Fees and Expenses of the
Fund
The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may also
incur usual and customary brokerage commissions when buying or selling shares of the Fund, which are not reflected in this table or the example that
follows:
Annual Fund Operating
Expenses
(expenses that you pay each year
as a percentage of the value of your investment)
|
|
|
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Management
Fees
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0.35%
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Distribution and/or Service (12b-1) Fees
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None
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Other
Expenses
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0.00%
|
|
Total Annual Fund Operating
Expenses
|
0.35%
|
Example
The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other
funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all your shares at the end of a period. The example also assumes that your investment has a 5% return each year and that the Fund’s
operating expenses remain the same. The example does not reflect brokerage commissions that you may pay when you purchase and sell Fund shares. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
|
|
|
|
1 Year
|
$36
|
|
3 Years
|
$113
|
|
5 Years
|
$197
|
|
10 Years
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$443
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Portfolio Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account.
These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 14% of the average value of its
portfolio.
Principal Investment Strategies
The Fund seeks to track the investment results of the Index, which is comprised of real estate investment trusts
(“REITs”). REITs are publicly traded corporations or trusts that invest in residential or commercial real estate. The Index is a subset of the
Dow Jones U.S. Select REIT Index (the “Base Index”), which generally includes equity REITs traded on a national securities exchange in the
United States that derive at least 75% of their total revenue from the ownership and operation of real estate assets and that have a minimum total market capitalization of $200 million at the time of their inclusion. The Index selects REITs from the
Base Index that are classified as concentrating their holdings in apartment buildings, hotels, self-storage facilities or manufactured home properties, as REITs investing in these sectors typically have shorter lease durations than REITs investing
in other sectors. Index holdings are weighted by float-adjusted market capitalization, provided that no single REIT can comprise more than 5% of the Index as of any rebalance date. “Float-adjusted” means that the share amounts used in
calculating the Index reflect only shares available to investors, with shares held by control groups, public companies and government agencies
excluded.
The Index is rebalanced quarterly after the close of the third Friday in March, June, September and December. The
Index and the Base Index exclude mortgage REITs, hybrid REITs, certain other types of REITs (e.g., timber and net-lease REITs), real estate finance companies, mortgage brokers and bankers, commercial and residential real estate brokers and estate
agents, home builders, large landowners and subdividers of unimproved land, and companies that have more than 25% of their assets in direct mortgage investments. As of March 31, 2020, the Index was comprised of 34
REITs.
The Fund attempts to replicate the Index by investing all, or substantially all, of its assets in the REITs that make up
the Index, holding each REIT in approximately the same proportion as its weighting in the Index. The Fund rebalances its holdings quarterly in response to the quarterly Index rebalances. The Fund may sell REITs that are represented in the
Index in anticipation of their removal from the Index, or buy REITs that are not
yet represented in the index in anticipation of their addition to the Index.
Under normal market conditions, the Fund invests
at least 80% of the sum of its net assets and the amount of any borrowings for investment purposes in REITs. The Index concentrates (i.e., holds 25% or more of its total assets) in the securities of the real estate industry, and the Fund will
concentrate its investments to approximately the same extent as the Index.
Principal Risks
You could lose money by investing in the
Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund listed below are presented
alphabetically to facilitate your ability to find particular risks and compare them with the risks of other funds. Each risk summarized below is considered a “principal risk” of investing in the Fund, regardless of the order in which it
appears.
Concentration Risk—The Fund’s
assets will generally be concentrated in the securities of issuers in the real estate sector, and, accordingly, the Fund may be adversely affected by the performance of those securities, subject to increased price volatility, and more susceptible to
adverse economic, market, political or regulatory occurrences affecting that sector.
Cybersecurity Risk—Cybersecurity breaches may allow an unauthorized party to gain access to Fund assets,
customer data, or proprietary information, or cause the Fund and/or its service providers to suffer data corruption or lose operational functionality. Such events could cause the Fund to incur regulatory penalties, reputational damage, additional
compliance costs associated with corrective measures and/or financial loss.
Equity Security Risk—Equity securities may decline significantly in price over short or extended periods of time, and such declines may occur because of declines in the equity
market as a whole, or because of declines in only a particular country, company, industry, or sector of the market.
Interest Rate Risk—Interest rate risk is the risk that the value of the Fund’s portfolio will decline because of rising interest rates. Increases in interest rates
typically lower the present value of a REIT’s future earnings stream, and may make financing property purchases and improvements more costly. The risk of rising interest rates may be greater currently than would normally be the case due to the
current period of historically low rates and anticipated changes in government fiscal policy initiatives. Because the market price of REITs may change based upon investors’ collective perceptions of future earnings, the value of the Fund will
generally decline when investors anticipate or experience rising interest rates.
Investment Style Risk—The Fund invests in the securities included in, or representative of, the Index
regardless of their investment merit. The Fund does not attempt to outperform the Index or take defensive positions in declining markets. As a result, the Fund’s performance may be adversely affected by a general decline in the market segments
relating to the Index.
Market Risk—The
market value of the Fund’s investments may go up or down, sometimes rapidly or unpredictably and for short or extended periods of time, due to the particular circumstances of individual issuers or due to general conditions impacting issuers
more broadly. Global economies and financial markets have become highly interconnected, and thus economic, market or political conditions or events in one country or region might adversely impact the value of the Fund’s investments whether or
not the Fund invests in such country or region. Events such as war, terrorism, natural and environmental disasters and the spread of infectious illnesses or other public health emergencies may have a severe negative impact on the global economy,
could cause financial markets to experience extreme volatility and losses, and could result in the disruption of trading and the reduction of liquidity in many
instruments.
Market Trading Risks—The Fund is an
exchange-traded fund (“ETF”), and as with all ETFs, Fund shares may be bought and sold in the secondary market at market prices. Although it is
expected that the market price of a Fund share typically will approximate its net asset value (“NAV”), there may be times when the market price
and the NAV diverge more significantly, particularly in times of market volatility or steep market declines. Thus, you may pay more or less than NAV when you buy Fund shares on the secondary market, and you may receive more or less than NAV when you
sell those shares. Although the Fund’s shares are listed for trading on a national securities exchange, it is possible that an active trading market may not develop or be maintained, in which case transactions may occur at wider bid/ask
spreads (which may be especially pronounced for smaller funds). Trading of the Fund’s shares may be halted by the activation of individual or market-wide trading halts (which halt trading for a specific period of time when the price of a
particular security or overall market prices decline by a specified percentage). In times of market stress, the Fund’s underlying portfolio holdings may become less liquid, which in turn may affect the liquidity of the Fund’s shares
and/or lead to more
significant differences between the Fund’s market price and its NAV. Market makers are under no obligation to make a market in the Fund’s shares, and authorized participants
are not obligated to submit purchase or redemption orders for the Fund’s shares. In the event market makers cease making a market in the Fund's shares or authorized participants stop submitting creation or redemption orders, Fund shares may
trade at a larger premium or discount to
NAV.
Non-Diversification Risk—As a
non-diversified fund, the Fund may invest a larger portion of its assets in the securities of a limited number of issuers and may be more sensitive to any single economic, business, political or regulatory occurrence than a diversified
fund.
Real Estate Investment Risk—Due to the
composition of the Index, the Fund concentrates its investments in real estate companies and companies related to the real estate sector. As such, the Fund is subject to risks associated with the direct ownership of real estate, and an investment in
the Fund will be closely linked to the performance of the real estate markets. These risks include, among others: declines in the value of real estate; risks related to general and local economic conditions; possible lack of availability of mortgage
funds or other limits to accessing the credit or capital markets; defaults by borrowers or tenants, particularly during an economic downturn; and changes in interest rates. The Fund's investments in the real estate market have many of the same risks
as direct ownership of real estate. The real estate sector is highly sensitive to general and local economic conditions and developments and is characterized by intense competition and periodic overbuilding. Real estate values have been subject to
substantial fluctuations and declines on a local, regional and national basis in the past and may continue to be in the
future.
REITs Risk—In addition to the risks
associated with investing in securities of real estate companies and real estate related companies, REITs are subject to certain additional risks. Equity REITs may be affected by changes in real estate values, rents, property taxes and interest
rates. Further, REITs are dependent upon specialized management skills and cash flows, and may have their investments in relatively few properties, or in a small geographic area or a single property type. Failure of a company to qualify as a REIT
under federal tax law, or changes to federal tax law or regulations governing REITs, may have adverse consequences to the Fund. In addition, REITs have their own expenses, and the Fund will bear a proportionate share of those expenses. Many REITs
utilize leverage (and some may be highly leveraged), which increases investment risk and could potentially magnify the Fund’s
losses.
Service Provider Operational Risk—The
Fund’s service providers, such as the Fund’s administrator, custodian or transfer agent, may experience disruptions or operating errors that could negatively impact the Fund. Although service providers are required to have appropriate
operational risk management policies and procedures, and to take appropriate precautions to avoid and mitigate risks that could lead to disruptions and operating errors, it may not be possible to identify all of the operational risks that may affect
the Fund or to develop processes and controls to completely eliminate or mitigate their occurrence or effects.
Smaller Company Risk—Even larger REITs may be small- to medium-sized companies in relation to the equity markets as a whole. Small-cap stocks involve substantial risk. Prices
of small-cap stocks may be subject to more abrupt or erratic movements, and to wider fluctuations, than stock prices of larger, more established companies or the market averages in general. It may be difficult to sell small-cap stocks at the desired
time and price. While mid-cap stocks may be slightly less volatile than small-cap stocks, they still involve similar risks.
Tracking Error Risk—Tracking error is the divergence of the Fund’s performance from that of the Index. Tracking error may occur because of, for example, pricing
differences, transaction costs, the Fund’s holding of uninvested cash, differences in timing of the accrual of distributions, changes to the Index or the need to meet various new or existing regulatory requirements. This risk may be heightened
during times of increased market volatility or other unusual market conditions. Tracking error also may result because the Fund incurs fees and expenses, but the Index does not.
