | | | |
Debt Funds — 1.6% | | | | | |
iShares iBoxx $ High Yield Corporate Bond ETF | | 2,234 | | 187,388 | |
iShares Iboxx $ Investment Grade Corporate Bond ETF | | 840 | | 112,333 | |
Total Debt Funds | | | | 299,721 | |
| | | | | |
Total Exchange Traded Funds | | | | | |
(Cost $298,893) | | | | 299,721 | |
| | | | | |
MUNICIPAL BONDS — 1.1% | | | | | |
Sales Tax Securitization Corp., 3.41%, 01/01/43 | | 5,000 | | 5,063 | |
State of California, 7.60%, 11/01/40 | | 115,000 | | 203,927 | |
| | | | | |
Total Municipal Bonds | | | | | |
(Cost $193,846) | | | | 208,990 | |
| | | | | |
COMMON STOCKS — 0.2% | | | | | |
| | | | | |
Communication Services — 0.0%(9) | | | | | |
Clear Channel Outdoor Holdings, Inc.* | | 6,654 | | 5,949 | |
| | | | | |
Consumer Discretionary — 0.1% | | | | | |
MYT Holdings LLC*(3) | | 8,785 | | 7,248 | |
NMG Parent LLC*(3) | | 30 | | 2,100 | |
Total Consumer Discretionary | | | | 9,348 | |
| | | | | |
Energy — 0.1% | | | | | |
Denbury, Inc.* | | 777 | | 12,890 | |
| | | | | |
Total Common Stocks | | | | | |
(Cost $96,954) | | | | 28,187 | |
| | | | | |
WARRANT — 0.1% | | | | | |
| | | | | |
Communication Services — 0.1% | | | | | |
iHeart Media, Inc.* | | | | | |
(Cost $49,153) | | 2,830 | | 21,910 | |
| | | | | |
Schedule of Investments — Virtus Newfleet Multi-Sector Bond ETF (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
46
Security Description | | Shares | | Value | |
| | | | | |
MONEY MARKET FUND — 1.0% | | | | | |
JP Morgan U.S. Government Money Market Institutional Shares, 0.01%(10) | | 188,879 | | $188,879 | |
| | | | | |
TOTAL INVESTMENTS — 99.2% | | | | | |
(Cost $18,152,469) | | | | 18,341,588 | |
Other Assets in Excess of Liabilities — 0.8% | | | | 152,830 | |
Net Assets — 100.0% | | | | $18,494,418 | |
*Non-income producing security.
(1)Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. Unless otherwise noted, 144A securities are deemed to be liquid. At October 31, 2020, the aggregate value of these securities was $7,037,492, or 38.1% of net assets.
(2)Security in default, no interest payments are being received during the bankruptcy proceedings.
(3)Security value as determined in good faith by or under the direction of the Trustees. This security is disclosed as a Level 3 security in the Fair Value Hierarchy table located after the Schedule of Investments.
(4)Variable rate instrument. The interest rate shown reflects the rate in effect at October 31, 2020.
(5)Perpetual security with no stated maturity date.
(6)The loan will settle after October 31, 2020. The interest rate, based on the LIBOR and the agreed upon spread on trade date, will be determined at the time of settlement.
(7)Adjustable rate security with an interest rate that is not based on a published reference index and spread. The rate is based on the structure of the agreement and current market conditions.
(8)Represents step coupon bond. Rate shown reflects the rate in effect as of October 31, 2020.
(9)Amount rounds to less than 0.05%.
(10) The rate shown reflects the seven-day yield as of October 31, 2020.
Abbreviations:
BAM — Build America Mutual Assurance Company
CMT — 1 Year Constant Maturity Treasury Index
ETF — Exchange Traded Fund
LIBOR — London InterBank Offered Rate
PRIME — U.S. Prime rate
SOFR — Secured Overnight Financing Rate
USD — United States Dollar
Currency Abbreviations
MXN Mexican Peso
The following table summarizes valuation of the Fund’s investments under the fair value hierarchy levels as of October 31, 2020.
| | Level 1 | | Level 2 | | Level 3 | | Total |
Asset Valuation Inputs | | | | | | | | |
Corporate Bonds | | $— | | $7,797,481 | | $120 | | $7,797,601 |
Foreign Bonds | | — | | 3,612,088 | | — | | 3,612,088 |
Term Loans | | — | | 2,310,700 | | — | | 2,310,700 |
U.S. Government Securities | | — | | 1,601,977 | | — | | 1,601,977 |
Mortgage Backed Securities | | — | | 1,486,705 | | — | | 1,486,705 |
Asset Backed Securities | | — | | 784,830 | | — | | 784,830 |
Exchange Traded Funds | | 299,721 | | — | | — | | 299,721 |
Municipal Bonds | | — | | 208,990 | | — | | 208,990 |
Common Stocks | | 18,839 | | — | | 9,348 | | 28,187 |
Warrant | | — | | 21,910 | | — | | 21,910 |
Money Market Fund | | 188,879 | | — | | — | | 188,879 |
Total | | $507,439 | | $17,824,681 | | $9,468 | | $18,341,588 |
Management has determined that the amount of Level 3 securities compared to total net assets is not material; therefore, the rollforward of Level 3 securities and assumptions are not shown for the year ended October 31, 2020.
Schedule of Investments — Virtus Private Credit Strategy ETF
October 31, 2020
The accompanying notes are an integral part of these financial statements.
47
Security Description | | Shares | | Value | |
| | | | | |
COMMON STOCKS — 56.4% | | | | | |
| | | | | |
Financials — 56.4% | | | | | |
Apollo Investment Corp.(1) | | 76,440 | | $578,651 | |
Ares Capital Corp. | | 27,140 | | 375,346 | |
Bain Capital Specialty Finance, Inc.(1) | | 29,502 | | 270,238 | |
Barings BDC, Inc.(1) | | 65,489 | | 491,822 | |
BlackRock Capital Investment Corp. | | 74,525 | | 174,388 | |
BlackRock TCP Capital Corp.(1) | | 52,671 | | 487,207 | |
Capital Southwest Corp.(1) | | 13,549 | | 179,931 | |
Crescent Capital BDC, Inc. | | 6,249 | | 79,987 | |
Fidus Investment Corp. | | 19,302 | | 204,022 | |
First Eagle Alternative Capital BDC, Inc.(1) | | 58,878 | | 161,326 | |
FS KKR Capital Corp.(1) | | 43,611 | | 636,721 | |
Gladstone Capital Corp.(1) | | 26,346 | | 192,589 | |
Gladstone Investment Corp.(1) | | 37,340 | | 311,042 | |
Goldman Sachs BDC, Inc.(1) | | 25,852 | | 395,536 | |
Golub Capital BDC, Inc.(1) | | 29,052 | | 369,251 | |
Hercules Capital, Inc. | | 37,576 | | 420,851 | |
Horizon Technology Finance Corp.(1) | | 16,577 | | 188,978 | |
Main Street Capital Corp.(1) | | 10,414 | | 285,239 | |
Monroe Capital Corp.(1) | | 28,129 | | 184,245 | |
MVC Capital, Inc.(1) | | 25,080 | | 183,084 | |
New Mountain Finance Corp.(1) | | 48,163 | | 436,598 | |
Oaktree Specialty Lending Corp. | | 54,174 | | ��247,033 | |
Oaktree Strategic Income Corp.(1) | | 29,652 | | 191,255 | |
Oxford Square Capital Corp.(1) | | 75,046 | | 187,615 | |
PennantPark Floating Rate Capital Ltd.(1) | | 57,460 | | 448,188 | |
PennantPark Investment Corp. | | 60,121 | | 174,952 | |
Prospect Capital Corp.(1) | | 96,690 | | 478,616 | |
Saratoga Investment Corp.(1) | | 11,423 | | 203,329 | |
Sixth Street Specialty Lending, Inc. | | 21,430 | | 352,738 | |
Solar Capital Ltd. | | 20,484 | | 324,057 | |
Solar Senior Capital Ltd. | | 14,923 | | 185,493 | |
Stellus Capital Investment Corp.(1) | | 24,222 | | 199,832 | |
TCG BDC, Inc.(1) | | 77,450 | | 636,639 | |
TriplePoint Venture Growth BDC Corp.(1) | | 33,259 | | 350,882 | |
WhiteHorse Finance, Inc.(1) | | 18,466 | | 184,845 | |
Total Financials | | | | 10,772,526 | |
| | | | | |
Total Common Stocks | | | | | |
(Cost $16,780,907) | | | | 10,772,526 | |
| | | | | |
CLOSED-END FUNDS — 40.7% | | | | | |
Barings Corporate Investors | | 21,709 | | 253,127 | |
BlackRock Debt Strategies Fund, Inc. | | 28,860 | | 275,036 | |
BlackRock Floating Rate Income Trust | | 21,944 | 243,798 | |
Security Description | | Shares | | Value | |
| | | | | |
CLOSED-END FUNDS (continued) | | | | | |
| | | | | |
BlackRock Limited Duration Income Trust | | 15,545 | | $222,138 | |
Blackstone / GSO Long-Short Credit Income Fund(1) | | 32,444 | | 403,603 | |
Blackstone / GSO Senior Floating Rate Term Fund | | 24,565 | | 324,012 | |
Blackstone / GSO Strategic Credit Fund | | 33,259 | | 391,126 | |
BNY Mellon Alcentra Global Credit Income 2024 Target Term Fund, Inc.(1) | | 31,455 | | 238,743 | |
Eagle Point Credit Co., Inc.(1) | | 110,402 | | 883,216 | |
Eaton Vance Floating-Rate Income Plus Fund | | 16,039 | | 229,839 | |
Eaton Vance Senior Floating-Rate Trust | | 23,298 | | 277,246 | |
Eaton Vance Senior Income Trust(1) | | 39,489 | | 229,036 | |
First Trust Senior Floating Rate 2022 Target Term Fund(1) | | 19,410 | | 164,597 | |
First Trust Senior Floating Rate Income Fund II(1) | | 23,233 | | 244,179 | |
Invesco Senior Income Trust | | 69,398 | | 246,363 | |
KKR Income Opportunities Fund | | 29,095 | | 385,509 | |
Nuveen Credit Strategies Income Fund | | 81,766 | | 473,425 | |
Nuveen Floating Rate Income Fund | | 37,469 | | 298,628 | |
Nuveen Floating Rate Income Opportunity Fund | | 38,414 | | 301,550 | |
Nuveen Senior Income Fund(1) | | 64,674 | | 302,028 | |
Oxford Lane Capital Corp.(1) | | 211,452 | | 917,702 | |
Pioneer Floating Rate Trust | | 27,312 | | 273,666 | |
Voya Prime Rate Trust(1) | | 49,538 | | 208,555 | |
| | | | | |
Total Closed-End Funds | | | | | |
(Cost $8,889,718) | | | | 7,787,122 | |
| | | | | |
SECURITIES LENDING COLLATERAL — 22.9% | | ||||
| | | | | |
Money Market Fund — 22.9% | | | | | |
Dreyfus Government Cash Management Fund, Institutional Shares, 0.02%(2)(3) | | | | | |
(Cost $4,377,884) | | 4,377,884 | | 4,377,884 | |
| | | | | |
TOTAL INVESTMENTS — 120.0% | | | | | |
(Cost $30,048,509) | | | | 22,937,532 | |
Liabilities in Excess of Other Assets — (20.0)% | | | | (3,828,719 | ) |
Net Assets — 100.0% | | | | $19,108,813 | |
(1)All or a portion of the security was on loan. The aggregate market value of securities on loan was $4,779,177; total market value of collateral held by the Fund was $4,944,841. Market value of the collateral held includes non-cash U.S. Treasury securities having a value of $566,957.
(2)Represents securities purchased with cash collateral received for securities on loan.
(3)The rate shown reflects the seven-day yield as of October 31, 2020.
The following table summarizes valuation of the Fund’s investments under the fair value hierarchy levels as of October 31, 2020.
| | Level 1 | | Level 2 | | Level 3 | | Total |
Asset Valuation Inputs | | | | | | | | |
Common Stocks | | $10,772,526 | | $— | | $— | | $10,772,526 |
Closed End Funds | | 7,787,122 | | — | | — | | 7,787,122 |
Money Market Fund | | 4,377,884 | | — | | — | | 4,377,884 |
Total | | $22,937,532 | | $— | | $— | | $22,937,532 |
Schedule of Investments — Virtus Real Asset Income ETF
October 31, 2020
The accompanying notes are an integral part of these financial statements.
48
| | | |||
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Cogent Communications Holdings, Inc. | | 18,212 | | | |
KT Corp. (South Korea)(1) | | 115,277 | | | |
Orange SA (France)(1) | | 103,517 | | | |
Telecom Argentina SA (Argentina)*(1)(2) | | 167,101 | | | |
Telefonica Brasil SA (Brazil)(1) | | 133,601 | | | |
Telekomunikasi Indonesia Persero | | 59,527 | | | |
Total Communication Services | | | | | |
| | | | | |
| | | | | |
Ingredion, Inc. | | 14,404 | | | |
| | | | | |
| | | | | |
Black Stone Minerals LP(2) | | 187,710 | | | |
Canadian Natural Resources Ltd. (Canada) | | 66,290 | | | |
Cheniere Energy Partners LP(2) | | 34,316 | | | |
China Petroleum & Chemical Corp. (China)(1)(2) | | 27,113 | | | |
CNOOC Ltd. (China)(1) | | 10,945 | | | |
CVR Energy, Inc. | | 85,517 | | | |
Delek Logistics Partners LP(2) | | 37,794 | | | |
Delek US Holdings, Inc. | | 95,608 | | | |
Dorchester Minerals LP(2) | | 109,772 | | | |
Enbridge, Inc. (Canada) | | 36,914 | | | |
Equinor ASA (Norway)(1)(2) | | 74,984 | | | |
Kinder Morgan, Inc. | | 87,989 | | | |
Marathon Petroleum Corp. | | 36,284 | | | |
ONEOK, Inc. | | 43,875 | | | |
PetroChina Co., Ltd. (China)(1) | | 36,075 | | | |
Phillips 66 | | 20,344 | | | |
Phillips 66 Partners LP | | 47,723 | | | |
RPC, Inc.* | | 376,675 | | | |
Shell Midstream Partners LP | | 117,075 | | | |
Suncor Energy, Inc. (Canada) | | 88,403 | | | |
TC Energy Corp. (Canada) | | 24,452 | | | |
Transportadora de Gas del Sur SA | | 274,029 | | | |
Valero Energy Corp. | | 23,751 | | | |
Viper Energy Partners LP(2) | | 143,473 | | | |
Western Midstream Partners LP | | 147,609 | | | |
Total Energy | | | | | |
| | | | | |
| | | | | |
Grupo Aeroportuario del Pacifico SAB de CV (Mexico)(1) | | 15,680 | | | |
| | | | | |
| | | | | |
Avient Corp. | | 43,977 | | | |
BHP Group Ltd. (Australia)(1)(2) | | 21,294 | | | |
Compass Minerals International, Inc. | | 19,835 | | | |
Eastman Chemical Co. | | 14,255 | | | |
Huntsman Corp. | | 51,287 | | | |
ICL Group Ltd. (Israel) | | 322,710 | | | |
LyondellBasell Industries NV Class A | | 15,321 |
| | | |||
| | | | | |
COMMON STOCKS (continued) | | | | | |
| | | | | |
Materials (continued) | | | | | |
Newmont Corp. | | 17,750 | | $1,115,410 | |
Norbord, Inc. (Canada) | | 37,972 | | | |
Rio Tinto PLC (Australia)(1)(2) | | 18,340 | | | |
Schweitzer-Mauduit International, Inc. | | 41,868 | | | |
Sinopec Shanghai Petrochemical Co., Ltd. (China)(1)(2) | | 61,444 | | | |
Southern Copper Corp. (Peru) | | 24,813 | | | |
Steel Dynamics, Inc. | | 38,321 | | | |
Ternium SA (Mexico)*(1) | | 58,905 | | | |
Westlake Chemical Partners LP | | 55,728 | | | |
Total Materials | | | | | |
| | | | | |
| | | | | |
American Campus Communities, Inc. | | 32,151 | | | |
Apartment Investment and Management Co. Class A | | 32,410 | | | |
Brandywine Realty Trust | | 112,066 | | | |
Brixmor Property Group, Inc. | | 96,592 | | | |
CareTrust REIT, Inc. | | 60,748 | | | |
CoreSite Realty Corp. | | 9,543 | | | |
CubeSmart | | 35,273 | | | |
EPR Properties | | 40,542 | | | |
Gaming and Leisure Properties, Inc. | | 31,393 | | | |
Getty Realty Corp. | | 43,003 | | | |
Global Medical REIT, Inc. | | 83,861 | | | |
Highwoods Properties, Inc. | | 33,550 | | | |
Iron Mountain, Inc.(2) | | 41,422 | | | |
Lamar Advertising Co. Class A | | 17,142 | | | |
Medical Properties Trust, Inc. | | 67,481 | | | |
MGM Growth Properties LLC Class A | | 40,426 | | | |
National Health Investors, Inc. | | 18,533 | | | |
National Retail Properties, Inc. | | 32,636 | | | |
Omega Healthcare Investors, Inc. | | 36,830 | | | |
Piedmont Office Realty Trust, Inc. Class A | | 80,104 | | | |
Public Storage | | 5,134 | | | |
Realty Income Corp. | | 18,576 | | | |
Ryman Hospitality Properties, Inc. | | 30,680 | | | |
Saul Centers, Inc. | | 45,932 | | | |
Simon Property Group, Inc. | | 17,298 | | | |
SL Green Realty Corp.(2) | | 24,682 | | | |
STAG Industrial, Inc. | | 36,272 | | | |
Summit Hotel Properties, Inc. | | 218,267 | | | |
Washington Prime Group, Inc. | | 1,845,117 | | | |
Weingarten Realty Investors | | 68,884 | | | |
Total Real Estate | | | | | |
| | | | | |
| | | | | |
Algonquin Power & Utilities Corp. (Canada) | | 78,870 | | | |
Avista Corp. | | 32,551 | | | |
Brookfield Infrastructure Corp. Class A (Canada) | | 20,703 | | | |
Brookfield Infrastructure Partners LP (Canada)(2) | | 23,866 | | | |
Brookfield Renewable Corp. Class A | | 22,014 | | |
Schedule of Investments — Virtus Real Asset Income ETF (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
49
| | | |||
| | | | | |
COMMON STOCKS (continued) | | | | | |
| | | | | |
Utilities (continued) | | | | | |
Brookfield Renewable Partners LP (Canada) | | 24,575 | | $1,333,194 | |
Dominion Energy, Inc. | | 14,532 | | | |
Enel Americas SA (Chile)(1) | | 171,686 | | | |
Enel Chile SA (Chile)(1) | | 326,452 | | | |
OGE Energy Corp. | | 38,890 | | | |
Total Utilities | | | | | |
| | | | | |
Total Common Stocks | | | | | |
(Cost $129,836,131) | | | | | |
| | | | | |
SECURITIES LENDING COLLATERAL — 4.2% | | ||||
| | | | | |
Money Market Fund — 4.2% | | | | | |
Dreyfus Government Cash Management Fund, Institutional Shares, 0.02%(3)(4) | | | | | |
(Cost $4,228,894) | | 4,228,894 | | | |
| | | | | |
TOTAL INVESTMENTS — 101.6% | | | | | |
(Cost $134,065,025) | | | | 102,470,837 | |
Liabilities in Excess of Other Assets — (1.6)% | | | | (1,660,746 | ) |
Net Assets — 100.0 | | | | $100,810,091 | |
*Non-income producing security.
(1)American Depositary Receipts.
(2)All or a portion of the security was on loan. The aggregate market value of securities on loan was $9,032,559; total market value of collateral held by the Fund was $9,251,104. Market value of the collateral held includes non-cash U.S. Treasury securities having a value of $5,022,210.
(3)Represents securities purchased with cash collateral received for securities on loan.
(4)The rate shown reflects the seven-day yield as of October 31, 2020.
The following table summarizes valuation of the Fund’s investments under the fair value hierarchy levels as of October 31, 2020.
Schedule of Investments — Virtus WMC International Dividend ETF
October 31, 2020
The accompanying notes are an integral part of these financial statements.
50
Security Description | | | ||
| | | | |
| | | | |
| | | | |
| | | ||
Aurizon Holdings Ltd. | | 8,897 | | |
AusNet Services | | 4,265 | | |
Coles Group Ltd. | | 1,003 | | |
CSL Ltd. | | 72 | | |
Evolution Mining Ltd. | | 1,476 | | |
Fortescue Metals Group Ltd. | | 2,614 | | |
Rio Tinto PLC | | 135 | | |
Wesfarmers Ltd. | | 373 | | |
Total Australia | | | | |
| | | | |
| | | ||
ANDRITZ AG | | 163 | | |
| | | | |
| | | ||
Ageas SA/NV | | 297 | | |
Proximus SADP | | 1,786 | | |
Telenet Group Holding NV | | 749 | | |
Total Belgium | | | | |
| | | | |
| | | ||
Wheaton Precious Metals Corp. | | 108 | | |
| | | | |
| | | ||
Agnico Eagle Mines Ltd. | | 81 | | |
Bank of Nova Scotia (The) | | 1,142 | | |
Barrick Gold Corp. | | 525 | | |
BCE, Inc. | | 1,942 | | |
Canadian Imperial Bank of Commerce | | 593 | | |
Enbridge, Inc. | | 2,568 | | |
Franco-Nevada Corp. | | 36 | | |
Great-West Lifeco, Inc. | | 1,450 | | |
IGM Financial, Inc. | | 797 | | |
Nutrien Ltd. | | 268 | | |
Power Corp. of Canada | | 912 | | |
Royal Bank of Canada | | 145 | | |
TC Energy Corp. | | 261 | | |
TELUS Corp. | | 2,330 | | |
Toronto-Dominion Bank (The) | | 251 | | |
Total Canada | | | | |
| | | | |
| | | ||
BOC Hong Kong Holdings Ltd. | | 20,512 | | |
| | | | |
| | | ||
Coloplast A/S Class B | | 72 | | |
Genmab A/S* | | 15 | | |
Novo Nordisk A/S Class B | | 609 | | |
Total Denmark | | | | |
| | | | |
| | | ||
Elisa OYJ | | 285 | | |
Fortum OYJ | | 723 | | |
Kone OYJ Class B | | 137 | | |
Orion OYJ Class B | | 339 |
Security Description | | | ||
| | | | |
COMMON STOCKS (continued) | | | | |
| | | | |
Finland (continued) | | | | |
UPM-Kymmene OYJ | | 947 | | |
Total Finland | | | | |
| | | | |
| | | ||
AXA SA | | 4,690 | | |
Bouygues SA | | 223 | | |
Carrefour SA | | 329 | | |
Danone SA | | 251 | | |
ICADE | | 473 | | |
Orange SA | | 3,616 | | |
Sanofi | | 526 | | |
Suez SA | | 409 | | |
TOTAL SE | | 1,448 | | |
Total France | | | | |
| | | | |
| | | ||
Allianz SE | | 25 | | |
Aroundtown SA* | | 1,052 | | |
BASF SE | | 999 | | |
Bayer AG | | 524 | | |
Deutsche Post AG | | 776 | | |
Deutsche Telekom AG | | 1,613 | | |
E.ON SE | | 1,343 | | |
Evonik Industries AG | | 192 | | |
SAP SE | | 213 | | |
Scout24 AG(1) | | 130 | | |
Siemens AG | | 41 | | |
Siemens Energy AG* | | 20 | | |
Siemens Healthineers AG(1) | | 115 | | |
Telefonica Deutschland Holding AG | | 19,486 | | |
Uniper SE | | 264 | | |
Total Germany | | | | |
| | | | |
| | | ||
CK Infrastructure Holdings Ltd. | | 2,900 | | |
CLP Holdings Ltd. | | 1,216 | | |
Dairy Farm International Holdings Ltd. | | 1,287 | | |
Hang Seng Bank Ltd. | | 2,170 | | |
Henderson Land Development Co., Ltd. | | 8,453 | | |
HK Electric Investments & HK Electric Investments Ltd. | | 14,654 | | |
HKT Trust & HKT Ltd. | | 48,265 | | |
Hong Kong Exchanges & Clearing Ltd. | | 116 | | |
Kerry Properties Ltd. | | 6,034 | | |
Link REIT | | 660 | | |
New World Development Co., Ltd. | | 1,073 | | |
Pacific Century Premium Developments Ltd.* | | 19,731 | | |
PCCW Ltd. | | 164,095 | | |
Power Assets Holdings Ltd. | | 9,314 | | |
Sino Land Co., Ltd. | | 16,181 | | |
Sun Hung Kai Properties Ltd. | | 665 | | |
WH Group Ltd.(1) | | 5,947 | |
Schedule of Investments — Virtus WMC International Dividend ETF (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
51
Security Description | | | ||
| | | | |
COMMON STOCKS (continued) | | | | |
| | | | |
Hong Kong (continued) | | | | |
Wharf Real Estate Investment Co., Ltd. | | 1,243 | | |
Total Hong Kong | | | | |
| | | | |
| | | ||
Assicurazioni Generali SpA | | 3,370 | | |
Enel SpA | | 3,031 | | |
Eni SpA | | 5,295 | | |
Poste Italiane SpA(1) | | 1,112 | | |
Snam SpA | | 4,158 | | |
Terna Rete Elettrica Nazionale SpA | | 878 | | |
Total Italy | | | | |
| | | | |
| | | ||
ABC-Mart, Inc. | | 192 | | |
Astellas Pharma, Inc. | | 881 | | |
Bridgestone Corp. | | 504 | | |
Canon, Inc. | | 3,427 | | |
Chugai Pharmaceutical Co., Ltd. | | 472 | | |
Daiichi Sankyo Co., Ltd. | | 396 | | |
Daito Trust Construction Co., Ltd. | | 90 | | |
Disco Corp. | | 21 | | |
Eisai Co., Ltd. | | 65 | | |
Fujitsu Ltd. | | 95 | | |
GMO Payment Gateway, Inc. | | 50 | | |
Hoya Corp. | | 52 | | |
ITOCHU Corp. | | 515 | | |
Itochu Techno-Solutions Corp. | | 608 | | |
Japan Exchange Group, Inc. | | 232 | | |
Japan Post Bank Co., Ltd. | | 3,081 | | |
Japan Tobacco, Inc. | | 5,298 | | |
Kakaku.com, Inc. | | 207 | | |
Kao Corp. | | 66 | | |
KDDI Corp. | | 968 | | |
Keyence Corp. | | 13 | | |
Kirin Holdings Co., Ltd. | | 600 | | |
Kyushu Railway Co. | | 531 | | |
Lasertec Corp. | | 72 | | |
Mitsubishi Corp. | | 2,195 | | |
Mitsubishi Gas Chemical Co., Inc. | | 348 | | |
Mitsubishi UFJ Financial Group, Inc. | | 3,620 | | |
Mitsubishi UFJ Lease & Finance Co., Ltd. | | 1,125 | | |
Mitsui & Co., Ltd. | | 1,461 | | |
Mizuho Financial Group, Inc. | | 1,468 | | |
MS&AD Insurance Group Holdings, Inc. | | 820 | | |
NEC Corp. | | 98 | | |
Nexon Co., Ltd. | | 233 | | |
Nintendo Co., Ltd. | | 28 | | |
Nippon Telegraph & Telephone Corp. | | 1,547 | | |
Nitto Denko Corp. | | 92 | | |
Nomura Research Institute Ltd. | | 342 | | |
NTT DOCOMO, Inc. | | 2,068 |
| | | | |
| | | | |
Japan (continued) | | | | |
Obic Co., Ltd. | | 84 | | |
Ono Pharmaceutical Co., Ltd. | | 576 | | |
Oracle Corp Japan | | 472 | | |
ORIX Corp. | | 1,108 | | |
Otsuka Corp. | | 355 | | |
Otsuka Holdings Co., Ltd. | | 134 | | |
SBI Holdings, Inc. | | 250 | | |
SCSK Corp. | | 103 | | |
Seiko Epson Corp. | | 578 | | |
Sekisui House Ltd. | | 1,461 | | |
Seven & i Holdings Co., Ltd. | | 241 | | |
Seven Bank Ltd. | | 2,758 | | |
SG Holdings Co., Ltd. | | 294 | | |
SoftBank Corp. | | 4,807 | | |
SoftBank Group Corp. | | 100 | | |
Square Enix Holdings Co., Ltd. | | 100 | | |
Sumitomo Mitsui Financial Group, Inc. | | 1,100 | | |
Sumitomo Rubber Industries Ltd. | | 560 | | |
Takeda Pharmaceutical Co., Ltd. | | 1,335 | | |
Tokyo Electron Ltd. | | 80 | | |
Trend Micro, Inc. | | 260 | | |
USS Co., Ltd. | | 1,292 | | |
Z Holdings Corp. | | 2,191 | | |
Total Japan | | | | |
| | | | |
| | | ||
SES SA | | 919 | | |
| | | | |
| | | ||
ASML Holding NV | | 44 | | |
Koninklijke Ahold Delhaize NV | | 967 | | |
Koninklijke KPN NV | | 12,800 | | |
NN Group NV | | 847 | | |
Total Netherlands | | | | |
| | | | |
| | | ||
Meridian Energy Ltd. | | 1,689 | | |
Spark New Zealand Ltd. | | 7,556 | | |
Total New Zealand | | | | |
| | | | |
| | | ||
Telenor ASA | | 964 | | |
| | | | |
| | | ||
EDP - Energias de Portugal SA | | 2,928 | | |
Galp Energia SGPS SA | | 2,680 | | |
Total Portugal | | | | |
| | | | |
| | | ||
Ascendas Real Estate Investment Trust | | 10,196 | | |
DBS Group Holdings Ltd. | | 3,068 | | |
Mapletree Logistics Trust | | 3,540 | | |
Oversea-Chinese Banking Corp. Ltd. | | 7,869 | |
Schedule of Investments — Virtus WMC International Dividend ETF (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
52
Security Description | | | ||
| | | | |
COMMON STOCKS (continued) | | | | |
| | | | |
Singapore (continued) | | | | |
Singapore Exchange Ltd. | | 1,238 | | |
Singapore Technologies Engineering Ltd. | | 6,183 | | |
Singapore Telecommunications Ltd. | | 15,497 | | |
United Overseas Bank Ltd. | | 966 | | |
Venture Corp. Ltd. | | 1,942 | | |
Total Singapore | | | | |
| | | | |
| | | ||
Enagas SA | | 1,514 | | |
Endesa SA | | 858 | | |
Iberdrola SA | | 460 | | |
Mapfre SA | | 15,836 | | |
Naturgy Energy Group SA | | 2,758 | | |
Red Electrica Corp. SA | | 1,424 | | |
Repsol SA | | 9,678 | | |
Total Spain | | | | |
| | | | |
| | | ||
Tele2 AB Class B | | 1,720 | | |
Telia Co. AB | | 3,575 | | |
Total Sweden | | | | |
| | | | |
| | | ||
ABB Ltd. | | 503 | | |
Banque Cantonale Vaudoise | | 199 | | |
EMS-Chemie Holding AG | | 22 | | |
Givaudan SA | | 2 | | |
Nestle SA | | 848 | | |
Novartis AG | | 1,127 | | |
Roche Holding AG | | 272 | | |
Swiss Life Holding AG | | 20 | | |
Swiss Re AG | | 610 | | |
Swisscom AG | | 100 | | |
Zurich Insurance Group AG | | 158 | | 52,382 |
Total Switzerland | | | | |
| | | | |
| | | ||
Admiral Group PLC | | 478 | | |
AstraZeneca PLC | | 382 | | |
Aviva PLC | | 25,013 | | |
BP PLC | | 12,993 | | |
British American Tobacco PLC | | 2,199 | | |
Direct Line Insurance Group PLC | | 14,737 | | |
GlaxoSmithKline PLC | | 3,239 |
| | | | |
| | | | |
United Kingdom (continued) | | | | |
Imperial Brands PLC | | 3,329 | | |
J Sainsbury PLC | | 7,159 | | |
Legal & General Group PLC | | 6,227 | | |
M&G PLC | | 11,489 | | |
National Grid PLC | | 2,674 | | |
Persimmon PLC | | 169 | | |
Reckitt Benckiser Group PLC | | 130 | | |
SSE PLC | | 617 | | |
Standard Life Aberdeen PLC | | 8,179 | | |
Tesco PLC | | 2,891 | | |
Unilever NV | | 812 | | |
Unilever PLC | | 460 | | |
Vodafone Group PLC | | 15,471 | | |
Wm Morrison Supermarkets PLC | | 2,862 | | |
Total United Kingdom | | | | |
| | | | |
Total Common Stocks | | | | |
(Cost $5,081,291) | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Porsche Automobil Holding SE, 0.00% | | 170 | | |
| | | | |
Total Preferred Stocks | | | | |
(Cost $10,535) | | | | |
| | | | |
| | | | |
| | | | |
| | | ||
Mapletree Logistics Trust, expiring 11/27/20* | | | | |
(Cost $0) | | 67 | | |
| | | | |
TOTAL INVESTMENTS — 98.8% | | | | |
(Cost $5,091,826) | | | | 4,728,967 |
Other Assets in Excess of Liabilities - 1.2% | | | | 58,885 |
Net Assets — 100.0% | | | | $4,787,852 |
*Non-income producing security.
(1)Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. Unless otherwise noted, 144A securities are deemed to be liquid. At October 31, 2020, the aggregate value of these securities was $29,144, or 0.6% of net assets.
(2)Amount rounds to less than 0.05%.
The following table summarizes valuation of the Fund’s investments under the fair value hierarchy levels as of October 31, 2020.
| | Level 1 | | Level 2 | | Level 3 | | Total |
Asset Valuation Inputs | | | | | | | | |
Common Stocks | | $4,719,859 | | $— | | $— | | $4,719,859 |
Preferred Stock | | 9,108 | | — | | — | | 9,108 |
Right | | — | | 0 | | — | | 0 |
Total | | $4,728,967 | | $0 | | $— | | $4,728,967 |
The accompanying notes are an integral part of these financial statements.
53
| | InfraCap REIT Preferred ETF | | Virtus InfraCap U.S. Preferred Stock ETF | | Virtus LifeSci Biotech Clinical Trials ETF | | Virtus LifeSci Biotech Products ETF | ||||||||
Assets: | | | | | | | | | | | | | | | | |
Investments, at cost | | | $51,150,968 | | | $196,230,700 |
| | | $44,705,513 | | | $29,103,510 | |||
Investments, at value (including securities | | | 51,420,592 | | | | 187,515,069 | | | | 40,460,096 | | | | 27,819,229 | |
Cash | | | 659,094 | | | | 510,277 | | | | 237,201 | | | | 346,608 | |
Due from brokers | | | — | | | | 89,724 | | | | — | | | | — | |
Receivables: | | | | | | | | | | | | | | | | |
Dividends and interest | | | 43,964 | | | | 264,823 | | | | 3 | | | | 3 | |
Securities lending | | | — | | | | — | | | | 15,652 | | | | 4,663 | |
Investment securities sold | | | — | | | | 642,007 | | | | — | | | | — | |
Prepaid expenses | | | 57 | | | 57 | | | 57 | | | 57 | ||||
Total Assets | | | 52,123,707 | | | 189,021,957 | | | 40,713,009 | | | 28,170,560 | ||||
Liabilities: | | | | | | | | | | | | | | | | |
Borrowings | | | — | | | | 42,180,888 | | | | — | | | | — | |
Payables: | | | | | | | | | | | | | | | | |
Investment securities purchased | | | — | | | | 294,427 | | | | — | | | | — | |
Collateral for securities on loan | | | — | | | | — | | | | 3,668,454 | | | | 1,647,249 | |
Interest expense | | | — | | | | 50,134 | | | | — | | | | — | |
Advisory fees | | | 20,024 | | | 99,734 | | | 26,788 | | | 18,375 | ||||
Total Liabilities | | | 20,024 | | | 42,625,183 | | | 3,695,242 | | | 1,665,624 | ||||
Net Assets | | | $52,103,683 | | | $146,396,774 |
| | | $37,017,767 | | | $26,504,936 | |||
Net Assets Consist of: | | | | | | | | | | | | | | | | |
Paid-in capital | | | $58,478,647 | | | | $168,532,294 | | | | $72,917,748 | | | | $39,603,003 | |
Total distributable earnings (accumulated deficit) | | | (6,374,964 | ) | | | (22,135,520 | ) | | | (35,899,981 | ) | | | (13,098,067 | ) |
Net Assets | | | $52,103,683 | | | $146,396,774 |
| | | $37,017,767 | | | $26,504,936 | |||
Shares outstanding (unlimited number of shares of beneficial interest authorized, no par value) | | | 2,400,004 | | | | 7,600,004 | | | | 950,004 | | | | 550,004 | |
Net asset value per share | | | $21.71 | | | | $19.26 | | | | $38.97 | | | | $48.19 | |
(a)Market value of securities on loan | | | $— | | | | $— | | | | $9,809,472 | | | | $5,473,487 | |
Statements of Assets and Liabilities (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
54
| | Virtus Newfleet Multi-Sector Bond ETF | | Virtus Private Credit Strategy ETF | | Virtus Real Asset Income ETF | | Virtus WMC International Dividend ETF | ||||||||
Assets: | | | | | | | | | | | | | | | | |
Investments, at cost | | | $18,152,469 | | | $30,048,509 | | | $134,065,025 |
| | | $5,091,826 | |||
Investments, at value (including securities on loan)(a) | | | 18,341,588 | | | | 22,937,532 | | | | 102,470,837 | | | | 4,728,967 | |
Cash | | | 29,290 | | | | 508,284 | | | | 2,160,315 | | | | 39,129 | |
Foreign currency(b) | | | — | | | | — | | | | — | | | | 5,175 | |
Receivables: | | | | | | | | | | | | | | | | |
Investment securities sold | | | 316,676 | | | | 868,655 | | | | 123,407 | | | | 787 | |
Dividends and interest | | | 161,134 | | | | 39,677 | | | | 321,690 | | | | 15,993 | |
Securities lending | | | — | | | | 14,372 | | | | 7,479 | | | | — | |
Tax reclaim | | | — | | | | — | | | | 4,046 | | | | 730 | |
Prepaid expenses | | | — | | | | — | | | | — | | | | 57 | |
Total Assets | | | 18,848,688 | | | 24,368,520 | | | 105,087,774 | | | 4,790,838 | ||||
Liabilities: | | | | | | | | | | | | | | | | |
Payables: | | | | | | | | | | | | | | | | |
Investment securities purchased | | | 276,522 | | | | — | | | | — | | | | 788 | |
Collateral for securities on loan | | | — | | | | 4,377,884 | | | | 4,228,894 | | | | — | |
Capital shares payable | | | — | | | | 868,585 | | | | — | | | | — | |
Advisory fees | | | 7,641 | | | | 13,238 | | | | 48,789 | | | | 2,087 | |
Professional fees | | | 28,218 | | | | — | | | | — | | | | — | |
Trustee fees | | | 1,178 | | | | — | | | | — | | | | — | |
Other accrued expenses | | | 40,711 | | | — | | | | — | | | | 111 | ||
Total Liabilities | | | 354,270 | | | 5,259,707 | | | 4,277,683 | | | 2,986 | ||||
Net Assets | | | $18,494,418 | | | $19,108,813 | | | $100,810,091 |
| | | $4,787,852 | |||
Net Assets Consist of: | | | | | | | | | | | | | | | | |
Paid-in capital | | | $21,579,306 | | | | $33,455,782 | | | | $154,572,314 | | | | $5,000,100 | |
Total distributable earnings (accumulated deficit) | | | (3,084,888 | ) | | | (14,346,969 | ) | | | (53,762,223 | ) | | | (212,248 | ) |
Net Assets | | | $18,494,418 | | | $19,108,813 | | | $100,810,091 |
| | | $4,787,852 | |||
Shares outstanding (unlimited number of shares of beneficial interest authorized, no par value) | | | 750,004 | | | | 1,100,004 | | | | 5,400,004 | | | | 200,004 | |
Net asset value per share | | | $24.66 | | | | $17.37 | | | | $18.67 | | | | $23.94 | |
(a)Market value of securities on loan | | | $— | | | | $4,779,177 | | | | $9,032,559 | | | | $— | |
(b)Foreign currency, at cost | | | $— | | | | $— | | | | $— | | | | $5,045 | |
The accompanying notes are an integral part of these financial statements.
55
| | InfraCap REIT | | Virtus InfraCap | | Virtus LifeSci | | Virtus LifeSci | |
Investment Income: | | | | | | | | | |
Dividend income | | $2,435,111 | | $8,676,545 | | $7,295 | | $40,220 | |
Interest income | | 863 | | 1,875 | | 178 | | 319 | |
Securities lending, net of fees | | — | | — | | 138,532 | | 51,654 | |
Total Investment Income | | 2,435,974 | | 8,678,420 | | 146,005 | | 92,193 | |
| | | | | | | | | |
Expenses: | | | | | | | | | |
Advisory fees | | 210,848 | | 826,475 | | 301,202 | | 205,002 | |
Dividend and interest expenses | | — | | 693,130 | | — | | — | |
Total Expenses | | 210,848 | | 1,519,605 | | 301,202 | | 205,002 | |
Net Investment Income (Loss) | | 2,225,126 | | 7,158,815 | | (155,197 | ) | (112,809 | ) |
| | | | | | | | | |
Net Realized Gain (Loss) on: | | | | | | | | | |
Investments | | (6,343,064 | ) | (15,308,162 | ) | (6,035,224 | ) | (4,275,910 | ) |
In-kind redemptions | | (217,433 | ) | (824,772 | ) | 15,596,198 | | 5,952,106 | |
Written options | | — | | (546,641 | ) | — | | — | |
Securities sold short | | — | | (453,524 | ) | — | | — | |
Total Net Realized Gain (Loss) | | (6,560,497 | ) | (17,133,099 | ) | 9,560,974 | | 1,676,196 | |
| | | | | | | | | |
Change in Net Unrealized Appreciation (Depreciation) on: | | | | | | | | | |
Investments | | (598,000 | ) | (10,499,239 | ) | 1,988,542 | | 4,978,291 | |
Written options | | — | | (10,962 | ) | — | | — | |
Securities sold short | | — | | 89,826 | | — | | — | |
Total Change in Net Unrealized Appreciation (Depreciation) | | (598,000 | ) | (10,420,375 | ) | 1,988,542 | | 4,978,291 | |
Net Realized and Change in Unrealized Gain (Loss) | | (7,158,497 | ) | (27,553,474 | ) | 11,549,516 | | 6,654,487 | |
Net Increase (Decrease) in Net Assets Resulting | | $(4,933,371 | ) | $(20,394,659 | ) | $11,394,319 | | $6,541,678 | |
The accompanying notes are an integral part of these financial statements.
56
Statements of Operations (continued)
For the Year Ended October 31, 2020
| | Virtus Newfleet | | Virtus Private | | Virtus Real Asset | | Virtus WMC | |
Investment Income: | | | | | | | | | |
Dividend income (net of foreign withholding taxes) | | $4,762 | | $10,414,228 | | $5,658,954 | | $128,776 | |
Interest income | | 935,181 | | 3,413 | | 4,698 | | 28 | |
Securities lending, net of fees | | — | | 89,161 | | 61,998 | | — | |
Total Investment Income | | 939,943 | | 10,506,802 | | 5,725,650 | | 128,804 | |
| | | | | | | | | |
Expenses: | | | | | | | | | |
Advisory fees | | 103,503 | | 843,482 | | 904,388 | | 24,909 | |
Pricing fees | | 37,670 | | — | | — | | — | |
Professional fees | | 35,336 | | — | | — | | — | |
Accounting and administration fees | | 16,700 | | — | | — | | — | |
Trustee fees | | 13,501 | | — | | — | | — | |
Exchange listing fees | | 10,582 | | — | | — | | — | |
Transfer agent fees | | 10,381 | | — | | — | | — | |
Report to shareholders fees | | 4,034 | | — | | — | | — | |
Custody fees | | 2,650 | | — | | — | | — | |
Insurance fees | | 2,100 | | — | | — | | — | |
Tax expense | | 171 | | 57 | | 57 | | — | |
Other expenses | | 3,014 | | — | | — | | — | |
Total Expenses | | 239,642 | | 843,539 | | 904,445 | | 24,909 | |
Less expense waivers/reimbursements | | (125,300 | ) | — | | — | | — | |
Net Expenses | | 114,342 | | 843,539 | | 904,445 | | 24,909 | |
Net Investment Income | | 825,601 | | 9,663,263 | | 4,821,205 | | 103,895 | |
| | | | | | | | | |
Net Realized Gain (Loss) on: | | | | | | | | | |
Investments | | 173,534 | | (7,441,020 | ) | (21,902,267 | ) | 258,360 | |
In-kind redemptions | | — | | (72,372,141 | ) | (26,988,605 | ) | — | |
Foreign currency transactions | | (1,717 | ) | — | | 214 | | (307 | ) |
Total Net Realized Gain (Loss) | | 171,817 | | (79,813,161 | ) | (48,890,658 | ) | 258,053 | |
| | | | | | | | | |
Change in Net Unrealized Appreciation (Depreciation) on: | | | | | | | | | |
Investments | | (146,348 | ) | 310,452 | | (25,290,744 | ) | (674,271 | )1 |
Foreign currency translations | | 86 | | — | | — | | 140 | |
Total Change in Net Unrealized Appreciation (Depreciation) | | (146,262 | ) | 310,452 | | (25,290,744 | ) | (674,131 | ) |
Net Realized and Change in Unrealized Gain (Loss) | | 25,555 | | (79,502,709 | ) | (74,181,402 | ) | (416,078 | ) |
Net Increase (Decrease) in Net Assets Resulting | | $851,156 | | $(69,839,446 | ) | $(69,360,197 | ) | $(312,183 | ) |
Foreign withholding taxes | | $486 | | $— | | $208,191 | | $14,291 | |
1Net of change in deferred taxes of $9.
The accompanying notes are an integral part of these financial statements.
57
| | InfraCap REIT Preferred ETF | | Virtus InfraCap | | ||||
| | For the | | For the | | For the | | For the | |
Increase (Decrease) in Net Assets Resulting from Operations: | | | | | | | | | |
Net investment income | | $2,225,126 | | $1,368,182 | | $7,158,815 | | $1,809,801 | |
Net realized gain (loss) | | (6,560,497 | ) | (136,685 | ) | (17,133,099 | ) | 2,281,462 | |
Net change in unrealized appreciation (depreciation) | | (598,000 | ) | 1,993,610 | | (10,420,375 | ) | 1,923,931 | |
Net increase (decrease) in net assets resulting from operations | | (4,933,371 | ) | 3,225,107 | | (20,394,659 | ) | 6,015,194 | |
Distributions to Shareholders | | (2,574,003 | ) | (1,369,330 | ) | (10,827,415 | ) | (2,935,509 | ) |
Distributions to Shareholders from return of capital | | (515,003 | ) | (249,926 | ) | (407,094 | ) | — | |
Total distributions | | (3,089,006 | ) | (1,619,256 | ) | (11,234,509 | ) | (2,935,509 | ) |
| | | | | | | | | |
Shareholder Transactions: | | | | | | | | | |
Proceeds from shares sold | | 26,241,207 | | 15,051,231 | | 119,621,679 | | 79,327,661 | |
Cost of shares redeemed | | (4,000,481 | ) | (1,240,219 | ) | (30,120,596 | ) | — | |
Net increase in net assets resulting from shareholder transactions | | 22,240,726 | | 13,811,012 | | 89,501,083 | | 79,327,661 | |
Increase in net assets | | 14,218,349 | | 15,416,863 | | 57,871,915 | | 82,407,346 | |
| | | | | | | | | |
Net Assets: | | | | | | | | | |
Beginning of year | | 37,885,334 | | 22,468,471 | | 88,524,859 | | 6,117,513 | |
End of year | | $52,103,683 | | $37,885,334 | | $146,396,774 | | $88,524,859 | |
| | | | | | | | | |
Changes in Shares Outstanding: | | | | | | | | | |
Shares outstanding, beginning of year | | 1,500,004 | | 950,004 | | 3,350,004 | | 250,004 | |
Shares sold | | 1,100,000 | | 600,000 | | 5,900,000 | | 3,100,000 | |
Shares redeemed | | (200,000 | ) | (50,000 | ) | (1,650,000 | ) | — | |
Shares outstanding, end of year | | 2,400,004 | | 1,500,004 | | 7,600,004 | | 3,350,004 | |
The accompanying notes are an integral part of these financial statements.
58
Statements of Changes in Net Assets (continued)
For the Year Ended October 31, 2020
| | Virtus LifeSci | | Virtus LifeSci | | ||||
| | For the | | For the | | For the | | For the | |
Increase (Decrease) in Net Assets Resulting from Operations: | | | | | | | | | |
Net investment loss | | $(155,197 | ) | $(137,520 | ) | $(112,809 | ) | $(156,958 | ) |
Net realized gain (loss) | | 9,560,974 | | (7,388,734 | ) | 1,676,196 | | 1,499,180 | |
Net change in unrealized appreciation (depreciation) | | 1,988,542 | | 6,791,199 | | 4,978,291 | | (1,071,625 | ) |
Net increase (decrease) in net assets resulting from operations | | 11,394,319 | | (735,055 | ) | 6,541,678 | | 270,597 | |
| | | | | | | | | |
Shareholder Transactions: | | | | | | | | | |
Proceeds from shares sold | | 47,409,083 | | 9,050,920 | | 11,404,870 | | 18,385,750 | |
Cost of shares redeemed | | (45,560,804 | ) | (20,809,840 | ) | (17,946,804 | ) | (19,398,700 | ) |
Net increase (decrease) in net assets resulting from | | 1,848,279 | | (11,758,920 | ) | (6,541,934 | ) | (1,012,950 | ) |
Increase (decrease) in net assets | | 13,242,598 | | (12,493,975 | ) | (256 | ) | (742,353 | ) |
| | | | | | | | | |
Net Assets: | | | | | | | | | |
Beginning of year | | 23,775,169 | | 36,269,144 | | 26,505,192 | | 27,247,545 | |
End of year | | $37,017,767 | | $23,775,169 | | $26,504,936 | | $26,505,192 | |
| | | | | | | | | |
Changes in Shares Outstanding: | | | | | | | | | |
Shares outstanding, beginning of year | | 900,004 | | 1,350,004 | | 700,004 | | 750,004 | |
Shares sold | | 1,200,000 | | 350,000 | | 250,000 | | 450,000 | |
Shares redeemed | | (1,150,000 | ) | (800,000 | ) | (400,000 | ) | (500,000 | ) |
Shares outstanding, end of year | | 950,004 | | 900,004 | | 550,004 | | 700,004 | |
The accompanying notes are an integral part of these financial statements.
59
Statements of Changes in Net Assets (continued)
For the Year Ended October 31, 2020
| | Virtus Newfleet | | Virtus Private Credit | | ||||
| | For the | | For the | | For the | | For the Period | |
Increase (Decrease) in Net Assets Resulting from Operations: | | | | | | | | | |
Net investment income | | $825,601 | | $2,293,778 | | $9,663,263 | | $11,791,990 | |
Net realized gain (loss) | | 171,817 | | (1,691,707 | ) | (79,813,161 | ) | (1,651,252 | ) |
Net change in unrealized appreciation (depreciation) | | (146,262 | ) | 3,349,148 | | 310,452 | | (7,421,429 | ) |
Net increase (decrease) in net assets resulting from operations | | 851,156 | | 3,951,219 | | (69,839,446 | ) | 2,719,309 | |
Distributions to Shareholders | | (782,228 | ) | (2,153,039 | ) | (10,783,196 | ) | (10,417,838 | ) |
Distributions to Shareholders from return of capital | | (24,957 | ) | (182,502 | ) | — | | — | |
Total distributions | | (807,185 | ) | (2,335,541 | ) | (10,783,196 | ) | (10,417,838 | ) |
| | | | | | | | | |
Shareholder Transactions: | | | | | | | | | |
Proceeds from shares sold | | — | | 8,370,585 | | 35,182,143 | | 233,033,982 | |
Cost of shares redeemed | | (6,084,814 | ) | (84,410,262 | ) | (146,795,038 | ) | (13,991,103 | ) |
Net increase (decrease) in net assets resulting from | | (6,084,814 | ) | (76,039,677 | ) | (111,612,895 | ) | 219,042,879 | |
Increase (decrease) in net assets | | (6,040,843 | ) | (74,423,999 | ) | (192,235,537 | ) | 211,344,350 | |
| | | | | | | | | |
Net Assets: | | | | | | | | | |
Beginning of period/year | | 24,535,261 | | 98,959,260 | | 211,344,350 | | — | |
End of period/year | | $18,494,418 | | $24,535,261 | | $19,108,813 | | $211,344,350 | |
| | | | | | | | | |
Changes in Shares Outstanding: | | | | | | | | | |
Shares outstanding, beginning of period/year | | 1,000,004 | | 4,150,004 | | 8,550,004 | | — | |
Shares sold | | — | | 350,000 | | 1,650,000 | | 9,100,004 | |
Shares redeemed | | (250,000 | ) | (3,500,000 | ) | (9,100,000 | ) | (550,000 | ) |
Shares outstanding, end of period/year | | 750,004 | | 1,000,004 | | 1,100,004 | | 8,550,004 | |
1Commencement of operations.
The accompanying notes are an integral part of these financial statements.
60
Statements of Changes in Net Assets (continued)
For the Year Ended October 31, 2020
| | Virtus Real Asset Income ETF | | Virtus WMC International | | ||||
| | For the | | For the Period | | For the | | For the | |
Increase (Decrease) in Net Assets Resulting from Operations: | | | | | | | | | |
Net investment income | | $4,821,205 | | $4,682,189 | | $103,895 | | $104,656 | |
Net realized gain (loss) | | (48,890,658 | ) | (210,537 | ) | 258,053 | | (119,315 | ) |
Net change in unrealized appreciation (depreciation) | | (25,290,744 | ) | (6,303,444 | ) | (674,131 | ) | 506,017 | |
Net increase (decrease) in net assets resulting from operations | | (69,360,197 | ) | (1,831,792 | ) | (312,183 | ) | 491,358 | |
Distributions to Shareholders | | (5,787,929 | ) | (4,789,847 | ) | (181,086 | ) | (205,032 | ) |
| | | | | | | | | |
Shareholder Transactions: | | | | | | | | | |
Proceeds from shares sold | | 92,328,946 | | 261,377,230 | | — | | — | |
Cost of shares redeemed | | (161,122,067 | ) | (10,004,253 | ) | — | | — | |
Net increase (decrease) in net assets resulting from | | (68,793,121 | ) | 251,372,977 | | — | | — | |
Increase (decrease) in net assets | | (143,941,247 | ) | 244,751,338 | | (493,269 | ) | 286,326 | |
| | | | | | | | | |
Net Assets: | | | | | | | | | |
Beginning of period/year | | 244,751,338 | | — | | 5,281,121 | | 4,994,795 | |
End of period/year | | $100,810,091 | | $244,751,338 | | $4,787,852 | | $5,281,121 | |
| | | | | | | | | |
Changes in Shares Outstanding: | | | | | | | | | |
Shares outstanding, beginning of period/year | | 9,900,004 | | — | | 200,004 | | 200,004 | |
Shares sold | | 3,900,000 | | 10,300,004 | | — | | — | |
Shares redeemed | | (8,400,000 | ) | (400,000 | ) | — | | — | |
Shares outstanding, end of period/year | | 5,400,004 | | 9,900,004 | | 200,004 | | 200,004 | |
1Commencement of operations.
The accompanying notes are an integral part of these financial statements.
61
| | Virtus InfraCap U.S. Preferred Stock ETF | |
Cash Flows From Operating Activities: | | | |
Net decrease in net assets from operations | | $(20,394,659 | ) |
Adjustments to reconcile net decrease in net assets from operations to net cash provided by | | | |
Purchases of investment securities | | (115,800,317 | ) |
Proceeds from sales of investment securities | | 118,066,017 | |
Net proceeds from purchased and written options | | (415,275 | ) |
Net proceeds from securities sold short | | 11,260,732 | |
Payments made to cover securities sold short | | (17,536,685 | ) |
Net realized loss on investments | | 15,308,162 | |
Net realized loss on securities sold shorts | | 453,524 | |
Net realized loss on written options | | 546,641 | |
Net realized loss on in-kind redemptions | | 824,772 | |
Net change in unrealized depreciation on investments | | 10,499,239 | |
Net change in unrealized appreciation on securities sold short | | (89,826 | ) |
Net change in unrealized depreciation on written options | | 10,962 | |
Increase in dividends and interest receivable | | (172,005 | ) |
Increase Interest expense | | 50,134 | |
Increase in prepaid expenses | | (57 | ) |
Decrease in due from brokers | | 4,842,921 | |
Increase in advisory fees payable | | 45,785 | |
Net cash provided by operating activities | | 7,500,065 | |
| | | |
Cash Flows from Financing Activities: | | | |
Proceeds from borrowings | | 22,959,732 | |
Payments for fund shares sold in excess of in-kind creations | | (19,936,019 | ) |
Distributions paid | | (11,234,509 | ) |
Net cash used in financing activities | | (8,210,796 | ) |
Net decrease in cash | | (710,731 | ) |
Cash, beginning of year | | 1,221,008 | |
Cash, end of year | | $510,277 | |
| | | |
Supplementary information: | | | |
Interest paid on borrowings | | $650,798 | |
| | | |
Non-cash financing activities: | | | |
In-kind creations — Issued | | 148,042,284 | |
In-kind creations — Redeemed | | 37,277,934 | |
The accompanying notes are an integral part of these financial statements.
62
| | InfraCap REIT Preferred ETF | ||||||||||||||
| | For the | | For the | | For the | | For the Period | ||||||||
Per Share Data for a Share Outstanding throughout each period presented: | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $25.26 | | | | $23.65 | | | | $25.76 | | | | $25.06 | |
Investment operations: | | | | | | | | | | | | | | | | |
Net investment income2 | | | 1.05 | | | | 1.32 | | | | 1.21 | | | | 1.03 | |
Net realized and unrealized gain (loss) | | | (3.14 | ) | | | 1.83 | | | | (1.85 | ) | | | 0.60 | |
Total from investment operations | | | (2.09 | ) | | | 3.15 | | | | (0.64 | ) | | | 1.63 | |
| ||||||||||||||||
Less Distributions from: | | | | | | | | | | | | | | | | |
Net investment income | | | (1.22 | ) | | | (1.30 | ) | | | (1.23 | ) | | | (0.93 | ) |
Return of capital | | | (0.24 | ) | | | (0.24 | ) | | | (0.24 | ) | | | — | |
Total distributions | | | (1.46 | ) | | | (1.54 | ) | | | (1.47 | ) | | | (0.93 | ) |
Net Asset Value, End of period | | | $21.71 | | | | $25.26 | | | | $23.65 | | | | $25.76 | |
Net Asset Value Total Return3 | | | (8.06 | )% | | | 13.78 | % | | | (2.60 | )% | | | 6.54 | % |
Net assets, end of period (000’s omitted) | | | $52,104 | | | | $37,885 | | | | $22,468 | | | | $20,609 | |
| | | | | | | | | | | | | | | | |
RATIOS/SUPPLEMENTAL DATA: | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets: | | | | | | | | | | | | | | | | |
Expenses | | | 0.45 | % | | | 0.45 | %4 | | | 0.45 | %4 | | | 0.45 | %5 |
Net investment income | | | 4.75 | % | | | 5.42 | % | | | 4.93 | % | | | 5.48 | %5 |
Portfolio turnover rate6 | | | 38 | % | | | 66 | % | | | 70 | % | | | 91 | %7 |
1Commencement of operations.
2Based on average shares outstanding.
3Net Asset Value Total Return is calculated assuming an initial investment made at the net asset value on the first day of the period, reinvestment of dividends and distributions at net asset value during the period, and redemptions at net asset value on the last day of the period. Total return calculated for a period of less than one year is not annualized.
4The ratios of expenses to average net assets includes tax expense fees of less than 0.01%.
5Annualized.
6Portfolio turnover excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Fund’s capital shares.
7Not annualized.
Financial Highlights (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
63
| | Virtus InfraCap U.S. Preferred Stock ETF | ||||||||||
| | For the | | For the | | For the Period | ||||||
Per Share Data for a Share Outstanding throughout | | | | | | | | | | | | |
Net asset value, beginning of period | | | $26.43 | | | | $24.47 | | | | $24.96 | |
Investment operations: | | | | | | | | | | | | |
Net investment income2 | | | 1.40 | | | | 1.44 | | | | 0.72 | |
Net realized and unrealized gain (loss) | | | (6.25 | ) | | | 2.80 | | | | (0.45 | ) |
Total from investment operations | | | (4.85 | ) | | | 4.24 | | | | 0.27 | |
| ||||||||||||
Less Distributions from: | | | | | | | | | | | | |
Net investment income | | | (1.81 | ) | | | (2.28 | ) | | | (0.76 | ) |
Net realized gains | | | (0.43 | ) | | | — | | | | — | |
Return of capital | | | (0.08 | ) | | | — | | | | — | |
Total distributions | | | (2.32 | ) | | | (2.28 | ) | | | (0.76 | ) |
Net Asset Value, End of period | | | $19.26 | | | | $26.43 | | | | $24.47 | |
Net Asset Value Total Return3 | | | (18.37 | )% | | | 18.37 | % | | | 1.02 | % |
Net assets, end of period (000’s omitted) | | | $146,397 | | | | $88,525 | | | | $6,118 | |
| | | | | | | | | | | | |
RATIOS/SUPPLEMENTAL DATA: | | | | | | | | | | | | |
Ratios to Average Net Assets: | | | | | | | | | | | | |
Expenses | | | 1.47 | %4 | | | 2.00 | %5,6 | | | 2.13 | %7,8 |
Net investment income | | | 6.93 | % | | | 5.66 | % | | | 6.22 | %7 |
Portfolio turnover rate9 | | | 96 | % | | | 150 | % | | | 55 | %10 |
1Commencement of operations.
2Based on average shares outstanding.
3Net Asset Value Total Return is calculated assuming an initial investment made at the net asset value on the first day of the period, reinvestment of dividends and distributions at net asset value during the period, and redemptions at net asset value on the last day of the period. Total return calculated for a period of less than one year is not annualized.
4The ratios of expenses to average net assets include interest expense of 0.63% and dividend expense on securities sold short fees of 0.04%.
5The ratios of expenses to average net assets includes tax expense fees of less than 0.01%.
6The ratios of expenses to average net assets include interest expense of 0.75% and dividend expense on securities sold short fees of 0.45%.
7Annualized.
8The ratios of expenses to average net assets include interest expense of 1.05% and dividend expense on securities sold short fees of 0.28%.
9Portfolio turnover excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Fund’s capital shares.
10Not annualized.
Financial Highlights
October 31, 2020
The accompanying notes are an integral part of these financial statements.
64
| | Virtus LifeSci Biotech Clinical Trials ETF | ||||||||||||||||||
| | For the | | For the | | For the | | For the | | For the | ||||||||||
Per Share Data for a Share Outstanding throughout each year presented: | | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of year | | | $26.42 | | | | $26.87 | | | | $27.73 | | | | $18.05 | | | | $27.37 | |
Investment operations: | | | | | | | | | | | | | | | | | | | | |
Net investment loss1 | | | (0.15 | ) | | | (0.13 | ) | | | (0.15 | ) | | | (0.12 | ) | | | (0.14 | ) |
Net realized and unrealized gain (loss) | | | 12.70 | | | | (0.32 | ) | | | (0.41 | ) | | | 9.80 | | | | (9.03 | ) |
Total from investment operations | | | 12.55 | | | | (0.45 | ) | | | (0.56 | ) | | | 9.68 | | | | (9.17 | ) |
| ||||||||||||||||||||
Less Distributions from: | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | — | | | | — | | | | (0.30 | ) | | | — | | | | — | |
Net realized gains | | | — | | | | — | | | | — | | | | — | | | | (0.15 | ) |
Total distributions | | | — | | | | — | | | | (0.30 | ) | | | — | | | | (0.15 | ) |
Net Asset Value, End of year | | | $38.97 | | | | $26.42 | | | | $26.87 | | | | $27.73 | | | | $18.05 | |
Net Asset Value Total Return2 | | | 47.50 | % | | | (1.67 | )% | | | (2.05 | )% | | | 53.66 | % | | | (33.73 | )% |
Net assets, end of year (000’s omitted) | | | $37,018 | | | | $23,775 | | | | $36,269 | | | | $30,501 | | | | $18,045 | |
| | | | | | | | | | | | | | | | | | | | |
RATIOS/SUPPLEMENTAL DATA: | | | | | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets: | | | | | | | | | | | | | | | | | | | | |
Expenses | | | 0.79 | % | | | 0.79 | %3 | | | 0.79 | %3 | | | 0.83 | % | | | 0.85 | %3 |
Net investment loss | | | (0.41 | )% | | | (0.50 | )% | | | (0.45 | )% | | | (0.53 | )% | | | (0.67 | )% |
Portfolio turnover rate4 | | | 81 | % | | | 67 | % | | | 65 | % | | | 45 | % | | | 54 | % |
1Based on average shares outstanding.
2Net Asset Value Total Return is calculated assuming an initial investment made at the net asset value on the first day of the year, reinvestment of dividends and distributions at net asset value during the year, and redemptions at net asset value on the last day of the year.
3The ratios of expenses to average net assets includes tax expense fees of less than 0.01%.
4Portfolio turnover excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Fund’s capital shares.
Financial Highlights (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
65
| | Virtus LifeSci Biotech Products ETF | ||||||||||||||||||
| | For the | | For the | | For the | | For the | | For the | ||||||||||
Per Share Data for a Share Outstanding throughout each year presented: | | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of year | | | $37.86 | | | | $36.33 | | | | $39.34 | | | | $28.91 | | | | $30.50 | |
Investment operations: | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss)1 | | | (0.19 | ) | | | (0.20 | ) | | | (0.21 | ) | | | 0.07 | | | | (0.12 | ) |
Net realized and unrealized gain (loss) | | | 10.52 | | | | 1.73 | | | | (2.73 | ) | | | 10.36 | | | | (1.07 | ) |
Total from investment operations | | | 10.33 | | | | 1.53 | | | | (2.94 | ) | | | 10.43 | | | | (1.19 | ) |
| ||||||||||||||||||||
Less Distributions from: | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | — | | | | — | | | | (0.07 | ) | | | — | | | | — | |
Net realized gains | | | — | | | | — | | | | — | | | | — | | | | (0.40 | ) |
Total distributions | | | — | | | | — | | | | (0.07 | ) | | | — | | | | (0.40 | ) |
Net Asset Value, End of year | | | $48.19 | | | | $37.86 | | | | $36.33 | | | | $39.34 | | | | $28.91 | |
Net Asset Value Total Return2 | | | 27.27 | % | | | 4.22 | % | | | (7.49 | )% | | | 36.08 | % | | | (3.97 | )% |
Net assets, end of year (000’s omitted) | | | $26,505 | | | | $26,505 | | | | $27,248 | | | | $37,377 | | | | $23,130 | |
| ||||||||||||||||||||
RATIOS/SUPPLEMENTAL DATA: | | | | | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets: | | | | | | | | | | | | | | | | | | | | |
Expenses | | | 0.79 | % | | | 0.79 | %3 | | | 0.79 | %3 | | | 0.84 | % | | | 0.85 | %3 |
Net investment income (loss) | | | (0.43 | )% | | | (0.51 | )% | | | (0.49 | )% | | | 0.19 | % | | | (0.43 | )% |
Portfolio turnover rate4 | | | 46 | % | | | 41 | % | | | 32 | % | | | 34 | % | | | 35 | % |
1Based on average shares outstanding.
2Net Asset Value Total Return is calculated assuming an initial investment made at the net asset value on the first day of the year, reinvestment of dividends and distributions at net asset value during the year, and redemptions at net asset value on the last day of the year.
3The ratios of expenses to average net assets includes tax expense fees of less than 0.01%.
4Portfolio turnover excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Fund’s capital shares.
Financial Highlights (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
66
| | Virtus Newfleet Multi-Sector Bond ETF | ||||||||||||||||||
| | For the | | For the | | For the | | For the | | For the | ||||||||||
Per Share Data for a Share Outstanding throughout each year presented: | | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of year | | | $24.54 | | | | $23.85 | | | | $25.84 | | | | $25.96 | | | | $25.09 | |
Investment operations: | | | | | | | | | | | | | | | | | | | | |
Net investment income1 | | | 0.96 | | | | 1.06 | | | | 1.12 | | | | 1.09 | | | | 0.95 | |
Net realized and unrealized gain (loss) | | | 0.10 | | | | 0.74 | | | | (1.51 | ) | | | 0.22 | | | | 0.85 | |
Total from investment operations | | | 1.06 | | | | 1.80 | | | | (0.39 | ) | | | 1.31 | | | | 1.80 | |
| ||||||||||||||||||||
Less Distributions from: | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (0.91 | ) | | | (1.02 | ) | | | (1.15 | ) | | | (1.10 | ) | | | (0.93 | ) |
Net realized gains | | | — | | | | — | | | | (0.45 | ) | | | (0.33 | ) | | | — | |
Return of capital | | | (0.03 | ) | | | (0.09 | ) | | | — | | | | — | | | | — | |
Total distributions | | | (0.94 | ) | | | (1.11 | ) | | | (1.60 | ) | | | (1.43 | ) | | | (0.93 | ) |
Net Asset Value, End of year | | | $24.66 | | | | $24.54 | | | | $23.85 | | | | $25.84 | | | | $25.96 | |
Net Asset Value Total Return2 | | | 4.51 | % | | | 7.74 | % | | | (1.62 | )% | | | 5.26 | % | | | 7.37 | % |
Net assets, end of year (000’s omitted) | | | $18,494 | | | | $24,535 | | | | $98,959 | | | | $169,284 | | | | $167,474 | |
| | | | | | | | | | | | | | | | | | | | |
RATIOS/SUPPLEMENTAL DATA: | | | | | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of expense waivers | | | 0.55 | %3 | | | 0.80 | % | | | 0.80 | % | | | 0.80 | % | | | 0.80 | %3 |
Expenses, prior to expense waivers | | | 1.15 | %3 | | | 1.06 | % | | | 0.86 | % | | | 0.84 | % | | | 0.91 | %3 |
Net investment income | | | 3.95 | % | | | 4.37 | % | | | 4.51 | % | | | 4.26 | % | | | 3.75 | % |
Portfolio turnover rate4 | | | 103 | % | | | 95 | % | | | 82 | % | | | 113 | % | | | 100 | % |
1Based on average shares outstanding.
2Net Asset Value Total Return is calculated assuming an initial investment made at the net asset value on the first day of the year, reinvestment of dividends and distributions at net asset value during the year, and redemptions at net asset value on the last day of the year.
3The ratios of expenses to average net assets includes tax expense fees of less than 0.01%.
4Portfolio turnover excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Fund’s capital shares.
Financial Highlights (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
67
| | Virtus Private Credit Strategy ETF | ||||||
| | For the | | For the Period | ||||
Per Share Data for a Share Outstanding throughout each period presented: | | | | | | | | |
Net asset value, beginning of period | | | $24.72 | | | | $24.85 | |
Investment operations: | | | | | | | | |
Net investment income2 | | | 1.89 | | | | 1.70 | |
Net realized and unrealized loss | | | (7.20 | ) | | | (0.45 | ) |
Total from investment operations | | | (5.31 | ) | | | 1.25 | |
| ||||||||
Less Distributions from: | | | | | | | | |
Net investment income | | | (2.04 | ) | | | (1.38 | ) |
Total distributions | | | (2.04 | ) | | | (1.38 | ) |
Net Asset Value, End of period | | | $17.37 | | | | $24.72 | |
Net Asset Value Total Return3 | | | (21.70 | )% | | | 5.03 | % |
Net assets, end of period (000’s omitted) | | | $19,109 | | | | $211,344 | |
| ||||||||
RATIOS/SUPPLEMENTAL DATA: | | | | | | | | |
Ratios to Average Net Assets: | | | | | | | | |
Expenses | | | 0.75 | %4 | | | 0.75 | %5 |
Net investment income | | | 8.59 | % | | | 9.24 | %5 |
Portfolio turnover rate6 | | | 24 | % | | | 22 | %7 |
1Commencement of operations.
2Based on average shares outstanding.
3Net Asset Value Total Return is calculated assuming an initial investment made at the net asset value on the first day of the period, reinvestment of dividends and distributions at net asset value during the period, and redemptions at net asset value on the last day of the period. Total return calculated for a period of less than one year is not annualized.
4The ratios of expenses to average net assets includes tax expense fees of less than 0.01%.
5Annualized.
6Portfolio turnover excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Fund’s capital shares.
7Not annualized.
Financial Highlights (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
68
| | Virtus Real Asset Income ETF | ||||||
| | For the | | For the Period | ||||
Per Share Data for a Share Outstanding throughout each period presented: | | | | | | | | |
Net asset value, beginning of period | | | $24.72 | | | | $24.79 | |
Investment operations: | | | | | | | | |
Net investment income2 | | | 0.64 | | | | 0.58 | |
Net realized and unrealized loss | | | (5.95 | ) | | | (0.12 | ) |
Total from investment operations | | | (5.31 | ) | | | 0.46 | |
| ||||||||
Less Distributions from: | | | | | | | | |
Net investment income | | | (0.74 | ) | | | (0.53 | ) |
Total distributions | | | (0.74 | ) | | | (0.53 | ) |
Net Asset Value, End of period | | | $18.67 | | | $24.72 | ||
Net Asset Value Total Return3 | | | (21.53 | )% | | | 1.87 | % |
Net assets, end of period (000’s omitted) | | | $100,810 | | | | $244,751 | |
| | | | | | | | |
RATIOS/SUPPLEMENTAL DATA: | | | | | | | | |
Ratios to Average Net Assets: | | | | | | | | |
Expenses | | | 0.55 | %4 | | | 0.55 | %5 |
Net investment income | | | 2.93 | % | | | 3.20 | %5 |
Portfolio turnover rate6 | | | 91 | % | | | 15 | %7 |
1Commencement of operations.
2Based on average shares outstanding.
3Net Asset Value Total Return is calculated assuming an initial investment made at the net asset value on the first day of the period, reinvestment of dividends and distributions at net asset value during the period, and redemptions at net asset value on the last day of the period. Total return calculated for a period of less than one year is not annualized.
4The ratios of expenses to average net assets includes tax expense fees of less than 0.01%.
5Annualized.
6Portfolio turnover excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Fund’s capital shares.
7Not annualized.
Financial Highlights (continued)
October 31, 2020
The accompanying notes are an integral part of these financial statements.
69
| | Virtus WMC International Dividend ETF | ||||||||||||||
| | For the | | For the | | For the | | For the Period | ||||||||
Per Share Data for a Share Outstanding throughout each period presented: | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $26.41 | | | | $24.97 | | | | $25.10 | | | | $25.00 | |
Investment operations: | | | | | | | | | | | | | | | | |
Net investment income2 | | | 0.52 | | | | 0.52 | | | | 0.50 | | | | 0.01 | |
Net realized and unrealized gain (loss) | | | (2.08 | ) | | | 1.95 | | | (0.53 | ) | | | 0.09 | ||
Total from investment operations | | | (1.56 | ) | | | 2.47 | | | (0.03 | ) | | | 0.10 | ||
| ||||||||||||||||
Less Distributions from: | | | | | | | | | | | | | | | | |
Net investment income | | | (0.91 | ) | | | (0.49 | ) | | | (0.10 | ) | | | — | |
Net realized gains | | | — | | | | (0.54 | ) | | | — | | | | — | |
Total distributions | | | (0.91 | ) | | | (1.03 | ) | | | (0.10 | ) | | | — | |
Net Asset Value, End of period | | | $23.94 | | | $26.41 | | | $24.97 | | | $25.10 | ||||
Net Asset Value Total Return3 | | | (6.20 | )% | | | 10.60 | % | | | (0.11 | )% | | | 0.38 | % |
Net assets, end of period (000’s omitted) | | | $4,788 | | | | $5,281 | | | | $4,995 | | | | $5,019 | |
| | | | | | | | | | | | | | | | |
RATIOS/SUPPLEMENTAL DATA: | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets: | | | | | | | | | | | | | | | | |
Expenses | | | 0.49 | % | | | 0.49 | %4 | | | 0.49 | %4 | | | 0.49 | %5 |
Net investment income | | | 2.04 | % | | | 2.08 | % | | | 1.88 | % | | | 0.76 | %5 |
Portfolio turnover rate6 | | | 211 | % | | | 88 | % | | | 80 | % | | | 23 | %7 |
1Commencement of operations.
2Based on average shares outstanding.
3Net Asset Value Total Return is calculated assuming an initial investment made at the net asset value on the first day of the period, reinvestment of dividends and distributions at net asset value during the period, and redemptions at net asset value on the last day of the period. Total return calculated for a period of less than one year is not annualized.
4The ratios of expenses to average net assets includes tax expense fees of less than 0.01%.
5Annualized.
6Portfolio turnover excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Fund’s capital shares.
7Not annualized.
70
1. ORGANIZATION
The ETFis Series Trust I (the “Trust”) was organized as a Delaware statutory trust on September 20, 2012 and is registered with the U.S. Securities and Exchange Commission (the “SEC”) as an open-end management investment company under the Investment Company Act of 1940 (the “1940 Act”).
Effective July 20, 2020, Virtus WMC Global Factor Opportunities ETF was renamed to Virtus WMC International Dividend ETF and the ticker symbol changed to VWID. Effective July 20, 2020, the Virtus WMC International Dividend ETF changed its distribution frequency from annually to quarterly.
As of October 31, 2020, 10 funds of the Trust are offered for sale. The InfraCap REIT Preferred ETF, Virtus InfraCap U.S. Preferred Stock ETF, Virtus LifeSci Biotech Clinical Trials ETF, Virtus LifeSci Biotech Products ETF, Virtus Newfleet Multi-Sector Bond ETF, Virtus Private Credit Strategy ETF, Virtus Real Asset Income ETF and Virtus WMC International Dividend ETF (each a “Fund” and collectively, the “Funds”) are reported in this annual report. The offering of each Fund’s shares is registered under the Securities Act of 1933 (the “Securities Act”).
Funds |
| Commencement |
InfraCap REIT Preferred ETF | | February 7, 2017 |
Virtus InfraCap U.S. Preferred Stock ETF | | May 15, 2018 |
Virtus LifeSci Biotech Clinical Trials ETF | | December 16, 2014 |
Virtus LifeSci Biotech Products ETF | | December 16, 2014 |
Virtus Newfleet Multi-Sector Bond ETF | | August 10, 2015 |
Virtus Private Credit Strategy ETF | | February 7, 2019 |
Virtus Real Asset Income ETF | | February 7, 2019 |
Virtus WMC International Dividend ETF | | October 10, 2017 |
InfraCap REIT Preferred ETF, Virtus InfraCap U.S. Preferred Stock ETF, Virtus Private Credit Strategy ETF and Virtus Real Asset Income ETF are “non-diversified” Funds, as defined under the 1940 Act, as of the year ended October 31, 2020.
The Funds have the following investment objectives:
InfraCap REIT Preferred ETF seeks investment results that correspond, before fees and expenses, to the price and yield performance of the Indxx REIT Preferred Stock Index.
Virtus InfraCap U.S. Preferred Stock ETF seeks current income and, secondarily, capital appreciation.
Virtus LifeSci Biotech Clinical Trials ETF and Virtus LifeSci Biotech Products ETF seek investment results that correspond, before fees and expenses, to the price and yield performance of the LifeSci Biotechnology Clinical Trials Index and LifeSci Biotechnology Products Index, respectively.
Virtus Newfleet Multi-Sector Bond ETF seeks to provide a high level of current income and, secondarily, capital appreciation.
Virtus Private Credit Strategy ETF seeks investment results that correspond, before fees and expenses, to the price and yield performance of the Indxx Private Credit Index. Virtus Private Credit Strategy ETF is a “fund of funds,” meaning it will generally invest its assets in other registered investment companies.
Virtus Real Asset Income ETF seeks investment results that correspond, before fees and expenses, to the price and yield performance of the Indxx Real Asset Income Index.
Effective September 18, 2020, the Virtus WMC International Dividend ETF’s investment objective changed from seeking capital appreciation with a secondary objective of seeking income, to seeking income.
There is no guarantee that a Fund will achieve its objective(s).
Effective on July 15, 2020 the primary listing exchange of the Virtus WMC International Dividend ETF’s shares changed from NYSE Arca, Inc. to Cboe BZX Exchange, Inc.
2. SIGNIFICANT ACCOUNTING POLICIES
Each Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 Financial Services — Investment Companies. Each
71
Notes to Financial Statements (continued)
October 31, 2020
Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(a)Use of Estimates
Management makes certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of increases and decreases in the net assets from operations during the reporting period. Actual results could differ from those estimates
(b)Indemnification
In the normal course of business, the Funds may enter into contracts that contain a variety of representations which provide general indemnifications for certain liabilities. The Funds’ maximum exposure under these arrangements is unknown. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote.
(c)Security Valuation
A description of the valuation techniques applied to the Funds’ major categories of assets and liabilities measured at fair value on a recurring basis is as follows:
Equity securities and Exchange-Traded Funds are valued at the official closing price (typically last sale) on the exchange on which the securities are primarily traded. Securities regularly traded in an over the counter market are valued at the latest quoted sale price in such market or in the case of the New York Stock Exchange (“NYSE”), at the NYSE Official Closing Price. Such valuations are typically categorized as Level 1 in the fair value hierarchy. If market quotations are not readily available, or if it is determined that a quotation of a security does not represent fair value, then the security is valued at fair value as determined in good faith using procedures adopted by the Trust’s Board of Trustees (the “Board”). Such valuations are typically categorized as Level 2 or Level 3 in the fair value hierarchy.
Debt securities, including restricted securities, are valued based on evaluated quotations received from independent pricing services or from dealers who make markets in such securities. For most bond types, the pricing service utilizes matrix pricing that considers one or more of the following factors: yield or price of bonds of comparable quality, coupon, maturity, current cash flows, type, and current day trade information, as well as dealer-supplied prices. Such valuations are typically categorized as Level 2 in the fair value hierarchy. Debt securities that are not widely traded, are illiquid, or are internally fair valued using procedures adopted by the Board are generally categorized as Level 3 in the fair value hierarchy.
Listed derivatives, such as options, that are actively traded are valued based on quoted prices from the exchange and are categorized as Level 1 in the hierarchy. Over-the-counter derivative contracts, which include options, do not require material subjectivity as pricing inputs are observed from actively quoted markets and are categorized as Level 2 in the hierarchy.
Investments in other open-end investment companies are valued based on their net asset value each business day. Investments in closed-end funds are valued as of the close of regular trading on the NYSE each business day. Each is categorized as Level 1 in the fair value hierarchy.
(d)Fair Value Measurement
Accounting Standards Codification, Fair Value Measurements and Disclosures (“ASC 820”) defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and requires disclosure about fair value measurements. It also provides guidance on determining when there has been a significant decrease in the volume and level of activity for an asset or liability, when a transaction is not orderly, and how that information must be incorporated into fair value measurement. Under ASC 820, various inputs are used in determining the value of the Funds’ investments. These inputs are summarized in the following hierarchy:
•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 securities, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
•Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Funds’ own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.
72
Notes to Financial Statements (continued)
October 31, 2020
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The hierarchy classification of inputs used to value each Fund’s investments at October 31, 2020, is disclosed at the end of each Fund’s Schedule of Investments.
(e)Security Transactions and Investment Income
Security transactions are accounted for on the trade date. Realized gains and losses on sales of investment securities are calculated using specific identification. Dividend income is recognized on the ex-dividend date. Expenses and interest income are recognized on the accrual basis. Amortization of premium and accretion of discount on debt securities are included in interest income. Each Fund amortizes premiums and accretes discounts using the effective interest method.
Dividend income from REIT investments is recorded using management’s estimate of the income included in distributions received from the REIT investments. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each domestic REIT after its fiscal year-end, and may differ from the estimated amounts.
(f)Foreign Taxes
Certain Funds may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Each Fund will accrue such taxes and recoveries as applicable based upon current interpretations of the tax rules and regulations that exist in the markets in which it invests.
(g)Expenses
Each Fund pays all of its expenses not assumed by its Sub-Adviser, if any, as defined in Note 3, or the Adviser. General Trust expenses that are allocated among and charged to the assets of the Funds and other series of the Trust are done so on a basis that the Board deems fair and equitable, which may be on a basis of relative net assets of each Fund and other series of the Trust or the nature of the services performed and relative applicability to each Fund and other series of the Trust.
(h)Short Sales
The Virtus InfraCap U.S. Preferred Stock ETF may sell securities short. A short sale is a transaction in which the Fund sells a security it does not own in anticipation of a decline in market price. To sell a security short, the Fund must borrow the security. The Fund’s obligation to replace the security borrowed and sold short will be fully collateralized at all times by the proceeds from the short sale retained by the broker and by cash and securities deposited in a segregated account with the Fund’s custodian. If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will realize a loss, and if the price declines during the period, the Fund will realize a gain. Any realized gain will be decreased, and any realized loss increased, by the amount of transaction costs. On the ex-dividend date, dividends on short sales are recorded as an expense to the Fund.
In accordance with the terms of its prime brokerage agreement, the Fund may receive rebate income or be charged a fee on borrowed securities which is reported as “Interest Expense” on the Statement of Operations. Such income or fee is calculated on a daily basis based upon the market value of each borrowed security and a variable rate that is dependent upon the availability of such security.
(i)Distributions to Shareholders
Distributions are recorded by the Funds on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations that may differ from GAAP in the United States of America.
(j)Foreign Currency Translation
Non-U.S. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the foreign currency exchange rate effective at the end of the reporting period. Cost of investments is translated at the currency exchange rate effective at the trade date. The gain or loss resulting from a change in currency exchange rates between the trade and settlement date of a portfolio transaction is treated as a gain or loss on foreign currency. Likewise, the gain or loss resulting from a change in currency exchange rates between the date the income is accrued and the date it is paid is treated as a gain or loss on foreign currency. The Funds do not isolate that portion of the results of operations arising from changes in foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
73
Notes to Financial Statements (continued)
October 31, 2020
(k)Loan Agreements
The Virtus Newfleet Multi-Sector Bond ETF may invest in direct debt instruments which are interests in amounts owed by a corporate, governmental, or other borrower to lenders or lending syndicates. Loan agreements are generally non-investment grade and often involve borrowers that are highly leveraged. The Fund may invest in obligations of borrowers who are in bankruptcy proceedings. Loan agreements are typically senior in the corporate capital structure of the borrower. A loan is often administered by a bank or other financial institution (the “lender”) that acts as agent for all holders. The lender administers the terms of the loan, as specified in the loan agreement. The Fund’s investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties. When investing in loan participations, the Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the loan participation and only upon receipt by the lender of payments from the borrower. The Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, the Fund may be subject to the credit risk of both the borrower and the lender that is selling the loan agreement. When the Fund purchases assignments from lenders, it acquires direct rights against the borrower on the loan.
The Fund may invest in multiple series or tranches of a loan, which may have varying terms and carry different associated risks. Loan agreements may involve foreign borrowers, and investments may be denominated in foreign currencies. Direct indebtedness of emerging countries involves a risk that the government entities responsible for the repayment of the debt may be unable, or unwilling, to pay the principal and interest when due.
The loan agreements have floating rate loan interests which generally pay interest at rates that are periodically determined by reference to a base lending rate plus a premium. The base lending rates are generally LIBOR (London Interbank Offered Rate), the prime rate offered by one or more U.S. banks or the certificate of deposit rate. When a loan agreement is purchased, the Fund may pay an assignment fee. On an ongoing basis, the Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a loan agreement. Prepayment penalty fees are received upon the prepayment of a loan agreement by a borrower. Prepayment penalty, facility, commitment, consent and amendment fees are recorded to income as earned or paid.
(l)Securities Lending
Certain Funds may loan securities to qualified brokers through an agreement with The Bank of New York Mellon (“BNY Mellon”), as a third party lending agent. Under the terms of the agreement, a Fund doing so is required to maintain collateral with a market value not less than 102% of the market value of loaned securities. Collateral is adjusted daily in connection with changes in the market value of securities on loan. Collateral may consist of cash and securities issued by the U.S. Government or its agencies. Cash collateral is invested in a short-term money market fund. Dividends earned on the collateral and premiums paid by the broker are recorded as income by a Fund net of fees and rebates charged by BNY Mellon for its services as securities lending agent and in connection with this securities lending program. Lending portfolio securities involves a risk of delay in the recovery of the loaned securities or in the declining value of the collateral.
At October 31, 2020, the following Funds had securities on loan:
Funds | | Market Value | | Cash | | Non Cash | | Net Amount(b) |
Virtus LifeSci Biotech Clinical Trials ETF | | $9,809,472 | | $3,668,454 | | $6,807,140 | | $0 |
Virtus LifeSci Biotech Products ETF | | 5,473,487 | | 1,647,249 | | 3,986,752 | | 0 |
Virtus Private Credit Strategy ETF | | 4,779,177 | | 4,377,884 | | 566,957 | | 0 |
Virtus Real Asset Income ETF | | 9,032,559 | | 4,228,894 | | 5,022,210 | | 0 |
(a)Collateral received in excess of the market value of securities on loan is not presented in this table. The total cash collateral received by each Fund is disclosed in the Fund’s statement of assets and liabilities.
(b)Net amount represents the net amount receivable due from the counterparty in the event of default.
Funds not listed in table above did not have any securities on loan at October 31, 2020.
74
Notes to Financial Statements (continued)
October 31, 2020
The following table presents the contract value of securities lending transactions and the type of collateral provided to counterparties.
Remaining Contractual Maturity of the Agreements, as of October 31, 2020
| | | Overnight and | | Between | | | | ||||
| | | | <30 Days | | 30 & 90 days | | >90 days | | Total | | |
| Virtus LifeSci Biotech Clinical Trials ETF | | | | | | | | | | | |
| Securities Lending Transactions | | | | | | | | | | | |
| Commons Stocks | | $10,475,594 | | $— | | $— | | $— | | $10,475,594 | |
| Gross amount of recognized liabilities for securities lending transactions: | | $10,475,594 | | ||||||||
| | | | | | | | | | | | |
| Virtus LifeSci Biotech Products ETF | | | | | | | | | | | |
| Securities Lending Transactions | | | | | | | | | | | |
| Commons Stocks | | $5,634,001 | | $— | | $— | | $— | | $5,634,001 | |
| Gross amount of recognized liabilities for securities lending transactions: | | | | | | $5,634,001 | | ||||
| | | | | | | | | | | | |
| Virtus Private Credit Strategy ETF | | | | | | | | | | | |
| Securities Lending Transactions | | | | | | | | | | | |
| Commons Stocks | | $4,944,841 | | $— | | $— | | $— | | $4,944,841 | |
| Gross amount of recognized liabilities for securities lending transactions: | | | | | | $4,944,841 | | ||||
| | | | | | | | | | | | |
| Virtus Real Asset Income ETF | | | | | | | | | | | |
| Securities Lending Transactions | | | | | | | | | | | |
| Commons Stocks | | $9,251,104 | | $— | | $— | | $— | | $9,251,104 | |
| Gross amount of recognized liabilities for securities lending transactions: | | | | | | $9,251,104 | |
3. INVESTMENT MANAGEMENT RELATED PARTIES AND OTHER AGREEMENTS
Investment Advisory Agreements
The Trust, on behalf of each Fund, has entered into Investment Advisory Agreements (collectively, “Advisory Agreement”) with Virtus ETF Advisers LLC (the “Adviser”), an indirect wholly owned subsidiary of Virtus Investment Partners, Inc. (Ticker: VRTS) (together with its affiliates, “Virtus”). Pursuant to the Advisory Agreement, the Adviser has overall supervisory responsibility for the general management and investment of the Funds’ securities portfolios. The Adviser has agreed to pay all of the ordinary operating expenses of the Virtus LifeSci Biotech Clinical Trials ETF, Virtus LifeSci Biotech Products ETF, Virtus Private Credit Strategy ETF, Virtus Real Asset Income ETF, and WMC International Dividend ETF, except for each Fund’s management fee; payments under any 12b-1 plan; taxes and other governmental fees; brokerage fees, commissions and other transaction expenses; interest and other costs of borrowing; litigation or arbitration expenses; acquired fund fees and expenses; and extraordinary or other non-routine expenses of the Funds. The Adviser is entitled to receive a fee from each Fund (unless otherwise noted below) based on each Fund’s average daily net assets, computed and accrued daily and payable monthly, at an annual rate as follows:
Funds | | Rate |
InfraCap REIT Preferred ETF | | 0.45%, subject to a minimum annual fee of $25,000 per year |
Virtus InfraCap U.S. Preferred Stock ETF | | 0.80% |
Virtus LifeSci Biotech Clinical Trials ETF | | 0.79% |
Virtus LifeSci Biotech Products ETF | | 0.79% |
Virtus Newfleet Multi-Sector Bond ETF | | 0.45%* |
Virtus Private Credit Strategy ETF | | 0.75% |
Virtus Real Asset Income ETF | | 0.55% |
Virtus WMC International Dividend ETF | | 0.49% |
*Effective January 1, 2020, the Adviser contractually agreed to reduce its management fee for Virtus Newfleet Multi-Sector Bond ETF to the annual rate of 0.45% of the Fund’s average daily net assets. Prior to January 1, 2020, the Adviser received monthly compensation from the Fund at the annual rate of 0.70% of the Fund’s average daily net assets.
75
Notes to Financial Statements (continued)
October 31, 2020
The Advisory Agreement may be terminated by the Trust on behalf of a Fund with the approval of a Fund’s Board or by a vote of the majority of a Fund’s shareholders. The Advisory Agreement may also be terminated by the Adviser by not more than 60 days’ nor less than 30 days’ written notice.
Expense Limitation Agreement
The Adviser has contractually agreed to reduce its fees and reimburse expenses in order to limit Virtus Newfleet Multi-Sector Bond ETF’s total operating expenses (excluding interest, taxes, brokerage fees and commissions, other expenditures that are capitalized in accordance with generally accepted accounting principles, acquired fund fees and expenses, other extraordinary expenses not incurred in the ordinary course of the Funds’ business, and amounts, if any, payable pursuant to a plan adopted in accordance with Rule 12b-1 under the 1940 Act) from exceeding 0.49% (effective January 1, 2020) of the Fund’s average daily net assets through at least February 28, 2021. Prior to January 1, 2020, the Fund’s expense limitation was 0.80% of the Fund’s average daily net assets.
The expense limitation agreement with respect to Virtus Newfleet Multi-Sector Bond ETF will be terminated upon termination of the Advisory Agreement between the Adviser and the Fund. In addition, while the Adviser or the Fund may discontinue the expense limitation agreement after the contractual period, it may only be terminated during its term with the approval of the Fund’s Board of Trustees.
Under certain conditions, the Adviser may recapture operating expenses waived or reimbursed under the expense limitation agreement for a period of three years following the date on which such waiver or reimbursement occurred; provided that such recapture may not cause the Fund’s total operating expenses to exceed 0.49% of the average daily net assets of the Fund (or any lower expense limitation or limitations to which the Fund and the Adviser may otherwise agree). All or a portion of the following expenses reimbursed by the Adviser may be recaptured during the fiscal years indicated:
Fund | | 2021 | | 2022 | | 2023 |
Virtus Newfleet Multi-Sector Bond ETF | | $81,340 | | $135,034 | | $125,300 |
Sub-Advisory Agreement
Each Sub-Adviser provides investment advice and management services to its respective Fund. Pursuant to an investment sub-advisory agreement among the Trust, the respective Sub-Adviser and the Adviser, the Adviser pays each Fund’s Sub-Adviser a sub-advisory fee calculated as shown below. The Adviser has delegated to the InfraCap REIT Preferred ETF and Virtus InfraCap U.S. Preferred Stock ETF’s sub-adviser the obligation to pay all of the ordinary operating expenses of each of those Funds, except for the management fee paid to the Adviser; payments under any 12b-1 plan adopted by the Fund; taxes and other governmental fees; brokerage fees, commissions and other transaction expenses; interest and other costs of borrowing; litigation or arbitration expenses; acquired fund fees and expenses; and extraordinary or other non-routine expenses of the Fund. The Sub-Advisers and sub-advisory fees for each Fund are listed below.
Funds | | Sub-Advisers | | Sub-Advisory Fees |
InfraCap REIT Preferred ETF | | Infrastructure Capital Advisors, LLC | | 0.375%* |
Virtus InfraCap U.S. Preferred Stock ETF | | Infrastructure Capital Advisors, LLC | | 0.66%* |
Virtus Newfleet Multi-Sector Bond ETF | | Newfleet Asset Management, LLC(1) | | 50% of the net advisory fee*+ |
Virtus WMC International Dividend ETF | | Wellington Management Company LLP | | 0.21%* |
(1)An indirect wholly owned subsidiary of Virtus.
*InfraCap REIT Preferred ETF, Virtus InfraCap U.S. Preferred Stock ETF, Virtus Newfleet Multi-Sector Bond ETF and Virtus WMC International Dividend ETF’s sub-advisory fees are paid for by the Adviser, not the Funds.
+Net advisory fee: In the event the Adviser waives its entire fee and also assumes expenses of the Trust pursuant to an applicable expense limitation agreement, the Sub- Adviser will similarly waive its entire fee and will share in the expense assumption by promptly paying to the Adviser (or its designee) 50% of the assumed amount. If during the term of the Sub-Advisory Agreement the Adviser later recaptures some or all of fees waived or expenses reimbursed by the Adviser and the Sub-Adviser together, then the Adviser will pay to the Sub-Adviser 50% of the amount recaptured.
Principal Underwriter
Pursuant to the terms of a Distribution Agreement with the Trust, VP Distributors, LLC (the “Distributor”) serves as the Funds’ principal underwriter. The Distributor receives compensation from the Adviser for the statutory underwriting services it provides to the Funds. The Distributor will not distribute shares in less than Creation Units (as hereinafter defined), and does not maintain a secondary market in shares. The shares are traded in the secondary market. The Distributor is an indirect wholly-owned subsidiary of Virtus.
76
Notes to Financial Statements (continued)
October 31, 2020
Distribution and Service (12b-1 Plan)
The Board of Trustees has adopted a distribution and service plan, under which InfraCap REIT Preferred ETF, Virtus InfraCap U.S. Preferred Stock ETF, Virtus LifeSci Biotech Clinical Trials ETF, Virtus LifeSci Biotech Products ETF, Virtus Private Credit Strategy ETF, Virtus Real Asset Income ETF, and Virtus WMC International Dividend ETF (collectively, the “12b-1 Funds”) are authorized to pay an amount up to 0.25% of their average daily net assets each year to finance activities primarily intended to result in the sale of Creation Units of the 12b-1 Funds or the provision of investor services. No 12b-1 fees are currently paid by the 12b-1 Funds and there are no current plans to impose these fees.
Operational Administrator
Virtus ETF Solutions LLC (the “Administrator”) serves as the Funds’ operational administrator. The Administrator supervises the overall administration of the Trust and the Funds including, among other responsibilities, the coordination and day-to-day oversight of the Funds’ operations, the service providers’ communications with the Funds and each other and assistance with Trust, Board and contractual matters related to the Funds and other series of the Trust. The Administrator also provides persons satisfactory to the Board to serve as officers of the Trust. The Administrator is an indirect wholly-owned subsidiary of Virtus.
Accounting Services Administrator, Custodian and Transfer Agent
The Bank of New York Mellon (“BNY Mellon”) provides administrative, accounting, tax and financial reporting for the maintenance and operations of the Trust as the Funds’ accounting services administrator. BNY Mellon also serves as the custodian for the Funds’ assets, and serves as transfer agent and dividend paying agent for the Funds.
Affiliated Shareholders
At October 31, 2020, Virtus Partners, Inc. held shares of Virtus WMC International Dividend ETF which may be sold at any time that aggregated to the following:
| | Shares | | % of share |
Virtus WMC International Dividend ETF | | 184,503 | | 92.3% |
At October 31, 2020, the respective sub-adviser of the below Funds held shares of such Fund which may be redeemed at any time that aggregated to the following:
| | Shares | | % of share |
InfraCap REIT Preferred ETF | | 12,328 | | 0.5% |
Virtus InfraCap U.S. Preferred Stock ETF | | 418,009 | | 5.5% |
4. CREATION AND REDEMPTION TRANSACTIONS
The Funds issue and redeem shares on a continuous basis at Net Asset Value (“NAV”) in groups of 50,000 shares called “Creation Units.” The Funds’ Creation Units may be issued and redeemed generally for cash or an in-kind deposit of securities held by the Funds. In each instance of cash creations or redemptions, the Trust may impose transaction fees based on transaction expenses related to the particular exchange that will be higher than the transaction fees associated with in-kind purchases or redemptions.
Only “Authorized Participants” who have entered into contractual arrangements with the Distributor may purchase or redeem shares directly from the Funds. 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 will not qualify as Authorized Participants or have the resources to buy and sell whole Creation Units. Therefore, they will be unable to purchase or redeem the shares directly from the Funds. Rather, most retail investors will purchase shares in the secondary market with the assistance of a broker and will be subject to customary brokerage commissions or fees.
77
Notes to Financial Statements (continued)
October 31, 2020
5. FEDERAL INCOME TAX
Each Fund intends to qualify as a “regulated investment company” under Sub-chapter M of the Internal Revenue Code of 1986 (the “Code”), as amended. Each Fund intends to distribute substantially all of its net investment income and net capital gains to shareholders. Therefore, no federal income or excise tax provision is required. Accounting for Uncertainty in Income Taxes as issued by the Financial Accounting Standards Board provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements, and requires the evaluation of tax positions taken or expected to be taken in the course of preparing a Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Interest and penalties related to income taxes would be recorded as income tax expense. Management of the Funds is required to analyze all open tax years (2017, 2018 and 2019), as defined by IRS statute of limitations, for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of October 31, 2020, the Funds did not have a liability for any unrecognized tax benefits. The Funds have no examination in progress and are not aware of any tax positions for which it is reasonably possible that the amounts of unrecognized tax benefits will significantly change in the next twelve months.
The Funds recognize interest accrued related to unrecognized tax benefits and penalties as income tax expense. For the year ended October 31, 2020, the Funds had no accrued penalties or interest.
At October 31, 2020, the adjusted cost basis of investments and gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
| | Federal Tax Cost | | Gross Unrealized | | Gross Unrealized | | Net Unrealized | |
InfraCap REIT Preferred ETF | | $51,390,245 | | $3,524,708 | | $(3,494,361 | ) | $30,347 | |
Virtus InfraCap U.S. Preferred Stock ETF | | 197,342,528 | | 8,161,271 | | (17,988,730 | ) | (9,827,459 | ) |
Virtus LifeSci Biotech Clinical Trials ETF | | 48,070,106 | | 4,295,494 | | (11,905,504 | ) | (7,610,010 | ) |
Virtus LifeSci Biotech Products ETF | | 30,921,892 | | 3,562,360 | | (6,665,023 | ) | (3,102,663 | ) |
Virtus Newfleet Multi-Sector Bond ETF | | 18,155,919 | | 640,297 | | (454,628 | ) | 185,669 | |
Virtus Private Credit Strategy ETF | | 30,190,854 | | 18,668 | | (7,271,990 | ) | (7,253,322 | ) |
Virtus Real Asset Income ETF | | 136,742,246 | | 4,267,052 | | (38,538,461 | ) | (34,271,409 | ) |
Virtus WMC International Dividend ETF | | 5,094,457 | | 130,400 | | (495,890 | ) | (365,490 | ) |
At October 31, 2020, the components of accumulated earnings/loss on a tax-basis were as follows:
| | Undistributed | | Accumulated | | Net Unrealized | | Total | |
InfraCap REIT Preferred ETF | | $— | | $(6,405,311 | ) | $30,347 | | $(6,374,964 | ) |
Virtus InfraCap U.S. Preferred Stock ETF | | — | | (12,308,061 | ) | (9,827,459 | ) | (22,135,520 | ) |
Virtus LifeSci Biotech Clinical Trials ETF | | — | | (28,289,971 | ) | (7,610,010 | ) | (35,899,981 | ) |
Virtus LifeSci Biotech Products ETF | | — | | (9,995,404 | ) | (3,102,663 | ) | (13,098,067 | ) |
Virtus Newfleet Multi-Sector Bond ETF | | — | | (3,270,592 | ) | 185,704 | | (3,084,888 | ) |
Virtus Private Credit Strategy ETF | | 254,219 | | (7,347,866 | ) | (7,253,322 | ) | (14,346,969 | ) |
Virtus Real Asset Income ETF | | 996,349 | | (20,487,163 | ) | (34,271,409 | ) | (53,762,223 | ) |
Virtus WMC International Dividend ETF | | 152,997 | | — | | (365,245 | ) | (212,248 | ) |
Ordinary losses incurred after December 31 (“Late Year Ordinary Losses”) within the taxable year are deemed to arise on the first business day of the Funds’ next taxable year. During the fiscal year ended October 31, 2020, the following Funds incurred and elected to defer Late Year Ordinary Losses as follows:
Virtus LifeSci Biotech Clinical Trials ETF | | $136,597 |
Virtus LifeSci Biotech Products ETF | | 118,478 |
78
Notes to Financial Statements (continued)
October 31, 2020
The tax character of dividends and distributions paid during the fiscal years ended October 31, 2020 and October 31, 2019 were as follows:
| | 2020 | | 2019 | | ||||||||
| | Distributions | | Return | | Distributions | | Distributions | | Return of | | Distributions | |
InfraCap REIT Preferred ETF | | $2,574,003 | | $515,003 | | $— | | $1,369,330 | | $249,926 | | $— | |
Virtus InfraCap U.S. Preferred Stock ETF | | 10,659,405 | | 407,094 | | 168,010 | | 2,935,509 | | — | | — | |
Virtus LifeSci Biotech Clinical Trials ETF | | — | | — | | — | | — | | — | | — | |
Virtus LifeSci Biotech Products ETF | | — | | — | | — | | — | | — | | — | |
Virtus Newfleet Multi-Sector Bond ETF | | 782,228 | | 24,957 | | — | | 2,153,039 | | 182,502 | | — | |
Virtus Private Credit Strategy ETF | | 10,783,196 | | — | | — | | 10,417,838 | | — | | — | |
Virtus Real Asset Income ETF | | 5,787,929 | | — | | — | | 4,789,847 | | — | | — | |
Virtus WMC International Dividend ETF | | 181,086 | | — | | — | | 157,016 | | — | | 48,016 | |
At October 31, 2020, for Federal income tax purposes, the following Funds have capital loss carryforwards available to offset future capital gains for an unlimited period. To the extent that these loss carryforwards are utilized, capital gains so offset will not be distributed to shareholders:
| | Short-Term | | Long-Term | | Total | |
InfraCap REIT Preferred ETF | | $5,766,842 | | $638,469 | | $6,405,311 | |
Virtus InfraCap U.S. Preferred Stock ETF | | 10,940,317 | | 1,367,744 | | 12,308,061 | |
Virtus LifeSci Biotech Clinical Trials ETF | | 14,923,751 | | 13,229,623 | | 28,153,374 | |
Virtus LifeSci Biotech Products ETF | | 3,655,860 | | 6,221,066 | | 9,876,926 | |
Virtus Newfleet Multi-Sector Bond ETF | | 830,138 | | 2,440,454 | | 3,270,592 | |
Virtus Private Credit Strategy ETF | | 3,037,172 | | 4,310,694 | | 7,347,866 | |
Virtus Real Asset Income ETF | | 14,242,929 | | 6,244,234 | | 20,487,163 | |
Virtus WMC International Dividend ETF | | — | | — | | — | |
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Results of operations and net assets were not affected by these reclassifications. Reclassifications are primarily due to tax treatment of redemptions in kind. At October 31, 2020, the effect of permanent book/tax reclassifications resulted in increases (decreases) to the components of net assets as follows:
| | Distributable | | Paid-In-Capital | |
InfraCap REIT Preferred ETF | | $1,002,102 | | $(1,002,102 | ) |
Virtus InfraCap U.S. Preferred Stock ETF | | 6,199,333 | | (6,199,333 | ) |
Virtus LifeSci Biotech Clinical Trials ETF | | (13,846,473 | ) | 13,846,473 | |
Virtus LifeSci Biotech Products ETF | | (4,698,890 | ) | 4,698,890 | |
Virtus Newfleet Multi-Sector Bond ETF | | (740 | ) | 740 | |
Virtus Private Credit Strategy ETF | | 74,600,951 | | (74,600,951 | ) |
Virtus Real Asset Income ETF | | 29,371,913 | | (29,371,913 | ) |
Virtus WMC International Dividend ETF | | — | | — | |
79
Notes to Financial Statements (continued)
October 31, 2020
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term investments), subscription in-kind and redemption in-kind for the year ended October 31, 2020 were as follows:
| | Purchases | | Sales | | Subscriptions | | Redemptions | |
InfraCap REIT Preferred ETF | | $17,208,162 | | $17,243,192 | | $25,954,714 | | $3,978,981 | |
Virtus InfraCap U.S. Preferred Stock ETF | | 129,757,194 | | 128,233,735 | | 148,042,284 | | 37,277,934 | |
Virtus LifeSci Biotech Clinical Trials ETF | | 30,722,541 | | 30,000,916 | | 47,415,438 | | 46,587,630 | |
Virtus LifeSci Biotech Products ETF | | 12,050,459 | | 11,813,084 | | 11,404,410 | | 18,256,486 | |
Virtus Newfleet Multi-Sector Bond ETF | | 20,998,876 | | 26,954,920 | | — | | — | |
Virtus Private Credit Strategy ETF | | 29,724,891 | | 26,756,810 | | 35,193,622 | | 146,749,172 | |
Virtus Real Asset Income ETF | | 155,448,137 | | 147,214,867 | | 92,213,881 | | 164,932,611 | |
Virtus WMC International Dividend ETF | | 10,556,412 | | 10,656,127 | | — | | — | |
7. DERIVATIVE FINANCIAL INSTRUMENTS
Options
The Virtus InfraCap U.S. Preferred Stock ETF may write covered call and put options on portfolio securities and other financial instruments. Premiums received are recorded as liabilities. The liabilities are subsequently adjusted to reflect the current value of the options written. Premiums received from writing options that expire are treated as realized gains. Premiums received from writing options that are exercised or are closed are added to or offset against the proceeds or amount paid on the transactions to determine the net realized gain or loss. By writing a covered call option, the Fund, in exchange for the premium, foregoes the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase. By writing a put option, the Fund, in exchange for the premium, accepts the risk of having to purchase a security at an exercise price that is above the current price. Changes in value of written options are reported as change in unrealized gain (loss) on written options in the Statement of Operations. When the written option expires, is terminated or is sold, the Fund will record a gain or loss, which is reported as realized gain (loss) on written options in the Statement of Operations. Written covered call options limit the upside potential of a security above the strike price. Written put options subject the Fund to risk of loss if the value of the security declines below the exercise price minus the put premium.
The Virtus InfraCap U.S. Preferred Stock may purchase call and put options on the portfolio securities or other financial instruments. The Fund may purchase call options to protect against an increase in the price of the security or financial instrument it anticipates purchasing. The Fund may purchase put options on securities which it holds or other financial instruments to protect against a decline in the value of the security or financial instrument or to close out covered written positions. Changes in value of purchased options are reported as part of change in unrealized gain (loss) on investments in the Statement of Operations. When the purchased option expires, is terminated or is sold, the Fund will record a gain or loss, which is reported as part of realized gain (loss) on investments in the Statement of Operations. Risks may arise from an imperfect correlation between the change in market value of the securities held by the Fund and the prices of options relating to the securities purchased or sold by the Fund and from the possible lack of liquid secondary market for an option. The maximum exposure to loss for any purchased option is limited to the premium initially paid for the option.
Transactions in derivative instruments reflected on the Statement of Operations during the year ended October 31, 2020 were as follows:
Net Realized Gain (Loss) on: | | Equity Risk | |
Investments* | | $210,961 | |
Written options | | (546,641 | ) |
*Purchased option contracts are included in Net Realized Gain (Loss) on Investments on the Statement of Operations
Change in Net Unrealized Appreciation (Depreciation) on: | | Equity Risk | |
Written options | | $(10,962 | ) |
For the year ended October 31, 2020, the monthly average market value of the purchased options and written options contracts held by the Fund were $41,115 and $(157,556), respectively.
80
Notes to Financial Statements (continued)
October 31, 2020
8. BORROWINGS
The Virtus InfraCap U.S. Preferred Stock ETF entered into Lending Agreements (the “Agreements”) with commercial banks (the “Banks”) that allows the Fund to borrow cash from the Banks. Borrowings under the Agreements are collateralized by investments of the Fund. If the Fund defaults with respect to any of its obligations under the Agreements, the Banks may foreclose on assets of the Fund and/or the Fund may be required to repay immediately, in part or in full, the loan balance outstanding under the Agreements, necessitating the sale of securities at potentially inopportune times. Interest is charged at the 3 Month LIBOR (London Interbank Offered Rate) plus an additional percentage rate on the amount borrowed. The Agreements have an on-demand commitment term. For the year ended October 31, 2020, the average daily borrowings under the Agreements and the weighted average interest rate were $27,641,246 and 2.06%, respectively.
9. INVESTMENT RISKS
As with any investment, an investment in the Funds could result in a loss or the performance of the Funds could be inferior to that of other investments. An investor should consider each Fund’s investment objectives, risks, and charges and expenses carefully before investing. Each Fund’s prospectus and statement of additional information contain this and other important information.
Credit Risk
Junk Bonds or High Yield Securities: High yield securities are generally subject to greater levels of credit quality risk than investment grade securities. The retail secondary market for these “junk bonds” may be less liquid than that of higher-rated fixed income securities, and adverse conditions could make it difficult at times to sell these securities or could result in lower prices than higher-rated fixed income securities. These risks can reduce the value of the Fund’s shares and the income it earns.
Cash Concentration Risk
At various times, the Funds may have cash and cash collateral balances that exceed federally insured limits.
Market Risk
Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issue, recessions, or other events could have a significant impact on each Fund and its investments, including hampering the ability of the Fund’s portfolio manager(s) to invest the Fund’s assets as intended.
10. LIBOR REPLACEMENT RISK
The loans in which the Funds invest typically have floating or adjustable interest rates, which are tied to a benchmark lending rate, such as the London Interbank Offered Rate (“LIBOR”) or the prime rate, or are set to a specified floor, whichever is higher. On July 27, 2017, the head of the United Kingdom’s Financial Conduct Authority announced a desire to phase out the use of LIBOR by the end of 2021.There remains uncertainty regarding the future utilization of LIBOR and the nature of any replacement rate. As a result, any impact of a transition away from LIBOR on the Funds or the instruments in which the Funds invest cannot yet be determined. Industry initiatives are underway to identify alternative reference rates such as the Secured Overnight Funding Rate (“SOFR”), which the Federal Reserve Bank of New York began publishing in April 2018; however, there is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same value or economic equivalence as LIBOR or that instruments using an alternative rate will have the same volume or liquidity. As a result, the transition process might lead to increased volatility and reduced liquidity in markets that currently rely on LIBOR to determine interest rates; a reduction in the value of some LIBOR-based investments; and/or costs incurred in connection with closing out positions and entering into new agreements. These effects could occur prior to the end of 2021 as the utility of LIBOR as a reference rate could deteriorate during the transition period.
81
Notes to Financial Statements (continued)
October 31, 2020
11. 10% SHAREHOLDERS
As of October 31, 2020, certain Funds had individual shareholder account(s) and/or omnibus shareholder account(s) (comprised of a group of individual shareholders), which individually amounted to more than 10% of the total shares outstanding of the Fund as detailed below:
Funds | | % of Shares | | Number of | |
InfraCap REIT Preferred ETF | | 62% | | 3 | |
Virtus InfraCap U.S. Preferred Stock ETF | | 65% | | 3 | |
Virtus LifeSci Biotech Clinical Trials ETF | | 56% | | 3 | |
Virtus LifeSci Biotech Products ETF | | 59% | | 3 | |
Virtus Newfleet Multi-Sector Bond ETF | | 66% | | 4 | |
Virtus Private Credit Strategy ETF | | 89% | | 3 | |
Virtus Real Asset Income ETF | | 97% | | 1 | |
Virtus WMC International Dividend ETF | | 92% | | 1* | |
*Shareholder account is affiliated.
12. RECENT ACCOUNTING PRONOUNCEMENTS
In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update No.2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in ASU 2020-04 provides optional temporary financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the LIBOR and other interbank-offered based reference rates as of the end of 2021. ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management is currently evaluating the impact, if any, of applying ASU 2020-04.
13. CORONAVIRUS (COVID-19) PANDEMIC
The recent global outbreak of COVID-19 has disrupted economic markets, and the economic impact, duration and spread of the COVID-19 virus is uncertain at this time. The operational and financial performance of the issuers of securities in which the Funds invest may be significantly impacted by COVID-19, which may in turn impact the value of the Funds’ investments.
14. SUBSEQUENT EVENTS
Management has evaluated subsequent events through the issuance of these financial statements and has determined that there are no material events that would require disclosure.
The accompanying notes are an integral part of these financial statements.
82
Security Description | |
| |
| |
| | | | | |
COMMON STOCKS — 128.0%(1) | | | | | |
| | | | | |
Energy — 128.0% | | | | | |
BP Midstream Partners LP | | 1,179,346 | | $11,439,656 | |
Cheniere Energy Partners LP | | 1,576 | | 56,815 | |
Cheniere Energy, Inc.* | | 1,388 | | 66,443 | |
Crestwood Equity Partners LP | | 333,513 | | 4,996,025 | |
DCP Midstream LP | | 1,092,565 | | 13,952,055 | |
Enable Midstream Partners LP | | 13,196 | | 58,722 | |
Energy Transfer LP(2) | | 1,639,504 | | 8,443,445 | |
Enterprise Products Partners LP | | 765,732 | | 12,688,179 | |
Kinder Morgan, Inc. | | 1,264 | | 15,042 | |
Magellan Midstream Partners LP | | 140,585 | | 4,996,391 | |
Marathon Petroleum Corp. | | 462 | | 13,629 | |
MPLX LP | | 1,116,389 | | 19,213,055 | |
NGL Energy Partners LP | | 677,049 | | 1,624,918 | |
Noble Midstream Partners LP | | 637,679 | | 5,082,302 | |
NuStar Energy LP | | 1,303,286 | | 12,889,498 | |
ONEOK, Inc.(2) | | 905 | | 26,245 | |
Phillips 66 Partners LP | | 224,877 | | 5,277,863 | |
Plains All American Pipeline LP | | 803,827 | | 5,023,919 | |
Shell Midstream Partners LP | | 971,428 | | 8,499,995 | |
TC PipeLines LP | | 79,615 | | 2,241,162 | |
Western Midstream Partners LP | | 1,210,860 | | 9,868,509 | |
Williams Cos., Inc. (The) | | 22,273 | | 427,419 | |
| | | | | |
TOTAL INVESTMENTS — 128.0% | | | | | |
(Cost $234,472,278) | | | | 126,901,287 | |
Liabilities in Excess of Other Assets — (28.0)% | | | | (27,794,764 | ) |
Net Assets — 100.0% | | | | $99,106,523 | |
Security Description | | Notional | | Number | | Value | |
| | | | | | | |
WRITTEN OPTIONS — (0.0)%(3) | | | | | | | |
| | | | | | | |
Written Call Options | | | | | | | |
Energy Transfer LP, | | | | | | | |
Expires 11/06/20, | | | | | | | |
Strike Price $6.50 | | (10,000 | ) | (100 | ) | (200 | ) |
Energy Transfer LP, | | | | | | | |
Expires 11/13/20, | | | | | | | |
Strike Price $6.50 | | (11,000 | ) | (110 | ) | (330 | ) |
Energy Transfer LP, | | | | | | | |
Expires 11/20/20, | | | | | | | |
Strike Price $6.00 | | (10,000 | ) | (100 | ) | (900 | ) |
Energy Transfer LP, | | | | | | | |
Expires 11/20/20, | | | | | | | |
Strike Price $7.00 | | (20,000 | ) | (200 | ) | (400 | ) |
Energy Transfer LP, | | | | | | | |
Expires 11/27/20, | | | | | | | |
Strike Price $6.00 | | (20,000 | ) | (200 | ) | (2,000 | ) |
ONEOK, Inc., | | | | | | | |
Expires 11/06/20, | | | | | | | |
Strike Price $31.00 | | (6,000 | ) | (60 | ) | (1,620 | ) |
| | | | | | | |
Total Written Options — (0.0)% | | | | | |
| |
(Premiums Received $8,139) | | | | | | $(5,450 | ) |
*Non-income producing security.
(1)Substantially all the securities, or a portion thereof, have been pledged as collateral for borrowings and open written option contracts. The aggregate market value of the collateral at October 31, 2020 was $110,405,674.
(2)Subject to written call options.
(3)Amount rounds to less than 0.05%.
The following table summarizes valuation of the Fund’s investments under the fair value hierarchy levels as of October 31, 2020.
| | Level 1 | | Level 2 | | Level 3 | | Total |
Asset Valuation Inputs | | | | | | | | |
Common Stocks | | $126,901,287 | | $— | | $— | | $126,901,287 |
Total | | $126,901,287 | | $— | | $— | | $126,901,287 |
Liability Valuation Inputs | | | | | | | | |
Written Options | | $5,450 | | $— | | $— | | $5,450 |
Total | | $5,450 | | $— | | $— | | $5,450 |
The accompanying notes are an integral part of these financial statements.
83
| | InfraCap MLP | |
Assets: | | | |
Investments, at cost | | $234,472,278 | |
Investments, at value | | 126,901,287 | |
Cash | | 430,344 | |
Due from brokers | | 111,626 | |
Receivables: | | | |
Investment securities sold | | 4,244,907 | |
Capital shares sold | | 689,194 | |
Tax reclaim | | 9,516 | |
Dividends and interest | | 1,173 | |
Prepaid taxes | | 7,437,014 | |
Total Assets | | 139,825,061 | |
| | | |
Liabilities: | | | |
Borrowings | | 39,294,886 | |
Payables: | | | |
Investment securities purchased | | 1,285,580 | |
Interest expense | | 51,080 | |
Sub-Advisory fees | | 81,542 | |
Written options, at value(a) | | 5,450 | |
Total Liabilities | | 40,718,538 | |
Net Assets | | $99,106,523 | |
| | | |
Net Assets Consist of: | | | |
Paid-in capital | | $454,898,477 | |
Total distributable earnings (accumulated deficit), net of income taxes | | (355,791,954 | ) |
Net Assets | | $99,106,523 | |
Shares outstanding (unlimited number of shares of beneficial interest authorized, no par value) | | 7,190,000 | |
Net asset value per share | | $13.78 | |
(a)Premiums received from written options | | $8,139 | |
The accompanying notes are an integral part of these financial statements.
84
| | InfraCap MLP | |
Investment Income: | | | |
Distributions from master limited partnerships | | $23,432,670 | |
Dividend income | | 765,110 | |
Interest income | | 3,364 | |
Less: Return of capital distributions | | (23,690,179 | ) |
Total Investment Income | | 510,965 | |
| | | |
Expenses: | | | |
Sub-Advisory fees | | 1,633,095 | |
Dividend and interest expenses | | 1,604,460 | |
Franchise tax expense | | 14,026 | |
Total Expenses | | 3,251,581 | |
Net Investment (Loss) Before Income Taxes | | (2,740,616 | ) |
Income Tax Benefit (Expense) | | (199,058 | ) |
Net Investment (Loss), Net of Income Taxes | | (2,939,674 | ) |
| | | |
Net Realized Gain (Loss) on: | | | |
Investments | | (154,567,600 | ) |
Written options | | 2,657,406 | |
Securities sold short | | (7,753 | ) |
Total Net Realized Loss | | (151,917,947 | ) |
| | | |
Change in Net Unrealized Appreciation (Depreciation) on: | | | |
Investments | | (27,077,285 | ) |
Written options | | (242,575 | ) |
Total Change in Net Unrealized Depreciation | | (27,319,860 | ) |
Net Realized and Change in Unrealized Loss | | (179,237,807 | ) |
Net Decrease in Net Assets Resulting from Operations | | $(182,177,481 | ) |
The accompanying notes are an integral part of these financial statements.
85
| | InfraCap MLP ETF1 | | ||
| | For the | | For the | |
Increase (Decrease) in Net Assets Resulting from Operations: | | | | | |
Net investment loss, net of income taxes | | $(2,939,674 | ) | $(7,632,954 | ) |
Net realized loss | | (151,917,947 | ) | (92,515,713 | ) |
Net change in unrealized appreciation (depreciation) | | (27,319,860 | ) | 25,658,706 | |
Net decrease in net assets resulting from operations | | (182,177,481 | ) | (74,489,961 | ) |
Distributions to Shareholders from return of capital | | (32,539,202 | ) | (81,518,004 | ) |
Total distributions | | (32,539,202 | ) | (81,518,004 | ) |
| | | | | |
Shareholder Transactions: | | | | | |
Proceeds from shares sold | | 20,771,880 | | 37,768,962 | |
Cost of shares redeemed | | (38,884,837 | ) | (87,646,286 | ) |
Net decrease in net assets resulting from shareholder transactions | | (18,112,957 | ) | (49,877,324 | ) |
Decrease in net assets | | (232,829,640 | ) | (205,885,289 | ) |
| | | | | |
Net Assets: | | | | | |
Beginning of year | | 331,936,163 | | 537,821,452 | |
End of year | | $99,106,523 | | $331,936,163 | |
| | | | | |
Changes in Shares Outstanding: | | | | | |
Shares outstanding, beginning of year | | 7,410,000 | | 8,420,000 | |
Shares sold | | 1,105,000 | | 640,000 | |
Shares redeemed | | (1,325,000 | ) | (1,650,000 | ) |
Shares outstanding, end of year | | 7,190,000 | | 7,410,000 | |
1Effective March 31, 2020, the Fund had a 1 for 10 reverse stock split. The share amounts for all periods have been adjusted as a result of the 1 for 10 reverse stock split (See Note 1).
The accompanying notes are an integral part of these financial statements.
86
| | InfraCap MLP | |
Cash Flows From Operating Activities: | | | |
Net decrease in net assets from operations | | $(182,177,481 | ) |
Adjustments to reconcile net decrease in net assets from operations to net cash provided by | | | |
Purchases of investment securities | | (217,392,189 | ) |
Proceeds from sales of investment securities | | 373,223,937 | |
Net proceeds from purchased and written options | | 1,079,118 | |
Net proceeds from securities sold short | | 867,516 | |
Payments made to cover securities sold short | | (875,269 | ) |
Net realized loss on investments | | 154,567,600 | |
Net realized loss on securities sold shorts | | 7,753 | |
Net realized gain on written options | | (2,657,406 | ) |
Net change in unrealized depreciation on investments | | 27,077,285 | |
Net change in unrealized depreciation on written options | | 242,575 | |
Increase in capital shares receivable | | (689,194 | ) |
Decrease in dividends receivable | | 850,507 | |
Decrease in prepaid taxes | | 511,703 | |
Decrease in due from broker | | 2,119,229 | |
Decrease in interest expense | | 51,080 | |
Increase in other accrued expenses | | (6,862 | ) |
Increase in sub-advisory fees payable | | (201,058 | ) |
Net cash provided by operating activities | | 156,598,844 | |
| | | |
Cash Flows from Financing Activities: | | | |
Proceeds from borrowings | | (80,091,722 | ) |
Payments for fund shares sold in excess of in-kind creations | | (48,249,814 | ) |
Distributions paid | | (32,539,202 | ) |
Net cash used in financing activities | | (160,880,738 | ) |
Net decrease in cash | | (4,281,894 | ) |
Cash, beginning of year | | 4,712,238 | |
Cash, end of year | | $430,344 | |
| | | |
Supplementary information: | | | |
Interest paid on borrowings | | 1,604,460 | |
| | | |
Non-cash financing activities: | | | |
In-kind creations — Issued | | 27,437,784 | |
In-kind creations — Redeemed | | — | |
The accompanying notes are an integral part of these financial statements.
87
| | InfraCap MLP ETF* | | ||||||||
| | For the | | For the | | For the | | For the | | For the | |
Per Share Data for a Share Outstanding throughout each year presented: | | | | | | | | | | | |
Net asset value, beginning of year | | $44.80 | | $63.87 | | $83.73 | | $106.32 | | $142.78 | |
Investment operations: | | | | | | | | | | | |
Net investment loss1 | | (0.09 | ) | (0.96 | ) | (1.52 | ) | (1.70 | ) | (0.75 | ) |
Net realized and unrealized loss | | (28.94 | ) | (7.91 | ) | (3.24 | ) | (0.09 | ) | (14.91 | )2 |
Total from investment operations | | (29.03 | ) | (8.87 | ) | (4.76 | ) | (1.79 | ) | (15.66 | ) |
| | | | | | | | | | | |
Less Distributions from: | | | | | | | | | | | |
Net investment income | | — | | — | | — | | (5.90 | ) | — | |
Return of capital | | (1.99 | ) | (10.20 | )3 | (15.10 | ) | (14.90 | ) | (20.80 | ) |
Total distributions | | (1.99 | ) | (10.20 | ) | (15.10 | ) | (20.80 | ) | (20.80 | ) |
Net Asset Value, End of year | | $13.78 | | $44.80 | | $63.87 | | $83.73 | | $106.32 | |
Net Asset Value Total Return4 | | (62.67 | )% | (15.62 | )% | (7.65 | )% | (3.44 | )% | (8.60 | )% |
Net assets, end of year | | $99,107 | | $331,936 | | $537,821 | | $504,879 | | $119,606 | |
| | | | | | | | | | | |
RATIOS/SUPPLEMENTAL DATA: | | | | | | | | | | | |
Ratios to Average Net Assets: | | | | | | | | | | | |
Expenses, including deferred income tax expense/benefit | | 2.01 | %5 | 2.41 | %6 | 2.40 | %7 | 1.93 | %8 | 1.36 | %9 |
Expenses, excluding deferred income tax expense/benefit | | 1.89 | %5 | 2.40 | %6 | 2.39 | %7 | 1.89 | %8 | 1.58 | %9 |
Net investment loss | | (1.71 | )% | (1.72 | )% | (1.96 | )% | (1.73 | )% | (0.70 | )% |
Portfolio turnover rate10 | | 96 | % | 136 | % | 255 | % | 104 | % | 90 | % |
*Effective March 31, 2020, the Fund had a 1 for 10 reverse stock split. The share amounts for all periods have been adjusted as a result of the 1 for 10 reverse stock split (See Note 1).
1Based on average shares outstanding.
2The per share amount of realized and unrealized gain (loss) on investments does not accord with the amounts reported in the Statements of Changes in Net Assets due to the timing of creation of Fund shares in relation to fluctuating market values.
3The per share distribution amount of $10.20 was originally misclassified and shown as distributions from net investment income in the Fund’s October 31, 2019 Annual Report. This amount has been subsequently reclassified to distributions from return of capital.
4Net Asset Value Total Return is calculated assuming an initial investment made at the net asset value on the first day of the year, reinvestment of dividends and distributions at net asset value during the year, and redemptions at net asset value on the last day of the year.
5The ratios of expenses to average net assets include interest expense of 0.93% and tax expense of 0.01%.
6The ratios of expenses to average net assets include interest expense of 1.28% and dividend expense on securities sold short fees of 0.17%.
7The ratios of expenses to average net assets include interest expense of 1.32% and dividend expense on securities sold short fees of 0.13%.
8The ratios of expenses to average net assets includes interest expense fees of 0.94%.
9The ratios of expenses to average net assets includes interest expense fees of 0.63%.
10Portfolio turnover excludes the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Fund’s capital shares.
88
1. ORGANIZATION
The ETFis Series Trust I (the “Trust”) was organized as a Delaware statutory trust on September 20, 2012 and is registered with the U.S. Securities and Exchange Commission (the “SEC”) as an open-end management investment company under the Investment Company Act of 1940 (the “1940 Act”).
As of October 31, 2020, 10 funds of the Trust are offered for sale. The InfraCap MLP ETF (the “Fund”) is reported in this annual report. The offering of the Fund’s shares is registered under the Securities Act of 1933 (the “Securities Act”).
Fund | | Commencement |
InfraCap MLP ETF | | October 1, 2014 |
The Fund is “non-diversified,” as defined under the 1940 Act, as of the year ended October 31, 2020.
The Fund’s investment objective is to seek total return primarily through investments in equity securities of publicly traded master limited partnerships and limited liability companies taxed as partnerships (“MLPs”). There is no guarantee that the Fund will achieve its objective(s).
Reverse Split
After the close of the markets on March 30, 2020 (the Record Date), the Fund effected a reverse split of its issued and outstanding shares, with a 1 for 10 ratio. Shares of the Fund began trading on the NYSE Arca on a split-adjusted basis on March 31, 2020.
The effect of the reverse split was reducing the number of Shares outstanding and resulted in a proportionate increase in the NAV per Share of the Fund. Therefore, the reverse split did not change the aggregate value of a shareholder’s investment or the total market value of the shares outstanding.
The reverse split was applied retroactively for all periods presented in the financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 Financial Services — Investment Companies. The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(a)Use of Estimates
Management makes certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of increases and decreases in the net assets from operations during the reporting period. Actual results could differ from those estimates.
(b)Indemnification
In the normal course of business, the Fund may enter into contracts that contain a variety of representations which provide general indemnifications for certain liabilities. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
(c)Security Valuation
A description of the valuation techniques applied to the Fund’s major categories of assets and liabilities measured at fair value on a recurring basis is as follows:
Equity securities and Exchange-Traded Funds are valued at the official closing price (typically last sale) on the exchange on which the securities are primarily traded. Securities regularly traded in an over the counter market are valued at the latest quoted sale price in such market or in the case of the New York Stock Exchange (“NYSE”), at the NYSE Official Closing Price. Such valuations are typically categorized as Level 1 in the fair value hierarchy. If market quotations are not readily available, or if it is determined that a quotation of a security does not represent fair value, then the security is valued at fair value as determined in good faith using procedures adopted by the Trust’s Board of Trustees (the “Board”). Such valuations are typically categorized as Level 2 or Level 3 in the fair value hierarchy.
Listed derivatives, such as options, that are actively traded are valued based on quoted prices from the exchange and are categorized as Level 1 in the hierarchy. Over-the-counter derivative contracts, which include options, do not require material subjectivity as pricing inputs are observed from actively quoted markets and are categorized as Level 2 in the hierarchy.
89
Notes to Financial Statements (continued)
October 31, 2020
(d)Fair Value Measurement
Accounting Standards Codification, Fair Value Measurements and Disclosures (“ASC 820”) defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and requires disclosure about fair value measurements. It also provides guidance on determining when there has been a significant decrease in the volume and level of activity for an asset or liability, when a transaction is not orderly, and how that information must be incorporated into fair value measurement. Under ASC 820, various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the following hierarchy:
•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 securities, 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The hierarchy classification of inputs used to value the Fund’s investments at October 31, 2020, is disclosed at the end of the Fund’s Schedule of Investments.
(e)Security Transactions, Investment Income and Return of Capital Estimates
Security transactions are accounted for on the trade date. Realized gains and losses on sales of investment securities are calculated using specific identification. Dividend income is recognized on the ex-dividend date. Expenses are recognized on the accrual basis. The Fund amortizes premiums and accretes discounts using the effective interest method.
The Fund invests in master limited partnerships (“MLPs”) which make distributions that are primarily attributable to return of capital. The Fund records investment income and return of capital in the Statement of Operations using management’s estimate of the percentage of income included in the distributions received from each MLP based on historical information from the MLPs and other industry sources. These estimates may be adjusted based on information received from the MLPs after the tax and fiscal year ends.
The return of capital portion of the MLP distributions is a reduction to investment income and a reduction in the cost basis of each investment which increases net realized gain (loss) and net change in unrealized appreciation (depreciation). If the return of capital distributions exceed its cost basis, the distributions are treated as realized gains. The actual amounts of income and return of capital are only determined by each MLP after its fiscal year-end and may differ from the estimated amounts.
(f)Expenses
The Fund pays all of its expenses not assumed by Infrastructure Capital Advisors, LLC (the “Sub-Adviser”) or Virtus ETF Advisers LLC (the “Adviser”). General Trust expenses that are allocated among and charged to the assets of the Fund and other series of the Trust are done so on a basis that the Board deems fair and equitable, which may be on a basis of relative net assets of the Fund and other series of the Trust or the nature of the services performed and relative applicability to the Fund and other series of the Trust.
(g)Short Sales
The Fund may sell securities short. A short sale is a transaction in which the Fund sells a security it does not own in anticipation of a decline in market price. To sell a security short, the Fund must borrow the security. The Fund’s obligation to replace the security borrowed and sold short will be fully collateralized at all times by the proceeds from the short sale retained by the broker and by cash and securities deposited in a segregated account with the Fund’s custodian. If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will realize a loss, and if the price declines during the period, the Fund will realize a gain. Any realized gain will be decreased, and any realized loss increased, by the amount of transaction costs. On the ex-dividend date, dividends on short sales are recorded as an expense to the Fund.
In accordance with the terms of its prime brokerage agreement, the Fund may receive rebate income or be charged a fee on borrowed securities which is reported as “Interest Expense” on the Statement of Operations. Such income or fee is calculated on a daily basis based upon the market value of each borrowed security and a variable rate that is dependent upon the availability of such security.
(h)Distributions to Shareholders
Distributions to shareholders are declared and paid on a monthly basis and are recorded on the ex-dividend date. The Fund uses a cash flow-based distribution approach based on the Fund’s net cash flow received from portfolio investments.
90
Notes to Financial Statements (continued)
October 31, 2020
The estimated character of the distributions paid will either be a dividend (ordinary income eligible to be treated as qualified dividend income) or a return of capital. Distributions made from current or accumulated earnings and profits of the Fund will be taxable to shareholders as dividend income. Distributions that are in an amount greater than the Fund’s current and accumulated earnings and profits will represent a return of capital to the extent of a shareholder’s basis in their common shares, and such distributions will correspondingly increase the realized gain upon the sale of their common shares. Additionally, distributions not paid from current or accumulated earnings and profits that exceed a shareholder’s tax basis in their common shares will generally be taxed as a capital gain. This estimate is based on the Fund’s operating results during the period.
3. INVESTMENT MANAGEMENT RELATED PARTIES AND OTHER AGREEMENTS
Investment Advisory Agreement
The Trust, on behalf of the Fund, has entered into an Investment Advisory Agreement (the “Advisory Agreement”) with the Virtus ETF Advisers, LLC (the “Adviser”), an indirect wholly owned subsidiary of Virtus Investment Partners, Inc. (Ticker: VRTS) (together with its affiliates, “Virtus”). Pursuant to the Advisory Agreement, the Adviser has overall supervisory responsibility for the general management and investment of the Fund’s securities portfolio. For its services to the Fund, the Adviser is entitled to receive a fee, payable monthly, at an annual rate of 0 .075% of the Fund’s average daily net assets, subject to a minimum annual fee of $25,000, paid by the Sub-Adviser as described below.
The Advisory Agreement may be terminated by the Trust on behalf of a Fund with the approval of a Fund’s Board or by a vote of the majority of a Fund’s shareholders. The Advisory Agreement may also be terminated by the Adviser by not more than 60 days’ nor less than 30 days’ written notice.
Sub-Advisory Agreement
Infrastructure Capital Advisors, LLC (the “Sub-Adviser”) provides investment advice and management services to the Fund. Pursuant to an investment sub-advisory agreement among the Trust, the Sub-Adviser and the Adviser, the Sub-Adviser is entitled to receive a fee, payable monthly, at an annual rate of 0 .95% of the Fund’s average daily net assets . The Sub-Adviser has agreed to pay all expenses of the Fund, except the Sub-Adviser’s fee, brokerage expenses, taxes, interest, litigation expenses, payments under any 12b-1 plan adopted by the Fund, and other non-routine or extraordinary expenses of the Fund.
Principal Underwriter
Pursuant to the terms of a Distribution Agreement with the Trust, VP Distributors, LLC (the “Distributor”) serves as the Fund’s principal underwriter. The Distributor receives compensation from the Adviser for the statutory underwriting services it provides to the Fund. The Distributor will not distribute shares in less than Creation Units (as hereinafter defined), and does not maintain a secondary market in shares. The shares are traded in the secondary market. The Distributor is an indirect wholly owned subsidiary of Virtus.
Operational Administrator
Virtus ETF Solutions LLC (the “Administrator”) serves as the Fund’s operational administrator. The Administrator supervises the overall administration of the Trust and the Fund including, among other responsibilities, the coordination and day-to-day oversight of the Fund’s operations, the service providers’ communications with the Fund and each other and assistance with Trust, Board and contractual matters related to the Fund. The Administrator also provides persons satisfactory to the Board to serve as officers of the Trust. The Administrator is an indirect wholly owned subsidiary of Virtus.
Accounting Services Administrator, Custodian and Transfer Agent
The Bank of New York Mellon (“BNY Mellon”) provides administrative, accounting, tax and financial reporting for the maintenance and operations of the Trust as the Fund’s accounting services administrator. BNY Mellon also serves as the custodian for the Fund’s assets, and serves as transfer agent and dividend paying agent for the Fund.
Affiliated Shareholders
At October 31, 2020, the Sub-Adviser held shares of the Fund which may be redeemed at any time that aggregated to the following:
Fund | | Shares | | % of shares |
InfraCap MLP ETF | | 108,313 | | 1.5% |
91
Notes to Financial Statements (continued)
October 31, 2020
4. CREATION AND REDEMPTION TRANSACTIONS
The Fund issues and redeems shares on a continuous basis at Net Asset Value (“NAV”) in groups of 50,000 shares called “Creation Units.” The Fund’s Creation Units may be issued and redeemed generally for cash or an in-kind deposit of securities held by the Fund. In each instance of cash creations or redemptions, the Trust may impose transaction fees based on transaction expenses related to the particular exchange that will be higher than the transaction fees associated with in-kind purchases or redemptions.
Only “Authorized Participants” who have entered into contractual arrangements with the Distributor may purchase or redeem shares directly from the Fund. 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 will not qualify as Authorized Participants or have the resources to buy and sell whole Creation Units. Therefore, they will be unable to purchase or redeem the shares directly from the Fund. Rather, most retail investors will purchase shares in the secondary market with the assistance of a broker and will be subject to customary brokerage commissions or fees.
5. FEDERAL INCOME TAX
The Fund is taxed as a regular C-corporation for federal income tax purposes and as such is obligated to pay federal and applicable state and foreign corporate taxes on its taxable income. Currently, the federal income tax rate for a corporation is 21 percent. This treatment differs from most investment companies, which elect to be treated as “regulated investment companies” under the Code in order to avoid paying entity level income taxes. Under current law, the Fund is not eligible to elect treatment as a regulated investment company due to its investments primarily in MLPs invested in energy assets. The Fund expects that substantially all of the distributions it receives from MLPs may be treated as a tax-deferred return of capital, thus reducing the Fund’s current tax liability. However, the amount of taxes paid by the Fund will vary depending on the amount of income and gains derived from investments and/or sales of MLP interests and such taxes will reduce your return from an investment in the Fund.
Cash distributions from MLPs to the Fund that exceed the Fund’s allocable share of such MLP’s net taxable income are considered a tax deferred return of capital that will reduce the Fund’s adjusted tax basis in the equity securities of the MLP. These reductions in the Fund’s adjusted tax basis in the MLP equity securities will increase the amount of any taxable gain (or decrease the amount of any tax loss) recognized by the Fund on a subsequent sale of the securities. The Fund will accrue deferred income taxes for any future tax liability associated with (i) that portion of MLP distributions considered to be a tax-deferred return of capital as well as (ii) capital appreciation of its investments. Upon the sale of an MLP security, the Fund may be liable for previously deferred taxes. The Fund will rely to some extent on information provided by the MLPs, which is not necessarily timely, to estimate the deferred tax liability for purposes of financial statement reporting and determining the Fund’s NAV. From time to time, the Adviser will modify the estimates or assumptions related to the Fund’s deferred tax liability as new information becomes available. The Fund will generally compute deferred income taxes based on the federal income tax rate applicable to corporations and an assumed rate attributable to state taxes.
The Fund’s income tax expense/(benefit) consists of the following:
As of October 31, 2020 | | Current | | Deferred | | Total | |
Federal | | $137,602 | | $— | | $137,602 | |
State | | 61,456 | | — | | 61,456 | |
Valuation Allowance | | — | | — | | — | |
Total Tax Expense/(Benefit) | | $199,058 | | $— | | $199,058 | |
Components of the Fund’s deferred tax assets and liabilities are as follows:
| | As of | |
Deferred Tax Assets: | | | |
Capital Loss Carryforward | | $61,097,412 | |
Net Unrealized Loss on Investment | | 16,169,572 | |
Other | | 297,906 | |
Total Deferred Tax Assets | | 77,564,890 | |
Less Valuation Allowance | | (77,564,890 | ) |
Net Deferred Tax Assets | | $— | |
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Notes to Financial Statements (continued)
October 31, 2020
The Fund reviews the recoverability of its deferred tax assets based upon the weight of available evidence. When assessing the recoverability of its deferred tax assets, significant weight was given to the effects of potential future realized and unrealized gains on investments and the period over which these deferred tax assets can be realized. Currently, any capital losses that may be generated by the Fund in the future are eligible to be carried back up to three years and can be carried forward for five years to offset capital gains recognized by the Fund in those years. The Fund has a current capital loss carryforward of $266,894,165 of which $885,715 expires in 2021, $264,862 of which expires in 2023, $98,711,551 expires in 2024 and $167,032,037 expires in 2025. The Fund has a current net operating loss carryforward of $0 after expected utilization of $11,752,078 in the current period. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Stability Act (CARES Act) was signed into law. Prior to signing into law, net operating losses for tax years beginning after December 31, 2017 carryforward ability was governed by the Tax Cuts and Jobs Act (TCJA). The TCJA established a limitation for any net operating losses generated in tax years beginning after December 31, 2017 to the lesser of the aggregate of available net operating losses or 80% of taxable income before any net operating loss utilization. The CARES Act delays the application of the 80% net operating loss limitation to tax years ending October 31, 2022 and beyond. In addition, the CARES Act revised the TCJA language regarding carryforward periods from “NOLs arising in taxable years ending after December 31, 2017” to “NOLs arising in taxable year beginning after December 31, 2017.” Any net operating losses generated in fiscal years ending prior to December 31, 2018 can be carried back 2 years and carried forward 20 years.
Based upon the Fund’s assessment, it has determined that it is “more-likely-than-not” that a portion of its deferred tax assets will not be realized through future taxable income of the appropriate character. Accordingly, a valuation allowance has been established for the Fund’s deferred tax assets. The Fund will continue to assess the need for a valuation allowance in the future. Significant changes in the fair value of its portfolio of investments may change the Fund’s assessment of the recoverability of these assets and may result in an adjustment of the valuation allowance against all or a portion of the Fund’s gross deferred tax assets.
Total income tax (benefit)/expense (current and deferred) differs from the amount computed by applying the federal statutory income tax rate of 21% to net investment and realized and unrealized gain/(losses) on investment before taxes as follows for the Fund:
| | Amount | | Rate | |
Income Tax (Benefit) at Statutory Rate | | $(38,225,771 | ) | 21.00 | % |
State Income Taxes (Net of Federal Benefit) | | (3,443,960 | ) | 1.89 | |
Permanent Differences, Net | | (23,102 | ) | 0.01 | |
Effect of State Tax Rate Change | | (46,318 | ) | 0.03 | |
Provision to Return Adjustment and Other | | (358,561 | ) | 0.20 | |
Valuation Allowance | | 42,296,770 | | (23.24 | ) |
Net Income Tax Expense/(Benefit) | | $199,058 | | (0.11 | )% |
The Fund recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. For the period from inception to October 31, 2020, the Fund does not have any accrued penalties or interest.
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. Management has analyzed the Fund’s tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on U.S. tax returns and state tax returns filed since inception of the Fund. Currently, the tax years October 31, 2017 and October 31, 2018 are under examination with the Internal Revenue Service. The Fund’s tax years, October 31, 2017, October 31, 2018 and October 31, 2019, remain subject to examination by tax authorities in the United States. Due to the nature of the Fund’s investments, the Fund may be required to file income tax returns in several states. 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 12 months.
The adjusted cost basis of investments and gross unrealized appreciation and depreciation of investments, excluding written options and securities sold short, for federal income tax purposes were as follows:
Fund | | Federal Tax | | Gross | | Gross | | Net | |
InfraCap MLP ETF | | $197,533,376 | | $344,264 | | $(70,976,352 | ) | $(70,632,088 | ) |
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Notes to Financial Statements (continued)
October 31, 2020
The tax character of dividends and distributions paid during the fiscal years ended October 31, 2020 and October 31, 2019 were as follows:
| | 2020 | | 2019 |
Fund | | Return of | | Return of |
InfraCap MLP ETF | | $32,539,202 | | $81,518,004 |
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term investments), subscriptions in-kind and redemptions in-kind for the year ended October 31, 2020 were as follows:
Fund | | Purchases | | Sales | | Subscriptions | | Redemptions |
InfraCap MLP ETF | | $217,065,643 | | $343,731,836 | | $27,437,784 | | $— |
7. DERIVATIVE FINANCIAL INSTRUMENTS
Options
The Fund may write covered call and put options on portfolio securities and other financial instruments. Premiums received are recorded as liabilities. The liabilities are subsequently adjusted to reflect the current value of the options written. Premiums received from writing options that expire are treated as realized gains. Premiums received from writing options that are exercised or are closed are added to or offset against the proceeds or amount paid on the transactions to determine the net realized gain or loss. By writing a covered call option, the Fund, in exchange for the premium, foregoes the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase. By writing a put option, the Fund, in exchange for the premium, accepts the risk of having to purchase a security at an exercise price that is above the current price. Changes in value of written options are reported as change in unrealized gain (loss) on written options in the Statement of Operations. When the written option expires, is terminated or is sold, the Fund will record a gain or loss, which is reported as realized gain (loss) on written options in the Statement of Operations. Written covered call options limit the upside potential of a security above the strike price. Written put options subject the Fund to risk of loss if the value of the security declines below the exercise price minus the put premium.
The Fund may purchase call and put options on the portfolio securities or other financial instruments. The Fund may purchase call options to protect against an increase in the price of the security or financial instrument it anticipates purchasing. The Fund may purchase put options on securities which it holds or other financial instruments to protect against a decline in the value of the security or financial instrument or to close out covered written positions. Changes in value of purchased options are reported as part of change in unrealized gain (loss) on investments in the Statement of Operations. When the purchased option expires, is terminated or is sold, the Fund will record a gain or loss, which is reported as part of realized gain (loss) on investments in the Statement of Operations. Risks may arise from an imperfect correlation between the change in market value of the securities held by the Fund and the prices of options relating to the securities purchased or sold by the Fund and from the possible lack of liquid secondary market for an option. The maximum exposure to loss for any purchased option is limited to the premium initially paid for the option.
Transactions in derivative instruments reflected on the Statement of Assets and Liabilities at October 31, 2020 are as follows:
Liabilities | | Equity Risk | |
Written options, at value | | $(5,450 | ) |
Transactions in derivative instruments reflected on the Statement of Operations during the year ended October 31, 2020 were as follows:
Net Realized Gain (Loss) on: | | Equity Risk | |
Investments* | | $(2,451,985) | |
Written options | | 2,657,406 | |
*Purchased option contracts are included in Net Realized Gain (Loss) on Investments within the Statement of Operations.
Change in Net Unrealized Appreciation (Depreciation) on: | | Equity Risk | |
Investments** | | $379,468 | |
Written options | | (242,575 | ) |
**Purchased option contracts are included in Change in Net Unrealized Appreciation (Depreciation) on Investments in the Statement of Operations.
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Notes to Financial Statements (continued)
October 31, 2020
For the year ended October 31, 2020, the monthly average market value of the purchased options and written options contracts held by the Fund were $216,423 and $(313,420), respectively.
8. BORROWINGS
The Fund entered into Lending Agreements (the “Agreements”) with commercial banks (the “Banks”) that allows the Fund to borrow cash from the Banks. Borrowings under the Agreements are collateralized by investments of the Fund. If the Fund defaults with respect to any of its obligations under the Agreements, the Banks may foreclose on assets of the Fund and/or the Fund may be required to repay immediately, in part or in full, the loan balance outstanding under the Agreements, necessitating the sale of securities at potentially inopportune times. Interest is charged at the 3 Month LIBOR (London Interbank Offered Rate) plus an additional percentage rate on the amount borrowed. The Agreements have an on-demand commitment term. For the year ended October 31, 2020, the average daily borrowings under the Agreements and the weighted average interest rate were $61,975,825 and 2.43%, respectively.
9. INVESTMENT RISKS
As with any investment, an investment in the Fund could result in a loss or the performance of the Fund could be inferior to that of other investments. An investor should consider the Fund’s investment objectives, risks, and charges and expenses carefully before investing. The Fund’s prospectus and statement of additional information contain this and other important information.
MLP Risk
Investments in securities of MLPs involve risks that differ from investments in common stock including risks related to limited control and limited rights to vote on matters affecting the MLP, risks related to potential conflicts of interest between the MLP and the MLP’s general partner and cash flow risks. MLP common units and other equity securities can be affected by macro-economic and other factors affecting the stock market in general, expectations of interest rates, investor sentiment towards MLPs or the energy sector, changes in a particular issuer’s financial condition or unfavorable or unanticipated poor performance of a particular issuer (in the case of MLPs, generally measured in terms of distributable cash flow). Prices of common units of individual MLPs and other equity securities also can be affected by fundamentals unique to the partnership or company, including earnings power and coverage ratios.
Market Risk
Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issue, recessions, or other events could have a significant impact on the Fund and its investments, including hampering the ability of the Fund’s portfolio manager(s) to invest the Fund’s assets as intended.
10. LIBOR REPLACEMENT RISK
The loans in which the Fund invests typically have floating or adjustable interest rates, which are tied to a benchmark lending rate, such as the London Interbank Offered Rate (“LIBOR”) or the prime rate, or are set to a specified floor, whichever is higher.On July 27, 2017, the head of the United Kingdom’s Financial Conduct Authority announced a desire to phase out the use of LIBOR by the end of 2021.There remains uncertainty regarding the future utilization of LIBOR and the nature of any replacement rate. As a result, any impact of a transition away from LIBOR on the Funds or the instruments in which the Fund invests cannot yet be determined. Industry initiatives are underway to identify alternative reference rates, such as the Secured Overnight Funding Rate (“SOFR”), which the Federal Reserve Bank of New York began publishing in April 2018; however, there is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same value or economic equivalence as LIBOR or that instruments using an alternative rate will have the same volume or liquidity. As a result, the transition process might lead to increased volatility and reduced liquidity in markets that currently rely on LIBOR to determine interest rates; a reduction in the value of some LIBOR-based investments; and/or costs incurred in connection with closing out positions and entering into new agreements. These effects could occur prior to the end of 2021 as the utility of LIBOR as a reference rate could deteriorate during the transition period.
11. CORONAVIRUS (COVID-19) PANDEMIC
The recent global outbreak of COVID-19 has disrupted economic markets, and the economic impact, duration and spread of the COVID-19 virus is uncertain at this time. The operational and financial performance of the issuers of securities in which the Fund invests may be significantly impacted by COVID-19, which may in turn impact the value of the Fund’s investments.
12. 10% SHAREHOLDERS
As of October 31, 2020, the Fund had individual shareholder account(s) and/or omnibus shareholder account(s) (comprised of a group of individual shareholders), which individually amounted to more than 10% of the total shares outstanding of the Fund as detailed below:
Fund | | % of Shares | | Number of |
InfraCap MLP ETF | | 56% | | 3 |
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Notes to Financial Statements (continued)
October 31, 2020
13. RECENT ACCOUNTING PRONOUNCEMENTS
In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update No.2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in ASU 2020-04 provides optional temporary financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the LIBOR and other interbank-offered based reference rates as of the end of 2021. ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management is currently evaluating the impact, if any, of applying ASU 2020-04.
14. SUBSEQUENT EVENTS
Management has evaluated subsequent events through the issuance of these financial statements and has determined that there are no material events that would require disclosure.
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To the Board of Trustees of ETFis Series Trust I and Shareholders of InfraCap REIT Preferred ETF, Virtus InfraCap U.S. Preferred Stock ETF, Virtus LifeSci Biotech Clinical Trials ETF, Virtus LifeSci Biotech Products ETF, Virtus Newfleet Multi-Sector Bond ETF, Virtus Private Credit Strategy ETF, Virtus Real Asset Income ETF and Virtus WMC International Dividend ETF
Opinions on the Financial Statements
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of each of the funds indicated in the table below (eight of the funds constituting ETFis Series Trust I, hereafter collectively referred to as the “Funds”) as of October 31, 2020, the related statements of operations, the statement of cash flows for Virtus InfraCap U.S. Preferred Stock ETF, the statements of changes in net assets, including the related notes, and the financial highlights for each of the periods indicated in the table below (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds as of October 31, 2020, the results of each of their operations, the cash flows for Virtus InfraCap U.S. Preferred Stock ETF, the changes in each of their net assets, and each of the financial highlights for each of the periods indicated in the table below, in conformity with accounting principles generally accepted in the United States of America.
The financial statements of Virtus LifeSci Biotech Clinical Trials ETF, Virtus LifeSci Biotech Products ETF and Virtus Newfleet Multi-Sector Bond ETF as of and for the year ended October 31, 2016 and the financial highlights for each of the periods ended on or prior to October 31, 2016 (not presented herein, other than the financial highlights) were audited by other auditors whose report dated December 29, 2016 expressed an unqualified opinion on those financial statements and financial highlights.
97
Report of Independent Registered Public Accounting Firm (continued)
Basis for Opinions
These financial statements are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ 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 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 of these financial statements 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 are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, 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. 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. Our procedures included confirmation of securities owned as of October 31, 2020 by correspondence with the custodian, transfer agent, agent banks and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinions.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 22, 2020
We have served as the auditor of one or more investment companies in Virtus ETF Solutions since 2017.
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Report of Independent Registered Public Accounting Firm (continued)
To the Board of Trustees of ETFis Series Trust I and Shareholders of InfraCap MLP ETF
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of InfraCap MLP ETF (one of the funds constituting ETFis Series Trust I, hereafter referred to as the “Fund”) as of October 31, 2020, the related statements of operations and cash flows for the year ended October 31, 2020, the statement of changes in net assets for each of the two years in the period ended October 31, 2020, including the related notes, and the financial highlights for each of the four years in the period ended October 31, 2020 (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 October 31, 2020, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period ended October 31, 2020 and the financial highlights for each of the four years in the period ended October 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
The financial statements of the Fund as of and for the year ended October 31, 2016 and the financial highlights for each of the periods ended on or prior to October 31, 2016 (not presented herein, other than the financial highlights) were audited by other auditors whose report dated December 29, 2016 expressed an unqualified opinion on those financial statements and financial highlights.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s 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 of these financial statements 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 are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, 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. 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. Our procedures included confirmation of securities owned as of October 31, 2020 by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 22, 2020
We have served as the auditor of one or more investment companies in Virtus ETF Solutions since 2017.
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Pursuant to Rule 22e-4 under the 1940 Act, the Funds have adopted a liquidity risk management program (the “Program”) to govern the Funds’ approach to managing liquidity risk, which is the risk that a Fund would not be able to meet redemption requests without significant dilution of remaining investors’ interests in the Fund. The Program is overseen by the Adviser as the Funds’ Liquidity Risk Management Program Administrator (the “Program Administrator”), and the Program’s principal objectives include assessing, managing and periodically reviewing each Fund’s liquidity risk, based on factors specific to the circumstances of the Funds.
Assessment and management of a Fund’s liquidity risk under the Program take into consideration certain factors, such as the Fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short-and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for classification of Fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and limiting holdings of illiquid investments.
At a meeting of the Board held on May 27, 2020, the Board received a report from the Program Administrator addressing the operation and management of the Program for the period from December 1, 2018 through December 31, 2019 (the “Review Period”). The Board acknowledged that because the Review Period ended before 2020, it did not cover the more recent period of market volatility relating to the COVID-19 pandemic. The Program Administrator’s report noted that for the Review Period, the Program Administrator believed that the Program was implemented and operated effectively in all material respects and that existing procedures, controls and safeguards were appropriately designed to enable the Program Administrator to administer the Program in compliance with Rule 22e-4. The Program Administrator’s report noted that during the Review Period, there were no events that created liquidity related concerns for the Funds. The Program Administrator’s report further noted that while changes to the Program had been made during the Review Period and reported to the Board, no material changes were made to the Program as a result of the Program Administrator’s annual review.
There can be no assurance that the Program will achieve its objectives in the future. Please refer to a Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other principal risks to which an investment in that Fund may be subject.
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TRUSTEES AND OFFICERS OF THE TRUST
The Trustees of the Trust, their addresses, positions with the Trust, years of birth, length of time served, principal occupations during the past five years, the number of portfolios in the Fund Complex overseen by each Trustee and other directorships, if any, held by the Trustees are set forth below. The SAI includes additional information about the Fund’s Trustees and is available, without charge, upon request, by calling the Adviser (toll-free) at (888)-383-4184.
Name and | | | Position(s) | | | Length of | | | Principal Occupation(s) | | | Number of | | | Other |
INDEPENDENT TRUSTEES | |||||||||||||||
Myles J. Edwards Year of Birth: 1961 | | | Trustee | | | Since 2016 | | | General Counsel and CCO (since 2019), Bruderman Brothers, LLC and Bruderman Asset Management, LLC; CCO (since 2018), Netrex Capital Markets, LLC; Chief Executive Officer (since 2018), Final Compliance; Chief Compliance Officer (since 2018), Knight Vinke; General Counsel, CCO and COO (2014 to 2018), Shufro, Rose & Co., LLC. | | | 12 | | | Trustee (since 2015), Virtus ETF Trust II (2 portfolios) |
Stephen G. O’Grady Year of Birth: 1946 | | | Trustee | | | Since 2014 | | | None. | | | 12 | | | Trustee (since 2015), Virtus ETF Trust II (2 portfolios); Trustee (2013 to 2015), Greenhaven LLC; Trustee (since 2014), Acacia Group LLC; Trustee (since 2014), ETFS Trust (5 portfolios) |
James A. Simpson Year of Birth: 1970 | | | Trustee | | | Since Inception | | | President (since 2009), ETP Resources, LLC (a financial services consulting company). | | | 12 | | | Trustee (since 2018), Asset Management Fund (5 portfolios); Trustee (since 2015), Virtus ETF Trust II (2 portfolios) |
Robert S. Tull, Jr. Year of Birth: 1952 | | | Trustee | | | Since Inception | | | Independent Consultant (since 2013); President (since 2017), ProcureAM, LLC. | | | 12 | | | Trustee (since 2015), Virtus ETF Trust II (2 portfolios); Trustee (since 2018), Procure ETF Trust II (1 portfolio) |
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Trustees and Officers of the Trust (unaudited) (continued)
Name and | | | Position(s) | | | Length of | | | Principal Occupation(s) | | | Number of | | | Other |
INTERESTED TRUSTEE** | |||||||||||||||
William J. Smalley | | | Trustee, President and Chief Executive Officer | | | Since Inception | | | President (since 2012), Virtus ETF Solutions LLC; Managing Principal (2012 to 2016) and Executive Vice President (2016 to 2019), ETF Distributors LLC; Managing Director (since 2013), Virtus ETF Advisers LLC; President and Chief Executive Officer (since 2013), ETFis Series Trust I; and President and Chief Executive Officer (since 2015), Virtus ETF Trust II. | | | 10 | | | None |
OTHER EXECUTIVE OFFICERS | |||||||||||||||
Kevin J. Carr | | | Secretary | | | Since 2015 | | | Vice President and Senior Counsel (since 2017); Senior Vice President (2009 to 2017), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; various senior officer positions (since 2005) with Virtus affiliates; Senior Vice President (since 2013), Chief Legal Officer, Counsel and Secretary (since 2005), Virtus Mutual Fund Family; Assistant Secretary (since 2017), Virtus Total Return Fund Inc.; Assistant Secretary (2017 to 2019), the former Virtus Total Return Fund Inc.; Senior Vice President (since 2017), Assistant Secretary (since 2013), Virtus Variable Insurance Trust; Assistant Secretary (since 2011), Virtus Global Multi-Sector Income Fund; Assistant Secretary (since 2015), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Senior Vice President (since 2017), Assistant Secretary (since 2013), Virtus Alternative Solutions Trust; and Secretary (since 2015), ETFis Series Trust I and Virtus ETF Trust II. | | | N/A | | | N/A |
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Trustees and Officers of the Trust (unaudited) (continued)
Name and | | | Position(s) | | | Length of Time Served | | | Principal Occupation(s) | | | Number of | | | Other |
Nancy J. Engberg | | | Chief Compliance Officer | | | Since 2015 | | | Senior Vice President (since 2017); Vice President (2008 to 2017) and Chief Compliance Officer (since 2016), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; various officer positions (since 2003) with Virtus affiliates; Senior Vice President (since 2017), Vice President (2011 to 2017) and Chief Compliance Officer (since 2011), Virtus Mutual Fund Family; Senior Vice President (since 2017), Vice President (2010 to 2017) and Chief Compliance Officer (since 2011), Virtus Variable Insurance Trust; Senior Vice President (since 2017), Vice President (2011 to 2017) and Chief Compliance Officer (since 2011), Virtus Global Multi-Sector Income Fund; Senior Vice President (since 2017), Vice President (2012 to 2017) and Chief Compliance Officer (since 2012), Virtus Total Return Fund Inc.; Senior Vice President (2017 to 2019), Vice President (2012 to 2017) and Chief Compliance Officer (2012 to 2019), the former Virtus Total Return Fund Inc.; Senior Vice President (since 2017), Vice President (2013 to 2017) and Chief Compliance Officer (since 2013), Virtus Alternative Solutions Trust; Senior Vice President (since 2017), Vice President (2014 to 2017) and Chief Compliance Officer (since 2014), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Chief Compliance Officer (since 2015), ETFis Series Trust I and Virtus ETF Trust II. | | | N/A | | | N/A |
Brinton W. Frith Year of Birth: 1969 | | | Treasurer and Chief Financial Officer | | | Since Inception | | | President (since 2013), Virtus ETF Advisers LLC; Managing Director (since 2013), Virtus ETF Solutions LLC; Treasurer and Chief Financial Officer (since 2013), ETFis Series Trust I; and Treasurer and Chief Financial Officer (since 2015), Virtus ETF Trust II. | | | N/A | | | N/A |
The address for each Trustee and officer is 1540 Broadway, 16th Floor, New York, NY 10036. Each Trustee serves until resignation, death, retirement or removal. Officers are elected yearly by the Trustees.
*As of October 31, 2020, the Fund Complex consisted of the Trust, which consisted of ten portfolios — InfraCap MLP ETF, InfraCap REIT Preferred ETF, Virtus InfraCap U.S. Preferred Stock ETF, Virtus LifeSci Biotech Clinical Trials ETF, Virtus LifeSci Biotech Products ETF, Virtus Newfleet Multi-Sector Bond ETF, Virtus Private Credit Strategy ETF, Virtus Real Asset Income ETF, Virtus Reaves Utilities ETF and Virtus WMC International Dividend ETF (formerly, Virtus WMC Global Factor Opportunities ETF) and Virtus ETF Trust II, which consisted of two portfolios — Virtus Newfleet Dynamic Credit ETF and Virtus Seix Senior Loan ETF.
**Mr. Smalley is an Interested Trustee because he is an employee of the Adviser.
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INFORMATION ABOUT PORTFOLIO HOLDINGS
The Funds file their complete schedule of portfolio holdings for their first and third fiscal quarters with the Securities and Exchange Commission (“SEC”) on Form N-PORT. The Funds’ Form N-PORT are available without charge, upon request, by calling toll-free at (888) 383-0553. Furthermore, you may obtain the Form N-PORT on the SEC’s website at www.sec.gov. The Funds’ portfolio holdings are posted daily on the Funds’ website at www.virtusetfs.com.
The Funds’ premium/discount information for the most recently completed calendar year, and the most recently completed calendar quarters since that year is available by visiting www.virtusetfs.com or by calling (888) 383-4184.
INFORMATION ABOUT PROXY VOTING
A description of the policies and procedures the Funds use to determine how to vote proxies relating to portfolio securities is provided in the Statement of Additional Information (“SAI”). The SAI is available without charge upon request by calling toll-free at (888) 383- 0553, by accessing the SEC’s website at www.sec.gov, or by accessing the Funds’ website at www.virtusetfs.com.
Information regarding how the Funds voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30th is available by calling toll-free at (888) 383-0553 or by accessing the SEC’s website at www.sec.gov .
TAX INFORMATION
For the fiscal year ended October 31, 2020, the Funds make the following disclosures for federal income tax purposes. Below is listed the percentages, or the maximum amount allowable, of its ordinary income dividends (“QDI”) to qualify for the lower tax rates applicable to individual shareholders, and the percentage of ordinary income dividends earned by each Fund which qualifies for the dividends received deduction (“DRD”) for corporate shareholders. The actual percentage of QDI and DRD for the calendar year will be designated in year-end tax statements.
Funds | | QDI | | DRD | |
InfraCap REIT Preferred ETF | | 5.03% | | 3.08% | |
Virtus InfraCap U.S. Preferred Stock ETF | | 55.95% | | 44.97% | |
Virtus LifeSci Biotech Clinical Trials ETF | | 0.00% | | 0.00% | |
Virtus LifeSci Biotech Products ETF | | 0.00% | | 0.00% | |
Virtus Newfleet Multi-Sector Bond ETF | | 0.00% | | 0.00% | |
Virtus Private Credit Strategy ETF | | 1.86% | | 0.55% | |
Virtus Real Asset Income ETF | | 56.11% | | 27.98% | |
Virtus WMC International Dividend ETF | | 74.76% | | 28.67% | |
c/o VP Distributors, LLC
One Financial Plaza
Hartford, Connecticut 06103
8572(12/20)
Item 2. Code of Ethics.
As of the end of the period covered by this report, the registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. Other than certain non-substantive changes, there have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics described in Item 2(b) of the instructions for completion of Form N-CSR. Pursuant to Item 13(a)(1), a copy of registrant’s amended code of ethics has been filed with the Commission. During the period covered by this report, the registrant has not granted any waivers, including implicit waivers, from the provisions of the code of ethics.
Item 3. Audit Committee Financial Expert.
The registrant's board of trustees has determined that the registrant does not have an audit committee financial expert serving on its audit committee. At this time, the registrant's board of trustees believes that the collective experience provided by the members of the audit committee together offer the registrant adequate oversight for the registrant's level of financial complexity.
Item 4. Principal Accountant Fees and Services.
Audit Fees | ||
(a) | The aggregate fees billed for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements were $183,800 and $204,863 respectively, for the registrant’s fiscal years ended October 31, 2019 and October 31, 2020. |
Audit-Related Fees | ||
(b) | No fees were billed in the registrant’s fiscal years ended October 31, 2019 and October 31, 2020 for assurance and related services rendered by the principal accountant to the registrant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item. | |
The aggregate fees billed for assurance and related services rendered by the principal accountant to the registered investment company’s investment adviser (not including a sub-adviser whose role is primarily portfolio management and is sub-contracted or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registered investment company, that are reasonably related to the performance of the audit of the registrant’s financial statements were $36,500 and $29,500, respectively, for the registrant’s fiscal years ended October 31, 2019 and October 31, 2020. |
Tax Fees | ||
(c) | The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant to the registrant for tax compliance, tax advice, and tax planning were $148,750 for 2019 and $198,300 for 2020. | |
The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the registered investment company’s investment adviser (not including a sub-adviser whose role is primarily portfolio management and is sub-contracted or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registered investment company were $600,175 for 2019 and $267,065 for 2020. | ||
“Tax Fees” are those primarily associated with review of the Trust’s tax provision and qualification as a regulated investment company (RIC) in connection with audits of the Trust’s financial statements, review of year-end distributions by the Funds to avoid excise tax for the Trust, periodic discussion with management on tax issues affecting the Trust, and reviewing and signing the Funds’ federal income tax returns. | ||
All Other Fees | ||
(d) | The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant to the registrant, other than the services reported in paragraphs (a) through (c) of this Item were $15,435 for 2019 and $16,511 for 2020. | |
The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant to the registered investment company’s investment adviser (not including a sub-adviser whose role is primarily portfolio management and is sub-contracted or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registered investment company, other than the services reported in paragraphs (a) through (c) of this Item were $103,294 for 2019 and $100,180 for 2020. | ||
(e)(1) | The audit committee has not adopted pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. | |
(e)(2) | None of the services described in paragraphs (b) through (d) of this Item were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. |
(f) | Less than 50% of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees. | |
(g) | During the fiscal years ended October 31, 2019 and October 31, 2020, aggregate non-audit fees of $867,654 and $582,056, respectively, were billed by the registrant’s accountant for services rendered to the registrant and the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant. | |
(h) | Not applicable. |
Item 5. Audit Committee of Listed Registrants.
(a) | The registrant has a separately designated audit committee consisting of all the independent trustees of the registrant. The members of the audit committee are: Stephen G. O’Grady, James A. Simpson, Robert S. Tull, Jr. and Myles J. Edwards. |
(b) | Not applicable. |
Item 6. Investments.
(a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this Form. |
(b) | Not applicable. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
None.
Item 11. Controls and Procedures.
(a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b). |
(b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
(a)(1) | Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. |
(a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
(a)(3)
Not applicable.
(a)(4)
Not applicable.
(b) | Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
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) | ETFis Series Trust I |
By (Signature and Title)* | /s/ William J. Smalley |
William J. Smalley, President and Principal Executive Officer | |
(Principal Executive Officer) |
Date | 1/8/2021 |
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/ William J. Smalley |
William J. Smalley, President and Principal Executive Officer | |
(Principal Executive Officer) |
Date | 1/8/2021 |
By (Signature and Title)* | /s/ Brinton W. Frith |
Brinton W. Frith, Treasurer and Principal Financial Officer/Principal Accounting Officer | |
(Principal Financial Officer/Principal Accounting Officer) |
Date | 1/8/2021 |
* Print the name and title of each signing officer under his or her signature.