short- and intermediate-term securities issued by the U.S. Government, its agencies and instrumentalities, or corporate bonds or notes that Cohanzick, the ETF’s sub-adviser, believes are consistent with the ETF’s investment objective. Under normal circumstances, the ETF invests at least 65% of its assets in investment grade obligations, including securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities. Investment-grade securities are securities rated BBB or BAA (or higher) by Standard & Poor’s or Moody’s, respectively, or the equivalent by a nationally recognized statistical rating organization rating that security (a “rating agency”). The ETF may invest up to 25% of its net assets in high yield securities or below investment-grade securities, commonly known as “junk bonds,” rated BB or BA (or lower) by Standard & Poor’s or Moody’s, respectively, or the equivalent by a rating agency or, if unrated, determined by Cohanzick to be of comparable quality.
The ETF expects to maintain an average-weighted effective maturity of three years or less. Due to the nature of securities in which the ETF invests, Cohanzick may make frequent changes to the portfolio and the ETF’s portfolio turnover may be relatively higher than comparable fixed income funds.
“Effective” maturity differs from actual maturity, which may be longer. In calculating the “effective” maturity, Cohanzick estimates the effect of expected principal payments and call provisions on securities held in the portfolio. This gives the portfolio managers additional flexibility in the securities they purchase, but could also result in more volatility than if the ETF were to calculate and make investments based on an actual maturity target.
In selecting portfolio securities for the ETF, in addition to considering economic factors such as the effect of interest rates and term structure on the ETF’s investments, Cohanzick applies a “bottom-up” credit analysis. This means that Cohanzick looks at income-producing securities one at a time to determine if a security is a reasonable or an attractive investment opportunity, and if it is consistent with the ETF’s investment objective. The credit analysis may include, but is not limited to, considering the current yield and yield-to-maturity of a potential investment relative to similar securities of a similar rating, positive and/or negative credit events that have occurred recently or may occur in the future, and fundamental analysis in determining value versus perceived credit rating or market pricing.
The ETF may not invest more than 20% of its net assets in bank loans. The ETF expects to invest only in U.S. dollar denominated securities. Unless otherwise noted, all percentage limitations on ETF investments apply at the time of investment. If the ETF effects redemptions in Treasury securities, it may need to borrow the Treasury securities to effect the redemption. Under adverse market conditions, the ETF may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term obligations. To the extent the ETF invokes this strategy, its ability to achieve its investment objective may be affected adversely.
The ETF is an “exchange traded fund.” The ETF is an actively managed ETF. The ETF is not an index fund and thus does not seek to replicate the performance of a specified index.
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