NOTES TO FINANCIAL STATEMENTS
March 31, 2020 (Unaudited) (Continued)
NOTE 12 – SUBSEQUENT EVENTS
In preparing these financial statements, the Funds have evaluated events and transactions for potential
recognition or disclosure through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments to the Financial statements, other than those disclosed in
Note 11 above.
ETFMG™ ETFs
APPROVAL OF ADVISORY AGREEMENTS AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2020 (Unaudited)
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on
March 24, 2020, the Board of Trustees (the “Board”) of ETF Managers Trust (the “Trust”) considered the renewal of the Amended and Restated Investment Advisory Agreement (the “Advisory Agreement”) between ETF Managers Group LLC (the “Adviser”) and
the Trust, on behalf of each of ETFMG Prime Junior Silver Miners ETF (“SILJ”), ETFMG Prime Cyber Security ETF (“HACK”) and ETFMG Prime Mobile Payments ETF (“IPAY”) (each a “Fund” and collectively, the “Funds”).
Pursuant to Section 15(c) of the 1940 Act, the Board must annually review and approve the Advisory
Agreement after its initial two-year term: (i) by the vote of the Trustees or by a vote of the shareholders of the Fund; and (ii) by the vote of a majority of the Trustees who are not parties to the Advisory Agreement or “interested persons” of
any party thereto, as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. Each year, the Board calls and holds a meeting to decide whether to renew the Advisory
Agreement for an additional one-year term. In preparation for such meeting, the Board requests and reviews a wide variety of information from the Adviser.
In reaching its decision, the Board, including the Independent Trustees, considered all factors it
believed relevant, including: (i) the nature, extent and quality of the services provided to the Funds’ shareholders by the Adviser; (ii) the investment performance of the Funds; (iii) the Adviser’s costs and profits realized in providing
services to the Funds, including any fall-out benefits enjoyed by the Adviser; (iv) comparative fee and expense data for the Funds in relation to other similar investment companies; (v) the extent to which economies of scale would be realized as
the Funds grow and whether the advisory fees for the Funds reflect these economies of scale for the benefit of the Funds; and (vi) other financial benefits to the Adviser and its affiliates resulting from services rendered to the Funds. The
Board’s review included written and oral information furnished to the Board prior to and at the meeting held on March 24, 2020, and throughout the year. Among other things, the Adviser provided responses to a detailed series of questions, which
included information about the Adviser’s operations, service offerings, personnel, compliance program and financial condition. The Board then discussed the written and oral information that it received before the meeting and throughout the year,
and the Adviser’s oral presentations and any other information that the Board received at the meeting, and deliberated on the renewal of the Advisory Agreement in light of this information.
The Independent Trustees were assisted throughout the contract review process by independent legal
counsel. The Independent Trustees relied upon the advice of such counsel and their own business judgment in determining the material factors to be considered in evaluating the renewal of the Advisory Agreement, and the weight to be given to each
such factor. The conclusions reached with respect to the Advisory Agreement were based on a comprehensive evaluation of all the information provided and not any single factor. Moreover, each Trustee may have placed varying emphasis on particular
factors in reaching conclusions with respect to each Fund. The Independent Trustees conferred amongst themselves and independent legal counsel during a telephonic contract renewal meeting held prior to the March 24, 2020 meeting and also
conferred in executive sessions both with and without representatives of management before and during the March 24th meeting. The Independent Trustees requested, received and considered additional information arising out of these executive
sessions.
Nature, Extent and Quality of Services Provided by the Adviser
The Trustees considered the scope of services provided under the Advisory Agreement, noting that the
Adviser provides investment management services to the Funds. The Board discussed the responsibilities of the Adviser, including: responsibility for the general management of the day-to-day investment and reinvestment of the assets of the Funds;
determining the daily baskets of deposit securities and cash components; executing portfolio security trades for purchases and redemptions of Fund shares conducted on a cash-in-lieu basis; responsibility for daily monitoring of tracking error and
quarterly reporting to the Board; and implementation of Board directives as they relate to the Funds. In considering the nature, extent and quality of the services provided by the Adviser, the Board considered the qualifications, experience and
responsibilities of the Adviser’s investment personnel and the quality of the Adviser’s compliance infrastructure. The Board also considered the Adviser’s experience managing exchange-traded funds (“ETFs”), as well as the Adviser’s response to
the market volatility and uncertainty during the recent pandemic.
ETFMG™ ETFs
APPROVAL OF ADVISORY AGREEMENTS AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2020 (Unaudited) (Continued)
The Board also considered other services provided to the Funds, such as overseeing the Funds’ service
providers, monitoring adherence to the Funds’ investment restrictions, and monitoring compliance with various policies and procedures and with applicable securities laws.
Based on the factors above, as well as those discussed below, the Board concluded that it was satisfied
with the nature, extent and quality of the services provided to the Funds by the Adviser.
Historical Performance
The Board then considered the past performance of the Funds. The Board reviewed information regarding
each Fund’s performance with the performance of a group of peer funds and with the performance of the Fund’s underlying index for various time periods. The Board noted management’s explanation that analysis of investment performance, in absolute
terms, is less relevant for the Funds than it is for actively managed funds, given the Funds’ index-based investment objectives. The Board also noted management’s further explanation that it is more relevant to review the performance of the Funds
by focusing on the extent to which each Fund tracked its underlying index. The Board reviewed information regarding each Fund’s index tracking, discussing, as applicable, factors which contributed to each Fund’s tracking error. The Board noted
that the Funds had underperformed their underlying indexes over certain periods, but that such underperformance was, at least in part, a result of costs incurred by the Funds not incurred by their underlying indexes. The Board considered other
factors that contributed to the Funds’ tracking error, including cash drag and the process of rebalancing the Funds’ portfolios. The Board noted management’s representations that the Funds’ performance satisfactorily tracked their underlying
indexes. The Board concluded that, after taking these factors into account, each of the Funds satisfactorily tracked its underlying index. The Board further noted that it had received and would continue to receive regular reports regarding each
Fund’s performance, including with respect to its tracking error, at its quarterly meetings.
Cost of Services Provided, Profits and Economies of Scale
The Board reviewed the advisory fees for the Funds and compared them to the total operating expenses of
comparable ETFs, as determined by an independent third party. Among other information, the Board noted that the advisory fee for each of the Funds was higher than the average and median expense ratios for its peer ETFs. The Board took into
consideration management’s discussion of the fees, including that the Funds have niche investment strategies that are substantially different than the strategies of many of the peer ETFs.
The Board noted the importance of the fact that the advisory fee for each Fund is a “unified fee,”
meaning that the shareholders of the Funds pay no expenses other than the advisory fee and certain other costs such as interest charges on any borrowings, taxes, brokerage commissions and other expenses incurred in placing orders for the purchase
and sale of securities and other investment instruments, acquired fund fees and expenses, accrued deferred tax liability, extraordinary expenses (such as, among other things and subject to Board approval, non-standard Board-related expenses and
litigation against the Board, Trustees, Funds, Adviser, and officers of the Adviser), and distribution (12b-1) fees and expenses. The Board also noted that the Adviser was responsible for compensating the Trust’s other service providers and
paying the Funds’ other expenses (except as noted above) out of its own fees and resources. The Board concluded that the advisory fee for each of the Funds is reasonable in light of the factors considered.
ETFMG™ ETFs
APPROVAL OF ADVISORY AGREEMENTS AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2020 (Unaudited) (Continued)
The Board also evaluated the compensation and other benefits received by the Adviser from its
relationship with the Funds, taking into account the profitability analysis provided by the Adviser. The Board received and reviewed a profitability analysis that detailed the revenues earned and the expenses incurred by the Adviser on a fund by
fund basis and considered how profit margins could affect the Adviser’s ability to attract and retain high quality personnel. Based on the information provided to the Trustees, the Trustees concluded that the level of profits realized by the
Adviser from providing services to each Fund was not excessive in view of the nature, extent and quality of services provided to each Fund. The Board further considered other benefits derived by the Adviser and its affiliates from the Adviser’s
relationship with the Funds, including services provided by certain brokerage firms.
In addition, the Board considered whether economies of scale may be realized for the Funds. The Board
noted that the Adviser regularly considers whether fee reductions are appropriate as the Funds grow in size. The Board noted that a unitary fee provides a level of certainty in expenses for the Funds and effectively acts as a cap on the fees and
expenses (except as noted above) that are borne by the Funds. The Board noted that the Adviser still bears most of the ordinary fees and expenses of each Fund and that the Funds would likely experience benefits from the unitary fee at the Funds’
projected asset levels. With respect to SILJ, the Board also noted that the Fund commenced operations on November 28, 2012 and that, as of February 29, 2020, the Fund had approximately $146 million in assets. The Board recognized that there would
not likely be any additional economies of scale until the Fund’s assets grow. With respect to HACK and IPAY, the Board recognized that there were not likely to be any additional economies of scale for the Funds in the near term.
In its deliberations, the Board did not identify any single piece of information discussed above that was
all-important, controlling or determinative of its decision.
Based on the Board’s deliberations and its evaluation of the information described above, the Board,
including the Independent Trustees, unanimously: (a) concluded that the terms of the Advisory Agreement are fair and reasonable; (b) concluded that the Adviser’s fees are reasonable in light of the services that the Adviser provides to the Funds;
and (c) approved the renewal of the Advisory Agreement for another year.
ETFMG Sit Ultra Short ETF
APPROVAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2020 (Unaudited)
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on
June 20, 2019, the Board of Trustees (the “Board”) of ETF Managers Trust (the “Trust”) considered the approval of the following agreements (collectively, the “Agreements”):
|
•
|
the Amended and Restated Investment Advisory Agreement (the “Advisory Agreement”) between ETF
Managers Group LLC (the “Adviser”) and the Trust, on behalf of ETFMG Sit Ultra Short ETF (the “Fund”); and
|
|
•
|
the Sub-Advisory Agreement between the Adviser and Sit Fixed Income Advisors, LLC (the
“Sub-Adviser”) with respect to the Fund.
|
Pursuant to Section 15 of the 1940 Act, the Agreements must be approved by the vote of a majority of the
Trustees who are not parties to the Agreements or “interested persons” of any party thereto, as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In preparation
for such meeting, the Board requests and reviews a wide variety of information from the Adviser and Sub-Adviser.
In reaching its decision, the Board, including the Independent Trustees, considered all factors it
believed relevant, including: (i) the nature, extent and quality of the services to be provided to the Fund’s shareholders by the Adviser and the Sub-Adviser; (ii) comparative fee and expense data for the Fund in relation to other similar
investment companies; (iii) the extent to which economies of scale may be realized as the Fund grows and whether the proposed advisory fee for the Fund reflects these expected economies of scale for the benefit of the Fund; and (iv) other
financial benefits to the Adviser and Sub-Adviser and their affiliates resulting from services to be rendered to the Fund. The Board’s review included written and oral information furnished to the Board prior to and at the meeting held on June
20, 2019, and throughout the year. Among other things, the Adviser and Sub-Adviser provided responses to detailed series of questions, which included information about the Adviser’s and Sub-Adviser’s operations, service offerings, personnel,
compliance program and financial condition. Representatives of the Adviser and Sub-Adviser discussed the services to be provided to the Fund, the rationale for launching the Fund, and the Fund’s proposed fees in comparison to the fees of
comparable investment companies. The Board then discussed the written and oral information that it received before the meeting and throughout the year, and the Adviser’s and Sub-Adviser’s oral presentations and any other information that the
Board received at the meeting, and deliberated on the approval of the Agreements in light of this information.
The Independent Trustees were assisted throughout the contract review process by independent legal
counsel. The Independent Trustees relied upon the advice of such counsel and their own business judgment in determining the material factors to be considered in evaluating the approval of the Agreements, and the weight to be given to each such
factor. The conclusions reached with respect to the Agreements were based on a comprehensive evaluation of all the information provided and not any single factor. Moreover, each Trustee may have placed varying emphasis on particular factors in
reaching conclusions with respect to the Fund. The matters discussed were also considered separately by the Independent Trustees in executive session with independent legal counsel, at which no representatives of management were present.
Nature, Extent and Quality of Services Provided by the Adviser
The Trustees considered the scope of services to be provided under the Advisory Agreement, noting that
the Adviser would be providing investment advisory services to the Fund. The Board discussed the responsibilities of the Adviser, including: overseeing the activities of the Sub-Adviser as well as the Fund’s other service providers, monitoring
adherence to the Fund’s investment restrictions, and monitoring compliance with various policies and procedures and with applicable securities laws, and arranging for and overseeing transfer agency, custody, fund administration, and all other
non-distribution related services necessary for the Fund to operate. In considering the nature, extent and quality of the services to be provided by the Adviser, the Board considered the qualifications, experience and responsibilities of the
Adviser’s investment personnel, the quality of the Adviser’s compliance infrastructure, and the determination of the Trust’s Chief Compliance Officer that the Adviser has appropriate compliance policies and procedures in place that are reasonably
designed to prevent violations of the federal securities laws. The Board also considered the Adviser’s experience managing exchange-traded funds.
ETFMG Sit Ultra Short ETF
APPROVAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2020 (Unaudited) (Continued)
The Trustees then considered the scope of services to be provided under the Sub-Advisory Agreement,
noting that the Sub-Adviser will be providing investment sub-advisory services to the Adviser in the form of selecting and trading portfolio securities on behalf of the Fund and selecting broker-dealers to execute purchase and sale transactions,
subject to the supervision of the Adviser and the oversight of the Board.
In considering the nature, extent and quality of the services to be provided by the Sub-Adviser, the
Board noted that it had received a copy of the Sub-Adviser’s Form ADV, as well as the response of the Sub-Adviser to a detailed series of questions which included, among other things, information about the background and experience of the
Sub-Adviser’s personnel. The Board considered the experience of the Sub-Adviser’s personnel in the financial services industry, particularly in regards to fixed-income securities. The Board also considered representations from the Sub-Adviser and
the determination of the Trust’s Chief Compliance Officer that the Sub-Adviser has appropriate compliance policies and procedures in place that are reasonably designed to prevent violations of federal securities laws.
Based on the factors above, as well as those discussed below, the Board concluded that it was satisfied
with the nature, extent and quality of the services to be provided to the Fund by the Adviser and the Sub-Adviser.
Historical Performance
The Board noted that the Fund had not yet commenced operations and that there was therefore no prior
performance to consider.
Cost of Services Provided and Economies of Scale
The Board reviewed the proposed investment advisory fee for the Fund and compared it to the net expense
ratios of other funds in the industry falling within the same style category, or peer group, as the Fund, as determined by the Adviser. The Board noted that the expense ratio for the Fund was higher than the average and median expense ratios for
its peer funds, but within the range of expense ratios of the peer group.
The Board also noted the importance of the fact that the advisory fee for the Fund was a “unified fee,”
meaning that the shareholders of the Fund would pay no expenses other than the advisory fee, interest charges on any borrowings, taxes, brokerage commissions and other expenses incurred in placing orders for the purchase and sale of securities
and other investment instruments, acquired fund fees and expenses, accrued deferred tax liability, extraordinary expenses (such as, among other things and subject to Board approval, certain proxy solicitation costs and non-standard Board-related
expenses and litigation against the Board, Trustees, Fund, Adviser, and officers of the Adviser), and distribution (12b-1) fees and expenses. The Board also noted that the Adviser would be responsible for compensating the Fund’s other service
providers (including the Sub-Adviser) and paying the Fund’s other expenses out of its own fee and resources. The Board further noted that because the Fund was new, it was difficult to estimate the profitability of the Fund to the Adviser. The
Board, however, considered whether there were any collateral or “fall-out” benefits that the Adviser and its affiliates may derive as a result of their relationship with the Fund. The Board noted that the Adviser believes that any such benefits
are de minimis and do not impact the reasonableness of the advisory fee.
ETFMG Sit Ultra Short ETF
APPROVAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2020 (Unaudited) (Continued)
The Board noted that because the Fund was new, it also was difficult to estimate whether the Fund would
experience economies of scale. The Board noted that the Adviser will review expenses as the Fund’s assets grow. The Board determined to evaluate economies of scale on an ongoing basis if the Fund achieved asset growth.
The Board reviewed the proposed sub-advisory fee to be paid to the Sub-Adviser for its services to the
Fund under the Sub-Advisory Agreement. The Board considered this fee in light of the services the Sub-Adviser would provide as investment sub-adviser to the Fund. The Board also considered that the sub-advisory fee to be paid to the Sub-Adviser
was to be paid out of the Adviser’s unified fee and represented an arm’s-length negotiation between the Adviser and the Sub-Adviser. The Board determined that the fee reflected an appropriate allocation of the advisory fee to be paid to the
Adviser and the Sub-Adviser given the work performed by each firm. The Board concluded that the proposed sub-advisory fee was reasonable in light of the services to be rendered. The Trustees determined that, because the sub-advisory fee would be
paid by the Adviser out of its unified fee, the anticipated profitability to the Sub-Adviser from its relationship with the Fund was not a material factor in their deliberations with respect to consideration of approval of the Sub-Advisory
Agreement. The Board also considered that, for the same reasons, any economies of scale would not benefit shareholders and, thus, were not relevant for the consideration of the approval of the sub-advisory fee.
In its deliberations, the Board did not identify any single piece of information discussed above that was
all-important, controlling or determinative of its decision. Based on the Board’s deliberations and its evaluation of the information described above, the Board, including the Independent Trustees, unanimously: (a) concluded that the terms of the
Agreements are fair and reasonable; (b) concluded that the Adviser’s and Sub-Adviser’s fees are reasonable in light of the services that the Adviser and Sub-Adviser will provide to the Fund; and (c) approved the Agreements for an initial term of
two years.
ETFMG Travel Tech ETF
APPROVAL OF ADVISORY AGREEMENT AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2020 (Unaudited)
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on
December 17, 2019, the Board of Trustees (the “Board”) of ETF Managers Trust (the “Trust”) considered the approval of the Amended and Restated Investment Advisory Agreement (the “Agreement”) between ETF Managers Group LLC (the “Adviser”) and the
Trust, on behalf of ETFMG Travel Tech ETF (the “Fund”).
Pursuant to Section 15 of the 1940 Act, the Agreement must be approved by the vote of a majority of the
Trustees who are not parties to the Agreement or “interested persons” of any party thereto, as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In preparation for
such meeting, the Board requests and reviews a wide variety of information from the Adviser.
In reaching its decision, the Board, including the Independent Trustees, considered all factors it
believed relevant, including: (i) the nature, extent and quality of the services to be provided to the Fund’s shareholders by the Adviser; (ii) comparative fee and expense data for the Fund in relation to other similar investment companies; (iii)
the extent to which economies of scale may be realized as the Fund grows and whether the proposed advisory fee for the Fund reflects these expected economies of scale for the benefit of the Fund; and (iv) other financial benefits to the Adviser
and its affiliates resulting from services to be rendered to the Fund. The Board’s review included written and oral information furnished to the Board prior to and at the meeting held on December 17, 2019, and throughout the year. Among other
things, the Adviser provided responses to detailed series of questions, which included information about the Adviser’s operations, service offerings, personnel, compliance program and financial condition. Representatives of the Adviser discussed
the services to be provided to the Fund, the rationale for launching the Fund, and the Fund’s proposed fees in comparison to the fees of comparable investment companies. The Board then discussed the written and oral information that it received
before the meeting and throughout the year, and the Adviser’s oral presentation and any other information that the Board received at the meeting, and deliberated on the approval of the Agreement in light of this information.
The Independent Trustees were assisted throughout the contract review process by independent legal
counsel. The Independent Trustees relied upon the advice of such counsel and their own business judgment in determining the material factors to be considered in evaluating the approval of the Agreement, and the weight to be given to each such
factor. The conclusions reached with respect to the Agreement were based on a comprehensive evaluation of all the information provided and not any single factor. Moreover, each Trustee may have placed varying emphasis on particular factors in
reaching conclusions with respect to the Fund. The matters discussed were also considered separately by the Independent Trustees in executive session with independent legal counsel, at which no representatives of management were present.
Nature, Extent and Quality of Services Provided by the Adviser
The Trustees considered the scope of services to be provided under the Agreement, noting that the Adviser
would be providing investment advisory services to the Fund. The Board discussed the responsibilities of the Adviser, including: the investment of the Fund’s assets in accordance with its investment objective and monitoring compliance with
various fund policies and procedures and with applicable securities regulations, and arranging for transfer agency, custody, fund administration, and all other non-distribution related services necessary for the Fund to operate. In considering
the nature, extent and quality of the services to be provided by the Adviser, the Board considered the qualifications, experience and responsibilities of the Adviser’s investment personnel, the quality of the Adviser’s compliance infrastructure,
and the determination of the Trust’s Chief Compliance Officer that the Adviser has appropriate compliance policies and procedures in place that are reasonably designed to prevent violations of the federal securities laws. The Board also
considered the Adviser’s experience managing exchange-traded funds.
ETFMG Travel Tech ETF
APPROVAL OF ADVISORY AGREEMENT AND BOARD CONSIDERATIONS
For the Period Ended March 31, 2020 (Unaudited) (Continued)
Based on the factors above, as well as those discussed below, the Board concluded that it was satisfied
with the nature, extent and quality of the services to be provided to the Fund by the Adviser.
Historical Performance
The Board noted that the Fund had not yet commenced operations and that there was therefore no prior
performance to consider.
Cost of Services Provided and Economies of Scale
The Board reviewed the proposed investment advisory fee for the Fund and compared it to the net expense
ratios of other funds in the industry falling within the same style category, or peer group, as the Fund, as determined by the Adviser. The Board noted that the expense ratio for the Fund was higher than the average and median expense ratios for
its peer ETFs, but that there are limited true peers for the Fund because of its niche strategy.
The Board also noted the importance of the fact that the advisory fee for the Fund was a “unified fee,”
meaning that the shareholders of the Fund would pay no expenses other than the advisory fee, interest charges on any borrowings, taxes, brokerage commissions and other expenses incurred in placing orders for the purchase and sale of securities
and other investment instruments, acquired fund fees and expenses, accrued deferred tax liability, extraordinary expenses (such as, among other things and subject to Board approval, certain proxy solicitation costs and non-standard Board-related
expenses and litigation against the Board, Trustees, Fund, Adviser, and officers of the Adviser), and distribution (12b-1) fees and expenses. The Board also noted that the Adviser would be responsible for compensating the Fund’s other service
providers and paying the Fund’s other expenses out of its own fee and resources. The Board further noted that because the Fund was new, it was difficult to estimate the profitability of the Fund to the Adviser. The Board, however, considered
whether there was any collateral or “fall-out” benefits that the Adviser and its affiliates may derive as a result of their relationship with the Fund. The Board noted that the Adviser believes that any such benefits are de minimis and do not
impact the reasonableness of the advisory fee.
The Board noted that because the Fund was new, it also was difficult to estimate whether the Fund would
experience economies of scale. The Board noted that the Adviser will review expenses as the Fund’s assets grow. The Board determined to evaluate economies of scale on an ongoing basis if the Fund achieved asset growth.
In its deliberations, the Board did not identify any single piece of information discussed above that was
all-important, controlling or determinative of its decision. Based on the Board’s deliberations and its evaluation of the information described above, the Board, including the Independent Trustees, unanimously: (a) concluded that the terms of the
Agreement are fair and reasonable; (b) concluded that the Adviser’s fees are reasonable in light of the services that the Adviser will provide to the Fund; and (c) approved the Agreement for an initial term of two years.
ETFMG™ ETFs
EXPENSE EXAMPLES
Six Months Ended March 31, 2020 (Unaudited)
As a shareholder of the Funds you incur two types of costs: (1) transaction costs, including brokerage
commissions on purchases and sales of Fund shares, and (2) ongoing costs, including management fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to
compare these costs with the ongoing costs of investing in other funds. The examples are based on an investment of $1,000 invested for the period of time as indicated in the table below.
Actual Expenses
The first line of the table provides information about actual account values based on actual returns and
actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by
$1,000 = 8.6), then, multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period’' to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table provides information about hypothetical account values based on a
hypothetical return and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be
used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage
commissions paid on purchases and sales of Fund shares. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If these transactional
costs were included, your costs would have been higher.
Fund Name
|
|
Beginning
Account
Value
October
1, 2019
|
|
|
Ending
Account
Value
March
31, 2020
|
|
|
Expenses
Paid
During
the
Period
|
|
|
Annualized
Expense
Ratio
During the
Period
October 1,
2019 to
March 31,
2020
|
|
ETFMG Prime Junior Silver Miners ETF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
1,000.00
|
|
|
$
|
723.40
|
|
|
$
|
2.97
|
1
|
|
|
0.69
|
%
|
Hypothetical (5% annual)
|
|
|
1,000.00
|
|
|
|
1,021.55
|
|
|
|
3.49
|
1
|
|
|
0.69
|
%
|
ETFMG Prime Cyber Security ETF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
1,000.00
|
|
|
|
975.60
|
|
|
|
2.96
|
1
|
|
|
0.60
|
%
|
Hypothetical (5% annual)
|
|
|
1,000.00
|
|
|
|
1,022.00
|
|
|
|
3.03
|
1
|
|
|
0.60
|
%
|
ETFMG Prime Mobile Payments ETF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
1,000.00
|
|
|
|
803.50
|
|
|
|
3.38
|
1
|
|
|
0.75
|
%
|
Hypothetical (5% annual)
|
|
|
1,000.00
|
|
|
|
1,021.25
|
|
|
|
3.79
|
1
|
|
|
0.75
|
%
|
ETFMG™ ETFs
EXPENSE EXAMPLES
Six Months Ended March 31, 2020 (Unaudited) (Continued)
Fund Name
|
|
Beginning
Account
Value
October
8, 2019
|
|
|
Ending
Account
Value
March
31, 2020
|
|
|
Expenses
Paid
During
the
Period
|
|
|
Annualized
Expense
Ratio
During the
Period
October 1,
2019 to
March 31,
2020
|
|
ETFMG Sit Ultra Short ETF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
1,000.00
|
|
|
|
969.30
|
|
|
|
1.42
|
2
|
|
|
0.30
|
%
|
Hypothetical (5% annual)
|
|
|
1,000.00
|
|
|
|
1,023.57
|
|
|
|
1.52
|
2
|
|
|
0.30
|
%
|
Fund Name
|
|
Beginning
Account
Value
February
12, 2020
|
|
|
Ending
Account
Value
March
31, 2020
|
|
|
Expenses
Paid
During
the
Period
|
|
|
Annualized
Expense
Ratio
During the
Period
October 1,
2019 to
March 31,
2020
|
|
ETFMG Travel Tech ETF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
1,000.00
|
|
|
|
570.90
|
|
|
|
0.79
|
3
|
|
|
0.75
|
%
|
Hypothetical (5% annual)
|
|
|
1,000.00
|
|
|
|
1,021.25
|
|
|
|
3.79
|
3
|
|
|
0.75
|
%
|
|
1
|
The dollar amounts shown as expenses paid during the period are equal to the
annualized six- month expense ratio multiplied by the average account value during the period, multiplied by 183/366 to reflect the number of days in the period).
|
|
2
|
The dollar amounts shown as expenses paid during the period are equal to the
annualized six- month expense ratio multiplied by the average account value during the period, multiplied by 176/366 (to reflect the number of days in the period).
|
|
3
|
The dollar amounts shown as expenses paid during the period are equal to the
annualized six- month expense ratio multiplied by the average account value during the period, multiplied by 49/366 (to reflect the number of days in the period).
|
ETFMG™ ETFs
Statement Regarding Liquidity Risk Management Program (unaudited)
ETF Managers Trust (the “Trust”) has adopted a liquidity risk management program (the “Program”). The
Trust’s Board of Trustees (the “Board”) has designated ETF Managers Group LLC (the “Program Administrator”) as the administrator of the Program. The Program Administrator has designated a committee (the “Committee”), composed of personnel from
multiple departments, including investment operations and compliance, that is responsible for the implementation and ongoing administration of the Program, which includes assessing the liquidity risk of ETFMG Prime Junior Silver Miners ETF, ETFMG
Prime Cyber Security ETF, ETFMG Prime Mobile Payments ETF, ETFMG Sit Ultra Short ETF, and ETFMG Travel Tech ETF (each a “Fund” and, collectively, the “Funds”) under both normal and reasonably foreseeable stressed conditions.
Under the Program, the Program Administrator assesses, manages and periodically reviews each Fund’s
liquidity risk, based on factors specific to the circumstances of the Fund. Liquidity risk is the risk that a Fund could not meet shareholder redemption requests without significant dilution of remaining shareholders’ interests in that Fund. This
risk is managed by monitoring the degree of liquidity of each Fund’s investments and limiting the amount of the Fund’s illiquid investments, among other means. The Program Administrator’s process of determining the degree of liquidity of each
Fund’s investments is supported by one or more third-party liquidity assessment vendors.
At a meeting of the Board on March 24, 2020, the Adviser provided a written report to the Board addressing
the operation, and the adequacy and effectiveness of the implementation, of the Program, including, the operation of any Highly Liquid Investment Minimum, where applicable, and any material changes to the Program, for the initial period from
December 1, 2018 through February 29, 2020 (the “Reporting Period”). No significant liquidity events impacting any Fund were noted in the report and it was represented that, as of December 31, 2019, each Fund was primarily highly liquid and,
during the Reporting Period, each Fund held less than 15% in illiquid securities. In addition, the Program Administrator provided its assessment that Program implementation was effective and that the Program operated adequately and effectively to
enable the Program Administrator to oversee and manage liquidity risk and ensure each Fund is able to meet requests to redeem shares without significant dilution to the remaining investors’ interest in the Fund.
There can be no assurance that the Program will achieve its objectives in the future. Please refer to your
Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other principal risks to which an investment in the Fund may be subject.
ETFMG™ ETFs
Board of Trustees
Set forth below are the names, birth years, positions with the Trust, length of term
of office, and the principal occupations and other directorships held during at least the last five years of each of the persons currently serving as a Trustee of the Trust, as well as information about each officer. The business address of each
Trustee and officer is 30 Maple Street, 2nd Floor, Summit, New Jersey 07901. The SAI includes additional information about Fund directors and is available, without charge, upon request by calling 1-844-ETF-MGRS (1-844-383-6477).
Name and Year
of Birth
|
Position(s)
Held with the
Trust, Term
of Office and
Length of
Time Served
|
Principal Occupation(s) During
Past 5 Years
|
Number of
Portfolios
in Fund
Complex
Overseen
By Trustee
|
Other
Directorships
Held by
Trustee
During Past 5
Years
|
Interested Trustee and Officers
|
Samuel Masucci, III (1962)
|
Trustee,
Chairman of the Board and President (since 2012); Secretary (since 2014)
|
Chief Executive Officer, Exchange Traded Managers Group LLC (since 2013); Chief
Executive Officer, ETF Managers Group LLC (since 2016); Chief Executive Officer, ETF Managers Capital LLC (commodity pool operator) (since 2014); Chief Executive Officer (2012-2016) and Chief Compliance Officer (2012-2014), Factor
Advisors, LLC (investment adviser); President and Chief Executive Officer, Factor Capital Management LLC (2012-2014) (commodity pool operator);
|
11
|
None
|
John A. Flanagan, (1946)
|
Treasurer
(since 2015)
|
President,
John A. Flanagan CPA, LLC (accounting services) (since 2010); Treasurer, ETF Managers Trust (since 2015); Principal Financial Officer, ETF Managers Capital, LLC (commodity pool operator) (since 2015)
|
n/a
|
n/a
|
Reshma A.
Tanczos (1978)
|
Chief
Compliance Officer (since 2016)
|
Chief Compliance Officer, ETF Managers Group LLC (since 2016); Chief Compliance
Officer, ETF Managers Capital LLC (since 2016); Partner, Crow & Cushing (law firm) (2007-2016).
|
n/a
|
n/a
|
* Mr. Masucci is an interested Trustee by virtue of his role as the Chief Executive Officer of the
Adviser.
ETFMG™ ETFs
Board of Trustees (Continued)
Name
and
Year of
Birth
|
Position(s) Held
with the Trust,
Term of Office
and Length of
Time Served
|
Principal Occupation(s) During Past
5 Years
|
Number of
Portfolios in
Fund
Complex
Overseen By
Trustee
|
Other
Directorships
Held by Trustee
During Past 5
Years
|
Independent Trustees
|
Terry Loebs (1963)
|
Trustee
(since 2014)
|
Founder and Managing Member, Pulsenomics LLC (index product development and
consulting firm) (since 2011); Managing Director, MacroMarkets, LLC (exchange-traded products firm) (2006-2011).
|
11
|
None
|
Jared A. Chase (1955)
|
Trustee
(since 2018)
|
Chief Operating and Financial Officer, Root Capital (a 501(c)(3) non-profit
lender); Chairman, State Street Global Alliance LLC, State Street Corporation (2007-2012); Head of Global Treasury, Liability Management, Money Markets & Derivatives, State Street Corporation (2004-2007)
|
11
|
None
|
ETFMG™ ETFs
SUPPLEMENTARY INFORMATION
March 31, 2020 (Unaudited)
NOTE 1 – FREQUENCY DISTRIBUTION OF PREMIUMS AND DISCOUNTS
Information regarding how often shares of each Fund traded on the Exchange at a price above (i.e., at a
premium) or below (i.e., at a discount) the NAV is available on the Fund’s website at www.etfmgfunds.com.
NOTE 2 – FEDERAL TAX INFORMATION
Qualified Dividend Income/Dividends Received Deduction
For the fiscal year ended September 30, 2019, certain dividends paid by the Funds may
be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Reconciliation Act of 2003. The percentage of dividends declared from ordinary income designated as qualified dividend income was as follows:
Fund Name
|
Qualified Dividend Income
|
SILJ
|
24.52%
|
HACK
|
100.00%
|
IPAY
|
100.00%
|
For corporate shareholders, the percent of ordinary income distributions qualifying
for the corporate dividends received deduction for the fiscal year ended September 30, 2019 was as follows:
Fund Name
|
Dividends Received Deduction
|
SILJ
|
22.47%
|
HACK
|
100.00%
|
IPAY
|
85.17%
|
Short Term Capital Gain
The percentage of taxable ordinary income distributions that are designated as
short-term capital gain distributions under Internal Revenue Section 871 (k)(2)(C) for each Fund were as follows:
Fund Name
|
Short-Term Capital Gain
|
SILJ
|
0.00%
|
HACK
|
0.00%
|
IPAY
|
68.95%
|
During the year ended September 30, 2019, the Funds did not declare any long-term
realized gains distributions.
Pursuant to Section 853 of the Internal Revenue Code the Fund designated the
following amounts as foreign taxes paid for the year ended September 30, 2019. Foreign taxes paid for purposes of Section 853 may be less than actual foreign taxes paid for financial statement purposes.
|
|
|
|
|
|
|
|
|
Per Share
|
|
Fund
|
|
|
Gross Foreign
Source Income
|
|
|
Foreign Taxes
Passthrough
|
|
|
Gross Foreign
Source Income
|
|
|
Foreign Taxes
Passthrough
|
|
|
Shares
Outstanding at
9/30/19
|
|
SILJ
|
|
|
$
|
258,662
|
|
|
$
|
19,609
|
|
|
$
|
0.02440207
|
|
|
$
|
0.00184987
|
|
|
$
|
10,600,000
|
|
ETFMG™ ETFs
SUPPLEMENTARY INFORMATION
September 30, 2019 (Unaudited) (Continued)
NOTE 3 – 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-Q or Part F of Form N-PORT. The Funds’ Form N-Q or Part F of Form N-PORT is available on the website of the SEC at www.sec.gov. Each Fund’s portfolio holdings are posted on
their website at www.etfmgfunds.com daily.
NOTE 4 – INFORMATION ABOUT PROXY VOTING
A description of the policies and procedures the Funds use to determine how to vote proxies relating to
portfolio securities is provided in the Statement of Additional Information (“SAI”). The SAI is available without charge upon request by calling toll-free at (877) 756-7873, by accessing the SEC’s website at www.sec.gov, or by accessing the
Funds’ website at www.etfmgfunds.com.
Information regarding how the Funds voted proxies relating to portfolio securities
during the period ending June 30 is available by calling toll-free at (877) 756-7873 or by accessing the SEC’s website at www.sec.gov.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before
investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477) or by visiting www.etfmgfunds.com. Read the prospectus carefully before investing.
Advisor
ETF Managers Group, LLC
30 Maple Street, Suite 2, Summit, NJ 07901
Distributor
ETFMG Financial, Inc.
30 Maple Street, Suite 2, Summit, NJ 07901
Custodian
U.S. Bank National Association
Custody Operations
1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212
Transfer Agent
Foreside Financial Group, LLC
111 E Kilbourn Ave, Suite 1250, Milwaukee, WI 53202
Securities Lending Agent
U.S Bank, National Association
Securities Lending
800 Nicolet Mall
Minneapolis, MN 55402-7020
Independent Registered Public Accounting Firm
WithumSmith + Brown, PC
1411 Broadway, 9th Floor, New York, NY 10018
Legal Counsel
Sullivan & Worcester LLP
1666 K Street NW, Washington, DC 20006
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
Item 6. Investments.
(a)
|
Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.
|
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 9. Purchases of Equity Securities by Closed‑End Management Investment Company and Affiliated Purchasers.
Not applicable to open-end investment companies.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a)
|
The Registrant’s Principal Executive Officer and Principal Financial Officer/Treasurer have reviewed the Registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as of a date within 90 days of the filing of this report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d‑15(b) under
the Securities Exchange Act of 1934. Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately
recorded, processed, summarized and reported and made known to them by others within the Registrant and by the Registrant’s service provider.
|
(b)
|
There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred
during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting.
|
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies
Not applicable to open-end investment companies.
Item 13. Exhibits.
(a)
|
(1) Any code of ethics or amendment thereto,
that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Not applicable for semi-annual reports.
|
(3) Any written solicitation to
purchase securities under Rule 23c‑1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable to open-end investment companies.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) ETF Managers Trust
By (Signature and Title)* /s/ Samuel Masucci III
Samuel Masucci III, Principal Executive Officer
Date January 15, 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/ Samuel Masucci III
Samuel Masucci III, Principal Executive Officer
Date January 15, 2021
By (Signature and Title)* /s/ John A. Flanagan
John A. Flanagan, Principal Financial Officer/Treasurer
Date January 15, 2021
* Print the name and title of each signing officer under his or her signature.