QUARTERLY COMMENTARY 2018 Q4

Transcription

1 QUARTERLY 2018 Q4 EXECUTIVE SUMMARY Market Commentary Cybersecurity, much like other technology-heavy themes, was challenged in the 4th quarter of Tech stocks worldwide felt the pain of strained US-China trade relations as well as the prospect of a sluggish Chinese economy over the period. Negative press regarding Apple had investors applying sell pressure throughout the sector as well, which made for a difficult year end for HACK. Marriott, the largest hotel chain in the world, reported a breach of subsidiary Starwood s network that may have compromised approximately 400 million customers data including payment information. Marriott reported that 5.25 million passport numbers were stored unencrypted illustrating that even some of the largest firms have woefully inadequate cybersecurity implementations. Morgan Stanley analysts wrote that as a result of the breach, Marriott may face fines and settlement payouts of $200 million.

2 FUND PERFORMANCE A victim of the technology stock correction of 2018, HACK returned % for the quarter ended December 31, 2018, which was in line with its benchmark and the overall Information Technology Industry. It is no surprise that Information Technology dominates the performance attribution from a sector perspective, given its 96.5% allocation. SECTOR CONTRIBUTORS AVG. WEIGHT (%) TOTAL RETURN (%) SECTOR (%) Information Technology Industrials At the security level, top positive contributors to performance were Imperva (IMPV, +19.9%), Digital Arts (2326 JP, +18.2%), and Secureworks (SCWX, +15.2%). Detractors included Tenable Holdings (TENB, -42.9%), SailPoint Technologies Holding Inc (SAIL, %) and Carbonite Inc (CARB, -29.1%). TOP 10 POSITIVE CONTRIBUTORS AVG. WEIGHT (%) TOTAL RETURN (%) TO RETURN (%) Imperva Inc Digital Arts Inc SecureWorks Corp - A Avast PLC A10 Networks Inc Zix Corp Gemalto QinetiQ Group plc Everbridge Inc F-Secure Oyj

3 FUND PERFORMANCE (CONTINUED) TOP 10 NEGATIVE CONTRIBUTORS AVG. WEIGHT (%) TOTAL RETURN (%) TO RETURN (%) Tenable Holdings Inc SailPoint Technologies Holding Inc Carbonite Inc Fortinet Inc Sophos Group PLC CACI International Inc Science Applications International Corp Proofpoint Inc Akamai Technologies Inc Palo Alto Networks Inc Looking at fundamental factor performance, the portfolio s allocation to Software was the largest positive contributor, followed by US Style factors Value, Leverage and Volatility. On the negative side, the US Market was the most significant detractor followed by Size and Profitability. TOP 6 FACTOR CONTRIBUTORS AVG. WEIGHT (%) TOTAL RETURN (%) FACTOR (%) BOTTOM 6 FACTOR CONTRIBUTORS AVG. WEIGHT (%) TOTAL RETURN (%) FACTOR (%) Industry: US Software NorthAm: US Market US Value US Size US Leverage US Profitability US Volatility US TradeAct Currency: JPY AsiaPac-Dev: JP Mark JP Value US DivYld

4 FUND PERFORMANCE (CONTINUED) Breaking out the various components of the Style factor, we see the magnitude of the contribution made by each individual factor. Size was the largest detractor from performance, followed by Trade Activity and Profitability (consistent with what we see on the previous page). Largest positive contributors were Value and Volatility. STYLE RETURN Earnings Variability Momentum Size Leverage 0.73 Dividend Yield Trade Activity Profitability Growth 0.00 Liquidity 0.00 Volatility 0.60 Value 1.17 TOTAL RETURN: Q % -5.00% % % % % 10/01/18 10/03/18 10/05/18 10/07/18 10/09/18 10/11/18 10/13/18 10/15/18 10/17/18 10/19/18 10/21/18 10/23/18 10/25/18 10/27/18 10/29/18 10/31/18 11/01/18 11/03/18 11/02/18 11/04/18 11/06/18 11/08/18 11/10/18 11/12/18 11/14/18 11/16/18 11/18/18 11/20/18 11/22/18 11/24/18 11/26/18 11/28/18 11/30/18 12/02/18 12/06/18 12/08/18 12/10/18 12/12/18 12/14/18 12/16/18 12/18/18 12/20/18 12/22/18 12/24/18 12/26/18 12/28/18 12/30/18 FUND PCYBER INDEX 04

5 PERFORMANCE as of 12/31/18 CUMULATIVE ANNUALIZED 1 MONTH 3 MONTH YTD SINCE INCEP. 1 YEAR 3 YEARS 5 YEARS 10 YEARS SINCE INCEP. MARKET PRICE % % 6.61% 36.61% 6.61% 9.66% 7.83% NAV % % 6.94% 37.24% 6.94% 9.72% 7.95% PCYBER INDEX % % 7.27% 39.69% 7.27% 9.94% 8.41% Expense Ratio: 0.60% Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Funds may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling ETF-MGRS ( ). Performance is annualized for periods greater than 1 year. 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 ETF-MGRS ( ), or by visiting Read the prospectus carefully before investing. Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility. The fund is concentrated in technology-related companies face intense competition, both domestically and internationally, which may have an adverse effect on profit margins. Such companies may have limited product lines, markets, financial resources or personnel. The products of such companies may face obsolescence due to rapid technological developments, frequent new product introduction, unpredictable changes in growth rates, competition for the services of qualified personnel, and competition from foreign competitors with lower production costs. Technology companies are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies. Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. The Funds are non-diversified, meaning they may concentrate its assets in fewer individual holdings than a diversified fund. Investments in smaller companies tend to have limited liquidity and greater price volatility than large-capitalization companies. Diversification does not assure a profit or protect against a loss in a declining market. The Fund s return may not match or achieve a high degree of correlation with the return of the Prime Cyber Defense Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Prime Cyber Defense Index. Fund holdings may not equal 100% due to rounding. ETF shares are not individually redeemable and owners of the shares may acquire those shares from the Fund and tender those shares for redemption to the Fund in Creation Units only, typically consisting of aggregations of 50,000 shares. The Prime Cyber Defense Index (PCYBER) provides a benchmark for investors interested in tracking companies actively involved in providing cyber security technology and services. The Index uses a market capitalization weighted allocation across the infrastructure provider and service provider categorizations as well as an equal weighted allocation methodology for all components within each sector allocation. Index components are reviewed semi-annually for eligibility, and the weights are re-set accordingly. An investment cannot be made directly in an index. Fund holdings and sector allocations are subject to change at any time and should not be considered recommendations to buy or sell any security. ETF Managers Group LLC is the investment adviser to the Fund. The Fund is distributed by ETFMG Financial LLC. ETF Managers Group LLC and ETFMG Financial LLC are wholly owned subsidiaries of Exchange Traded Managers Group LLC (collectively, ETFMG ). ETFMG Financial LLC is not affiliated with Prime Indexes. 05