N-CSR 1 fp0053001_ncsr.htm

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 811-22668

 

ETF Series Solutions

(Exact name of registrant as specified in charter)

 

615 East Michigan Street

Milwaukee, WI 53202

(Address of principal executive offices) (Zip code)

 

Kristina R. Nelson

ETF Series Solutions

615 East Michigan Street

Milwaukee, WI 53202

 

(Name and address of agent for service)

 

(414) 765-6076

Registrant's telephone number, including area code

 

Date of fiscal year end: February 28

 

Date of reporting period: February 29, 2020

 

 

 

Item 1. Reports to Stockholders.

 

 

Hoya Capital Housing ETF
Ticker: HOMZ

 

Annual Report

February 29, 2020

 

Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the Fund‘s 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. Please contact your financial intermediary to elect to receive shareholder reports and other Fund communications electronically.

 

You may elect to receive all future reports in paper free of charge. Please contact your financial intermediary to inform them that you wish to continue receiving paper copies of shareholder reports and for details about whether your election to receive reports in paper will apply to all funds held with your financial intermediary.

 

 

Hoya Capital Housing ETF

 

TABLE OF CONTENTS

 

 

Page

Letter to Shareholders

1

Performance Summary

4

Portfolio Allocation

5

Schedule of Investments

6

Statement of Assets and Liabilities

10

Statement of Operations

11

Statement of Changes in Net Assets

12

Financial Highlights

13

Notes to the Financial Statements

14

Report of Independent Registered Public Accounting Firm

23

Trustees and Officers

25

Expense Example

27

Federal Tax Information

28

Information About Portfolio Holdings

28

Information About Proxy Voting

28

Frequency Distribution of Premiums and Discounts

29

 

 

Hoya Capital Housing ETF

 

Dear Shareholders,

 

On behalf of the entire Hoya Capital Real Estate team, we want to express our gratitude for the confidence you have placed in the Hoya Capital Housing ETF (“HOMZ” or the “Fund”). The following information pertains to the period from March 19, 2019 through February 29, 2020 (the “Current Fiscal Period”).

 

HOMZ is a passively-managed, diversified ETF that offers efficient and cost-effective exposure to residential real estate, one of the largest asset classes in the world. HOMZ invests in 100 domestic companies involved in the housing industry including residential real estate investment trusts (REITs), homebuilders, home improvement companies, and real estate services and technology firms. We believe that HOMZ captures the “thematic growth” trends associated with favorable demographics for household formations, the recovery in new home construction, the realization of deferred home improvement spending, and the effects of the lingering housing shortage.

 

The Fund seeks to track the total return performance, before fees and expenses, of the Hoya Capital Housing 100TM Index (the “Index”). The Index is a rules-based index designed to track the 100 companies that collectively represent the performance of the U.S. Housing Industry. Index components are reviewed semi-annually for eligibility, and the weights are re-set accordingly.

 

From inception on March 19, 2019 through February 29, 2020, HOMZ outperformed the S&P 500 Index by 226 basis points. During this Current Fiscal Period, the market value and net asset value (“NAV”) for HOMZ generated a cumulative total return of 8.51% and 8.88%, respectively, compared to a return of 6.25% on the S&P 500 Index. Hoya Capital Housing 100TM Index increased 9.33%. Meanwhile, outstanding shares ended the Current Fiscal Period at 425,000.

 

The U.S. Housing Industry exhibited strong growth in the back-half of 2019 and into early 2020 as key housing data points reaccelerated following a slowdown in 2018, powered by the tailwinds of lower mortgage rates and robust demographic-driven demand. From a U.S. Housing Industry Sector perspective, the Homebuilders, the Home Building Products & Materials, and the Real Estate Technology, Brokerage & Services sectors were the leading contributors while the Home Furnishings & Home Goods and the Residential REITs & Real Estate Operator sectors were the leading detractors during this Current Fiscal Period.

 

Despite the solid end to the decade for new home construction, the 2010s will likely be remembered as a decade of significant under-building of housing units, resulting in housing shortages in many market segment across the United States. On a rolling 10-year average, residential fixed investment as a share of GDP is near the lowest level since the end of WWII, a function of underinvestment in both new home construction and existing home repair and renovation activity.1

 

1

 

 

Hoya Capital Housing ETF

 

On the demand-side, demographic trends over the next decade are highly supportive of growth in household formations. The millennial generation – the largest age cohort in American history – will be entering the U.S. housing markets in full-force over the next decade. Annual household growth from 2018 through 2028 is forecast to average 1.2 million per year, which is 20% higher than the prior 5-year average according to Harvard University’s Joint Center for Housing Studies.2

 

The coronavirus pandemic that began in early 2020 and the resulting ‘stay-at-home’ orders across much of the country introduces uncertainty about the near-term outlook for much of the housing industry. We believe that diversified exposure across the entire U.S. housing industry – particularly exposure to many of the largest and most well-capitalized housing companies - is especially critical amid this period of near-term uncertainty.

 

We continue to see a compelling long-term investment case for HOMZ over the next decade and beyond as the combination of historically low housing supply and strong demographic-driven demand has provided a favorable long-term macroeconomic backdrop for companies involved in the U.S. housing industry. Because the forecasted distribution of households between renting and owning remains uncertain and driven by near-term economic conditions and housing policy, we believe that capturing diversified exposure across the entire U.S. housing sector is the most effective way to capture these thematic growth trends.

 

We look forward to keeping you well informed.

 

Sincerely,
Alex Pettee, CFA
President & Director of Research and ETFs
Hoya Capital Real Estate, Adviser to the Fund

 

Must be preceded or accompanied by a prospectus.

 

Investing involves risks. Principal loss is possible. The Fund is not actively managed. The Fund’s investments will be concentrated in housing and real estate-related industries. Investments in real estate companies and the construction and housing industry involve unique risks. Real estate companies, including REITs, may have limited financial resources, may trade less frequently and in limited volume, and may be more volatile than other securities. Many factors may affect real estate values, including the availability of mortgages and changes in interest rates. Real estate companies are also subject to heavy cash flow dependency, defaults by borrowers, and self-liquidation. The construction and housing industry can be significantly affected by the real estate markets. Compared to large cap companies, small and mid-capitalizations companies may be less stable, and their securities may be more volatile and less liquid. As with all ETFs, Shares may be bought and sold in the secondary market at market prices and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Although it is expected that the market price of Shares will approximate the Fund’s NAV, there may be times when the market price of Shares is more than the NAV intra-day (premium) or less than the NAV intra-day (discount) due to supply and demand of Shares or during periods of market volatility.

 

Short term performance, in particular, is not a good indication of the Fund’s future performance, and an investment should not be made based solely on returns.

 

2

 

 

Hoya Capital Housing ETF

 

The S&P 500 is a broad-based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. You cannot invest directly in an index.

 

Basis points (BPS) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument.

 

1 US Bureau of Economic Analysis. March 26, 2020. Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period. Residential Fixed Investment consists of purchases of residential structures by private businesses, by nonprofit institutions, and by governments in the United States.

 

2 “The State of the Nation’s Housing.” Joint Center for Housing Studies of Harvard University. 2019.
https://www.jchs.harvard.edu/sites/default/files/Harvard_JCHS_State_of_the_Nations_Housing_2019.pdf.

 

Past performance does not guarantee future results.

 

The Hoya Capital Housing 100 Index is a rules-based index composed of the 100 companies that collectively represent the performance of the US Housing Industry. The index is designed to track total annual spending on housing and housing-related services across the United States. The Index is divided into four US Housing Industry Business Segments, weighted based on their relative contribution to GDP: 1) Home Ownership and Rental Operators; 2) Home Building and Construction; 3) Home Improvement and Furnishings; 4) Home Financing, Technology & Services.

 

Diversification does not assure a profit or protect against loss in a declining market.

 

Hoya Capital Real Estate, LLC is the advisor to HOMZ which is distributed by Quasar Distributors, LLC.

 

Opinions expressed are subject to change at any time, are not guaranteed and should not be considered investment advice.

 

Fund holdings and sector allocations are subject to change and are not recommendations to buy or sell any security. Please refer to the Schedule of Investments in the report for a complete list of fund holdings.

 

3

 

 

Hoya Capital Housing ETF

 

Performance Summary

(Unaudited)

 

 

Growth of $10,000

 

 

Cumulative Returns
February 29, 2020

Since
Inception
(3/19/2019)

Hoya Capital Housing ETF - NAV

8.88%

Hoya Capital Housing ETF - Market

8.51%

Hoya Capital Housing 100TM Index

9.33%

S&P 500 Index®

6.25%

 

This chart illustrates the performance of a hypothetical $10,000 investment made on March 19, 2019 and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The chart assumes reinvestment of capital gains and dividends.

 

4

 

 

Hoya Capital Housing ETF

 

Portfolio Allocation

As of February 29, 2020 (Unaudited)

 

 

Sector

Percent of
Net Assets

Residential REITs & Real Estate Operators ♦

29.9%

Homebuilders

15.9

Home Building Products & Materials

14.5

Home Furnishings & Home Goods

13.0

Mortgage Lenders & Servicers

10.2

Home Improvement Retailers

6.1

Property, Title & Mortgage Insurance

5.1

Real Estate Technology, Brokerage & Services

4.8

Short-Term Investments

0.5

Other Assets in Excess of Liabilities +

0.0

Total

100.0%

 

The Index, and consequently the Fund, is expected to concentrate its investments in U.S. residential housing industry. The value of the Fund’s shares may rise and fall more than the value of shares of a fund that invests in securities of companies in a broader range of industries. See Note 7 in Notes to Financial Statements.

+

Represents less than 0.05% of net assets.

 

5

 

 

Hoya Capital Housing ETF

 

Schedule of Investments

February 29, 2020

 

 

 

Shares

 

Security Description

 

Value

 
       

COMMON STOCKS — 99.5%

       
       

Home Building Products & Materials — 14.5%

       
    884  

American Woodmark Corporation (a)

  $ 74,053  
    1,887  

AO Smith Corporation

    74,631  
    969  

Armstrong World Industries, Inc.

    97,045  
    2,703  

Beacon Roofing Supply, Inc. (a)

    80,279  
    476  

Cavco Industries, Inc. (a)

    96,019  
    1,003  

Eagle Materials, Inc.

    79,167  
    1,428  

Fortune Brands Home & Security, Inc.

    88,179  
    1,734  

Leggett & Platt, Inc.

    68,770  
    374  

Lennox International, Inc.

    85,321  
    3,077  

Louisiana-Pacific Corporation

    87,541  
    1,972  

Masco Corporation

    81,483  
    646  

Mohawk Industries, Inc. (a)

    78,263  
    1,360  

Owens Corning

    76,826  
    2,142  

PotlatchDeltic Corporation

    78,697  
    714  

PPG Industries, Inc.

    74,577  
    153  

Sherwin-Williams Company

    79,063  
    1,139  

Simpson Manufacturing Company, Inc.

    90,471  
    1,071  

Trex Company, Inc. (a)

    102,441  
    510  

Watsco, Inc.

    80,060  
    3,128  

Weyerhaeuser Company

    81,265  
              1,654,151  
       

Home Furnishings & Home Goods — 13.0%

       
    1,632  

Aaron’s, Inc.

    64,186  
    51  

Amazon.com, Inc. (a)

    96,071  
    11,475  

At Home Group, Inc. (a)

    57,375  
    7,514  

Bed Bath & Beyond, Inc.

    81,226  
    306  

Costco Wholesale Corporation

    86,029  
    1,955  

Herman Miller, Inc.

    66,939  
    2,040  

iRobot Corporation (a)

    97,900  
    3,043  

La-Z-Boy, Inc.

    87,182  
    833  

Middleby Corporation (a)

    93,138  
    476  

RH (a)

    86,346  
    1,921  

Sleep Number Corporation (a)

    84,620  
    748  

Target Corporation

    77,044  
    1,122  

Tempur Sealy International, Inc. (a)

    83,869  
    1,581  

TJX Companies, Inc.

    94,544  
    782  

Walmart, Inc.

    84,206  

 

The accompanying notes are an integral part of these financial statements.

 

6

 

 

Hoya Capital Housing ETF

 

Schedule OF INVESTMENTS
February 29, 2020 (Continued)

 

 

 

Shares

 

Security Description

 

Value

 
       

COMMON STOCKS — 99.5% (Continued)

       
       

Home Furnishings & Home Goods — 13.0% (Continued)

       
    1,122  

Wayfair, Inc. - Class A (a)

  $ 70,922  
    646  

Whirlpool Corporation

    82,598  
    1,394  

Williams-Sonoma, Inc.

    86,972  
              1,481,167  
       

Home Improvement Retailers — 6.1%

       
    1,666  

Home Depot, Inc.

    362,921  
    3,077  

Lowe’s Companies, Inc.

    327,916  
              690,837  
       

Homebuilders — 15.9%

       
    3,349  

DR Horton, Inc.

    178,401  
    5,355  

KB Home

    174,519  
    3,111  

Lennar Corporation - Class A

    187,718  
    4,726  

MDC Holdings, Inc.

    185,921  
    2,737  

Meritage Homes Corporation (a)

    173,690  
    51  

NVR, Inc. (a)

    187,026  
    4,692  

PulteGroup, Inc.

    188,618  
    8,007  

Taylor Morrison Home Corporation - Class A (a)

    180,318  
    4,624  

Toll Brothers, Inc.

    171,227  
    12,053  

TRI Pointe Group, Inc. (a)

    184,773  
              1,812,211  
       

Mortgage Lenders & Servicers — 10.2%

       
    4,675  

AGNC Investment Corporation

    79,662  
    8,806  

Annaly Capital Management, Inc.

    78,021  
    2,448  

Bank of America Corporation

    69,768  
    4,012  

Chimera Investment Corporation

    78,836  
    748  

First Republic Bank

    75,226  
    5,440  

Huntington Bancshares, Inc.

    66,749  
    629  

JPMorgan Chase & Company

    73,033  
    476  

M&T Bank Corporation

    66,821  
    10,608  

MFA Financial, Inc.

    76,696  
    5,253  

New Residential Investment Corporation

    81,737  
    544  

PNC Financial Services Group, Inc.

    68,762  
    4,845  

Regions Financial Corporation

    65,504  
    2,958  

Truist Financial Corporation

    136,482  
    5,610  

Two Harbors Investment Corporation

    76,015  
    1,496  

Wells Fargo & Company

    61,112  
              1,154,424  

 

The accompanying notes are an integral part of these financial statements.

 

7

 

 

Hoya Capital Housing ETF

 

Schedule OF INVESTMENTS
February 29, 2020 (Continued)

 

 

 

Shares

 

Security Description

 

Value

 
       

COMMON STOCKS — 99.5% (Continued)

       
       

Property, Title & Mortgage Insurance — 5.1%

       
    731  

Allstate Corporation

  $ 76,938  
    1,683  

Fidelity National Financial, Inc.

    65,233  
    1,309  

First American Financial Corporation

    74,744  
    5,746  

MGIC Investment Corporation

    69,124  
    3,621  

Old Republic International Corporation

    71,406  
    1,139  

Progressive Corporation

    83,329  
    3,162  

Radian Group, Inc.

    67,161  
    612  

Travelers Companies, Inc.

    73,324  
              581,259  
       

Real Estate Technology, Brokerage & Services — 4.8%

       
    2,006  

CoreLogic, Inc.

    91,012  
    2,193  

RE/MAX Holdings, Inc. - Class A

    63,926  
    7,888  

Realogy Holdings Corporation

    73,122  
    1,479  

RealPage, Inc. (a)

    94,804  
    4,029  

Redfin Corporation (a)

    109,025  
    1,955  

Zillow Group, Inc. - Class C (a)

    109,108  
              540,997  
       

Residential REITs & Real Estate Operators — 29.9%

       
    3,893  

American Campus Communities, Inc.

    169,112  
    6,919  

American Homes 4 Rent - Class A

    179,133  
    3,417  

Apartment Investment & Management Company - Class A

    163,469  
    850  

AvalonBay Communities, Inc.

    170,502  
    1,666  

Camden Property Trust

    176,563  
    5,933  

CubeSmart

    179,592  
    2,618  

Equity LifeStyle Properties, Inc.

    178,888  
    2,142  

Equity Residential

    160,864  
    578  

Essex Property Trust, Inc.

    163,782  
    1,717  

Extra Space Storage, Inc.

    172,318  
    5,304  

Healthpeak Properties, Inc.

    167,819  
    10,778  

Host Hotels & Resorts, Inc.

    156,065  
    6,154  

Invitation Homes, Inc.

    176,558  
    1,360  

Mid-America Apartment Communities, Inc.

    175,794  
    8,143  

Park Hotels & Resorts, Inc.

    148,691  
    867  

Public Storage

    181,307  
    1,156  

Sun Communities, Inc.

    176,729  
    3,808  

UDR, Inc.

    171,284  
    3,179  

Ventas, Inc.

    170,935  

 

The accompanying notes are an integral part of these financial statements.

 

8

 

 

Hoya Capital Housing ETF

 

Schedule OF INVESTMENTS
February 29, 2020 (Continued)

 

 

 

Shares

 

Security Description

 

Value

 
       

COMMON STOCKS — 99.5% (Continued)

       
       

Residential REITs & Real Estate Operators — 29.9% (Continued)

       
    2,193  

Welltower, Inc.

  $ 164,080  
              3,403,485  
       

TOTAL COMMON STOCKS (Cost $11,464,914)

    11,318,531  
                 
       

SHORT-TERM INVESTMENTS — 0.5%

       
    59,833  

First American Government Obligations Fund, Class X, 1.49%*

    59,833  
       

TOTAL SHORT-TERM INVESTMENTS (Cost $59,833)

    59,833  
       

TOTAL INVESTMENTS — 100.0% (Cost $11,524,747)

    11,378,364  
       

Other Assets in Excess of Liabilities — 0.0% +

    3,045  
       

NET ASSETS — 100.0%

  $ 11,381,409  

 

Percentages are stated as a percent of net assets.

 

The Fund’s security classifications are defined by the Fund’s Adviser.

 

(a)

Non-income producing security.

*

Rate shown is the annualized seven-day yield as of February 29, 2020.

+

Represents less than 0.05% of net assets.

The Index, and consequently the Fund, is expected to concentrate its investments in U.S. residential housing industry. The value of the Fund’s shares may rise and fall more than the value of shares of a fund that invests in securities of companies in a broader range of industries. See Note 7 in Notes to Financial Statements.

REIT - Real Estate Investment Trust

 

The accompanying notes are an integral part of these financial statements.

 

9

 

 

Hoya Capital Housing ETF

 

Statement of Assets and Liabilities

February 29, 2020

 

 

ASSETS

       

Investments in securities, at value *

  $ 11,378,364  

Dividends and interest receivable

    7,414  

Total assets

    11,385,778  
         

LIABILITIES

       

Management fees payable

    4,369  

Total liabilities

    4,369  
         

NET ASSETS

  $ 11,381,409  
         

Net Assets Consist of:

       

Paid-in capital

  $ 11,553,878  

Total distributable earnings (accumulated deficit)

    (172,469 )

Net assets

  $ 11,381,409  
         

Net Asset Value:

       

Net Assets

  $ 11,381,409  

Shares outstanding^

    425,000  

Net asset value, offering and redemption price per share

  $ 26.78  

*Identified Cost:

       

Investments in Securities

  $ 11,524,747  

 

^

No par value, unlimited number of shares authorized.

 

The accompanying notes are an integral part of these financial statements.

 

10

 

 

Hoya Capital Housing ETF

 

Statement of Operations

For the Period Ended February 29, 2020*

 

 

INCOME

       

Dividends

  $ 139,136  

Interest

    318  

Total investment income

    139,454  
         

EXPENSES

       

Management fees

    30,595  

Total expenses

    30,595  
         

Net investment income (loss)

    108,859  
         

REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS

       

Net realized gain (loss) on investments

    (26,086 )

Change in unrealized appreciation (depreciation) on investments

    (146,383 )

Net realized and unrealized gain (loss) on investments

    (172,469 )

Net increase (decrease) in net assets resulting from operations

  $ (63,610 )

 

*

The Fund commenced operations on March 19, 2019. The information presented is for the period from March 19, 2019 to February 29, 2020.

 

The accompanying notes are an integral part of these financial statements.

 

11

 

 

Hoya Capital Housing ETF

 

Statement of Changes in Net Assets

 

 

   

Period Ended
February 29, 2020
(1)

 

OPERATIONS

       

Net investment income (loss)

  $ 108,859  

Net realized gain (loss) on investments

    (26,086 )

Change in unrealized appreciation (depreciation) of investments

    (146,383 )

Net increase (decrease) in net assets resulting from operations

    (63,610 )
         

DISTRIBUTIONS TO SHAREHOLDERS

       

Net distributions to shareholders

    (109,411 )

Total distributions to shareholders

    (109,411 )
         

CAPITAL SHARE TRANSACTIONS

       

Proceeds from shares sold

    11,554,402  

Transaction fees (see Note 6)

    28  

Net increase (decrease) in net assets derived from capital share transactions (a)

    11,554,430  

Net increase (decrease) in net assets

  $ 11,381,409  
         

NET ASSETS

       

Beginning of period

  $  

End of period

  $ 11,381,409  

 

(a)

A summary of capital shares transactions is as follows:

 

   

Shares

 

Subscriptions

    425,000  

Redemptions

     

Net increase (decrease)

    425,000  

 

(1)

Fund commenced operations on March 19, 2019. The information presented is for the period from March 19, 2019 to February 29, 2020.

 

The accompanying notes are an integral part of these financial statements.

 

12

 

 

Hoya Capital Housing ETF

 

Financial Highlights

For a capital share outstanding throughout the period

 

 

   

Period Ended
February 29, 2020
(1)

 

Net asset value, beginning of period

  $ 25.00  
         

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

       

Net investment income (loss) (2)

    0.43  

Net realized and unrealized gain (loss) on investments

    1.80 (7) 

Total from investment operations

    2.23  
         

DISTRIBUTIONS TO SHAREHOLDERS:

       

Distributions from:

       

Net investment income

    (0.45 )

Total distributions

    (0.45 )
         

CAPITAL SHARE TRANSACTIONS:

       

Transaction fees (see Note 6)

    0.00 (3) 
         

Net asset value, end of year/period

  $ 26.78  
         

Total return

    8.88 %(4)
         

SUPPLEMENTAL DATA:

       

Net assets at end of year/period (000’s)

  $ 11,381  
         

RATIOS TO AVERAGE NET ASSETS:

       

Expenses to average net assets

    0.45 %(5)

Net investment income (loss) to average net assets (6)

    1.60 %(5)

Portfolio turnover rate (4)(6)

    11 %

 

(1)

Commencement of operations on March 19, 2019.

(2)

Calculated based on average shares outstanding during the period.

(3)

Represents less than $0.005 per share.

(4)

Not annualized.

(5)

Annualized.

(6)

Excludes the impact of in-kind transactions.

(7)

Realized and unrealized gains (losses) per share are balancing amounts necessary to reconcile the change in net asset value per share for the period and may not reconcile with the aggregate gains and losses in the Statement of Operations due to share transactions for the period.

 

The accompanying notes are an integral part of these financial statements.

 

13

 

 

Hoya Capital Housing ETF

 

Notes to the Financial Statements

February 29, 2020

 

 

NOTE 1 – ORGANIZATION

 

Hoya Capital Housing ETF (the “Fund”) is a diversified series of ETF Series Solutions (“ESS” or the “Trust”), an open-end management investment company consisting of multiple investment series, organized as a Delaware statutory trust on February 9, 2012. The Trust is registered with the U.S. Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company and the offering of the Fund’s shares is registered under the Securities Act of 1933, as amended (the “Securities Act”). The investment objective of the Fund is to track the performance, before fees and expenses, of the Hoya Capital Housing 100™ Index (the “Index”). The Fund commenced operations on March 19, 2019.

 

The end of the reporting period for the Fund is February 29, 2020, and the period covered by these Notes to Financial Statements is the fiscal period from March 19, 2019 to February 29, 2020 (the “current fiscal period”).

 

NOTE 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 Standards Codification (“ASC”) Topic 946 Financial Services-Investment Companies.

 

The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted the United States of America (“U.S. GAAP”).

 

 

A.

Security Valuation. All equity securities, including domestic and foreign common stocks, preferred stocks and exchange traded funds that are traded on a national securities exchange, except those listed on the Nasdaq Global Market®, Nasdaq Global Select Market® and the Nasdaq Capital Market® exchanges (collectively, “Nasdaq”) are valued at the last reported sale price on the exchange on which the security is principally traded. Securities traded on Nasdaq will be valued at the Nasdaq Official Closing Price (“NOCP”). If, on a particular day, an exchange-traded or Nasdaq security does not trade, then the mean between the most recent quoted bid and asked prices will be used. All equity securities that are not traded on a listed exchange are valued at the last sale price in the over-the-counter market. If a non-exchange traded security does not trade on a particular day, then the mean between the last quoted closing bid and asked price will be used. Prices denominated in foreign currencies are converted to U.S. dollar equivalents at the current exchange rate, which approximates fair value.

 

14

 

 

Hoya Capital Housing ETF

 

NOTES TO the FINANCIAL STATEMENTS
February 29, 2020 (Continued)

 

 

Investments in mutual funds, including money market funds, are valued at their net asset value (“NAV”) per share.

 

Securities for which quotations are not readily available are valued at their respective fair values in accordance with pricing procedures adopted by the Fund’s Board of Trustees (the “Board”). When a security is “fair valued,” consideration is given to the facts and circumstances relevant to the particular situation, including a review of various factors set forth in the pricing procedures adopted by the Board. The use of fair value pricing by the Fund may cause the NAV of its shares to differ significantly from the NAV that would be calculated without regard to such considerations.

 

As described above, the Fund utilizes various methods to measure the fair value of its investments on a recurring basis. U.S. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are:

 

 

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 instruments, 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 availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.

 

15

 

 

Hoya Capital Housing ETF

 

NOTES TO the FINANCIAL STATEMENTS
February 29, 2020 (Continued)

 

 

The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

 

The following is a summary of the inputs used to value the Fund’s investments as of the end of the current fiscal period:

 

Assets^

 

Level 1

   

Level 2

   

Level 3

   

Total

 

Common Stocks

  $ 11,318,531                 $ 11,318,531  

Short-Term Investments

    59,833                   59,833  

Total Investments in Securities

  $ 11,378,364                 $ 11,378,364  

 

^

See Schedule of Investments for breakout of investments by sector classification.

 

During the current fiscal period, the Fund did not recognize any transfers to or from Level 3.

 

 

B.

Federal Income Taxes. The Fund’s policy is to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its net investment income and net capital gains to shareholders. Therefore, no federal income tax provision is required. The Fund plans to file U.S. Federal and applicable state and local tax returns.

 

The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management 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. Income and capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits on uncertain tax positions as income tax expense in the Statement of Operations. During the current fiscal period, the Fund did not incur any interest or penalties.

 

 

C.

Security Transactions and Investment Income. Investment securities transactions are accounted for on the trade date. Gains and losses realized on sales of securities are determined on a specific identification basis. Dividend

 

16

 

 

Hoya Capital Housing ETF

 

NOTES TO the FINANCIAL STATEMENTS
February 29, 2020 (Continued)

 

 

income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Withholding taxes on foreign dividends, if any, have been provided for in accordance with the Fund’s understanding of the applicable tax rules and regulations.

 

Distributions received from the Fund’s investments in Real Estate Investment Trusts (“REITs”) may be characterized as ordinary income, net capital gain, or a return of capital. The proper characterization of REIT distributions is generally not known until after the end of each calendar year. As such, the Fund must use estimates in reporting the character of its income and distributions received during the current calendar year for financial statement purposes. The actual character of distributions to the Fund’s shareholders will be reflected on the Form 1099 received by shareholders after the end of the calendar year. Due to the nature of REIT investments, a portion of the distributions received by the Fund’s shareholders may represent a return of capital.

 

 

D.

Distributions to Shareholders. Distributions to shareholders from net investment income, if any, are declared and paid monthly by the Fund. Distributions to shareholders of net realized gains on securities are declared and paid by the Fund on, at least, an annual basis. Distributions are recorded on the ex-dividend date.

 

 

E.

Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make 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, as well as the reported amounts of revenues and expenses during the current fiscal period. Actual results could differ from those estimates.

 

 

F.

Share Valuation. The NAV per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of outstanding shares of the Fund, rounded to the nearest cent. The Fund’s shares will not be priced on the days on which the New York Stock Exchange (“NYSE”) is closed for trading. The offering and redemption price per share of the Fund is equal to the Fund’s NAV per share.

 

 

G.

Reclassifications of Capital Accounts. U.S. GAAP requires that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or NAV per share.

 

17

 

 

Hoya Capital Housing ETF

 

NOTES TO the FINANCIAL STATEMENTS
February 29, 2020 (Continued)

 

 

For the fiscal period ended February 29, 2020, the following table shows the reclassifications made:

 

   

Distributable
Earnings/
(Accumulated
Deficit)

   

Paid-In Capital

 

Hoya Capital Housing ETF

  $ 552     $ (552 )

 

During the fiscal period ended February 29, 2020, the Fund realized $0 in net capital gains resulting from in-kind redemptions.

 

 

H.

Guarantees and Indemnifications. In the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.

 

 

I.

Subsequent Events. In preparing these financial statements, management has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued. The recent global outbreak of COVID-19 has disrupted economic markets and the prolonged economic impact is uncertain. The operational and financial performance of the issuers of securities in which the Fund invests depends on future developments, including the duration and spread of the outbreak, and such uncertainity may in turn impact the value of the Fund’s investments. Additionally, effective March 31, 2020, Foreside Financial Group, LLC (“Foreside”) acquired Quasar Distributors, LLC (“Quasar”), the Fund‘s Distributor, from U.S. Bancorp. As a result of the acquisition, Quasar became a wholly-owned broker-dealer subsidiary of Foreside and is no longer affiliated with U.S. Bancorp. The Board has approved a new Distribution Agreement to enable Quasar to continue serving as the Fund’s Distributor. There were no other events or transactions that occurred during the period subsequent to the end of the current fiscal period, that materially impacted the amounts or disclosures in the Fund’s financial statements.

 

 

J.

New Accounting Pronouncements. In August 2018, FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The primary focus of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements. The changes affect all companies that are required to include fair value measurement disclosures. In general, the amendments in ASU 2018-

 

18

 

 

Hoya Capital Housing ETF

 

NOTES TO the FINANCIAL STATEMENTS
February 29, 2020 (Continued)

 

 

13 are effective for all entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. An entity is permitted to early adopt the removed or modified disclosures upon the issuance of ASU 2018-13 and may delay adoption of the additional disclosures, which are required for public companies only, until their effective date. Management has evaluated the impact of these changes and has adopted the disclosure framework.

 

NOTE 3 – COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS

 

Hoya Capital Real Estate, LLC (the “Adviser”), serves as the investment adviser to the Fund. Pursuant to an Investment Advisory Agreement (“Advisory Agreement”) between the Trust, on behalf of the Fund, and the Adviser, the Adviser provides investment advice to the Fund and oversees the day-to-day operations of the Fund, subject to the direction and control of the Board and the officers of the Trust. Under the Advisory Agreement, the Adviser is also responsible for arranging, in consultation with Penserra Capital Management, LLC, (the “Sub-Adviser”), transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Fund to operate. Under the Advisory Agreement, the Adviser has agreed to pay all expenses of the Fund, except for: the fee paid to the Adviser pursuant to the Advisory Agreement, interest charges on any borrowings, dividends and other expenses on securities sold short, 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 and distribution (12b-1) fees and expenses. For services provided to the Fund, the Fund pays the Adviser at an annual rate of 0.45% based on the Fund’s average daily net assets.

 

U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services (“Fund Services” or Administrator”), acts as the Fund’s Administrator and, in that capacity, performs various administrative and accounting services for the Fund. The Administrator prepares various federal and state regulatory filings, reports and returns for the Fund, including regulatory compliance monitoring and financial reporting; prepares reports and materials to be supplied to the Board; monitors the activities of the Fund’s Custodian, transfer agent, and fund accountant. Fund Services also serves as the transfer agent and fund accountant to the Fund. U.S. Bank N.A. (the “Custodian”), an affiliate of Fund Services, serves as the Fund’s Custodian.

 

Quasar Distributors, LLC, (the “Distributor”) acts as the Fund’s principal underwriter in a continuous public offering of the Fund’s shares. Until March 31, 2020, the Distributor was an affiliate of the Administrator.

 

A Trustee and all officers of the Trust are affiliated with the Administrator, Distributor (until March 31, 2020), and Custodian.

 

19

 

 

Hoya Capital Housing ETF

 

NOTES TO the FINANCIAL STATEMENTS
February 29, 2020 (Continued)

 

 

NOTE 4 – PURCHASES AND SALES OF SECURITIES

 

During the current fiscal period, purchases and sales of securities by the Fund, excluding short-term securities and in-kind transactions, were $923,070 and $834,523, respectively.

 

During the current fiscal period, there were no purchases or sales of U.S. Government securities.

 

During the current fiscal period, in-kind transactions associated with creations were $11,428,191 and there were no redemptions.

 

During the current fiscal period, the Fund paid $0 in brokerage commissions on trades of securities to Penserra Securities, LLC, an affiliate of the Sub-Adviser.

 

NOTE 5 – INCOME TAX INFORMATION

 

The components of distributable earnings (accumulated deficit) and cost basis of investments for federal income tax purposes at February 29, 2020 were as follows:

 

Tax cost of investments

  $ 11,531,560  

Gross tax unrealized appreciation

  $ 678,631  

Gross tax unrealized depreciation

    (831,827 )

Net tax unrealized appreciation (depreciation)

    (153,196 )

Undistributed ordinary income

     

Undistributed long term capital gains

     

Accumulated gain (loss)

     

Other accumulated gain (loss)

    (19,273 )

Distributable earnings (accumulated deficit)

  $ (172,469 )

 

The differences between the cost basis for financial statement and federal income tax purposes are primarily due to timing differences in recognizing wash sales.

 

A regulated investment company may elect for any taxable year to treat any portion of any qualified late year loss as arising on the first day of the next taxable year. Qualified late year losses are certain capital and ordinary losses which occur during the portion of the Fund’s taxable year subsequent to October 31 and December 31, respectively. For the taxable year ended February 29, 2020, the Fund did not elect to defer any post-October capital losses or any late-year ordinary losses.

 

As of February 29, 2020, the Fund had a short-term capital loss carryforward of $19,273. This amount does not have an expiration date.

 

The tax character of distributions paid by the Fund during the period ended February 29, 2020 was $109,411 of ordinary income.

 

20

 

 

Hoya Capital Housing ETF

 

NOTES TO the FINANCIAL STATEMENTS
February 29, 2020 (Continued)

 

 

NOTE 6 – SHARE TRANSACTIONS

 

Shares of the Fund are listed and trade on the New York Stock Exchange Arca, Inc. (“NYSE Arca”). Market prices for the shares may be different from their NAV. The Fund issues and redeems shares on a continuous basis at NAV generally in blocks of at least 25,000 shares, called “Creation Units.” Creation Units are issued and redeemed principally in-kind for securities included in a specified universe. Once created, shares generally trade in the secondary market at market prices that change throughout the day. Except when aggregated in Creation Units, shares are not redeemable securities of the Fund. Creation Units may only be purchased or redeemed by certain financial institutions (“Authorized Participants”). 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 Depository Trust Company participant and, in each case, must have executed a Participation Agreement with the Distributor. Most retail investors do not qualify as Authorized Participants nor have the resources to buy and sell whole Creation Units. Therefore, they are unable to purchase or redeem shares directly from the Fund. Rather, most retail investors may purchase shares in the secondary market with the assistance of a broker and are subject to customary brokerage commissions or fees.

 

The Fund currently offers one class of shares, which has no front-end sales load, no deferred sales charge, and no redemption fee. A fixed transaction fee is imposed for the transfer and other transaction costs associated with the purchase or sale of Creation Units. The standard fixed transaction fee for the Fund is $250, payable to the Custodian. The fixed transaction fee may be waived on certain orders if the Fund’s Custodian has determined to waive some or all of the costs associated with the order or another party, such as the Adviser, has agreed to pay such fee. In addition, a variable fee, payable to the Fund, may be charged on all cash transactions or substitutes for Creation Units of up to a maximum of 2% as a percentage of the value of the Creation Units subject to the transaction. Variable fees received by the Fund, if any, are displayed in the Capital Shares Transactions section of the Statement of Changes in Net Assets. The Fund may issue an unlimited number of shares of beneficial interest, with no par value. All shares of the Fund have equal rights and privileges.

 

NOTE 7 – PRINCIPAL RISK

 

Concentration Risk. The Fund’s investments will be concentrated in an industry or group of industries to the extent the Index is so concentrated, and the Index is expected to be concentrated in housing and real estate-related industries. When the Fund focuses its investments in a particular industry or sector, it thereby presents a more concentrated risk and its performance will be especially sensitive to developments that significantly affect that industry or group of industries. In addition, the value of shares may change at different rates compared to the value of shares of a fund with

 

21

 

 

Hoya Capital Housing ETF

 

NOTES TO the FINANCIAL STATEMENTS
February 29, 2020 (Continued)

 

 

investments in a more diversified mix of industries. An industry may have above-average performance during particular periods, but may also move up and down more than the broader market. The several industries that constitute a sector may all react in the same way to economic, political or regulatory events. The Fund’s performance could also be affected if the sectors, industries, or sub-sectors do not perform as expected. Alternatively, the lack of exposure to one or more sectors or industries may adversely affect performance.

 

Construction and Housing Risk. The construction and housing industry can be significantly affected by the national, regional and local real estate markets. This industry is also sensitive to interest rate fluctuations which can cause changes in the availability of mortgage capital and directly affect the purchasing power of potential homebuyers. The building industry can be significantly affected by changes in government spending, consumer confidence, demographic patterns and the level of new and existing home sales.

 

NOTE 8 – BENEFICIAL OWNERSHIP

 

The beneficial ownership, either directly or indirectly, of 25% or more of the voting securities of a fund creates a presumption of control of a fund, under section 2(a)(9) of the 1940 Act. At the end of the current fiscal period, employees of the Adviser indirectly owned greater than 25% of the outstanding shares of the Fund.

 

22

 

 

Hoya Capital Housing ETF

 

Report of Independent Registered Public Accounting Firm

 

 

To the Shareholders of Hoya Capital Housing ETF and
Board of Trustees of ETF Series Solutions

 

Opinion on the Financial Statements

 

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Hoya Capital Housing ETF (the “Fund”), a series of ETF Series Solutions, as of February 29, 2020, and the related statements of operations and changes in net assets and the financial highlights for the period March 19, 2019 (commencement of operations) to February 29, 2020, including the related notes (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 February 29, 2020, the results of its operations, the changes in its net assets, and the financial highlights for the period indicated above, in conformity with accounting principles generally accepted in the United States of America.

 

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 audit. 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 audit 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 audit 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 procedures included confirmation of securities owned as of February 29, 2020, by correspondence with the custodian. Our audit also included evaluating the accounting

 

23

 

 

Hoya Capital Housing ETF

 

Report of Independent Registered Public Accounting Firm

(Continued)

 

 

principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

We have served as the Fund’s auditor since 2019.

 

 

COHEN & COMPANY, LTD.
Milwaukee, Wisconsin
April 28, 2020

 

24

 

 

Hoya Capital Housing ETF

 

Trustees and Officers

(Unaudited)

 

 

Additional information about each Trustee of the Trust is set forth below. The address of each Trustee of the Trust is c/o U.S. Bank Global Services, 615 E. Michigan Street, Milwaukee, WI 53202.

 

Name and
Year of Birth

Position
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

Leonard M. Rush, CPA

Born: 1946

Lead Independent Trustee and Audit Committee Chairman

Indefinite term;

since 2012

Retired; formerly Chief Financial Officer, Robert W. Baird & Co. Incorporated (wealth management firm) (2000–2011).

49

Independent Trustee, Managed Portfolio Series (39 portfolios) (since 2011).

David A. Massart

Born: 1967

Trustee

Indefinite term;

since 2012

Co-Founder, President, and Chief Investment Strategist, Next Generation Wealth Management, Inc. (since 2005).

49

Independent Trustee, Managed Portfolio Series (39 portfolios) (since 2011).

Janet D. Olsen

Born: 1956

Trustee

Indefinite term;

since 2018

Retired; formerly Managing Director and General Counsel, Artisan Partners Limited Partnership (investment adviser) (2000–2013); Executive Vice President and General Counsel, Artisan Partners Asset Management Inc. (2012–2013); Vice President and General Counsel, Artisan Funds, Inc. (investment company) (2001–2012).

49

Independent Trustee, PPM Funds (9 portfolios) (since 2018).

Interested Trustee

         

Michael A. Castino

Born: 1967

Trustee and Chairman

Indefinite term; Trustee since 2014; Chairman since 2013

Senior Vice President, U.S. Bancorp Fund Services, LLC (since 2013); Managing Director of Index Services, Zacks Investment Management (2011–2013).

49

None

 

25

 

 

Hoya Capital Housing ETF

 

Trustees and Officers

(Unaudited) (Continued)

 

 

The officers of the Trust conduct and supervise its daily businesses. The address of each officer of the Trust is c/o U.S. Bank Global Services, 615 E. Michigan Street, Milwaukee, WI 53202. Additional information about the Trust’s officers is as follows.

 

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

Principal Officers of the Trust

Kristina R. Nelson

Born: 1982

President

Indefinite term;

since 2019

Senior Vice President, U.S. Bancorp Fund Services, LLC (since 2020); Vice President, U.S. Bancorp Fund Services, LLC (2014–2020); Assistant Vice President, U.S. Bancorp Fund Services, LLC (2013–2014).

Michael D. Barolsky

Born: 1981

Vice President and Secretary

Indefinite term;

since 2014 (other roles since 2013)

Senior Vice President, U.S. Bancorp Fund Services, LLC (since 2019); Vice President, U.S. Bancorp Fund Services, LLC (2012-2019); Associate, Thompson Hine LLP (law firm) (2008–2012).

James R. Butz

Born: 1982

Chief Compliance Officer

Indefinite term;

since 2015

Senior Vice President, U.S. Bancorp Fund Services, LLC (since 2015); Vice President, U.S. Bancorp Fund Services, LLC (2014–2015); Assistant Vice President, U.S. Bancorp Fund Services, LLC (2011–2014).

Kristen M. Weitzel, CPA

Born: 1977

Treasurer

Indefinite term;

since 2014 (other roles since 2013)

Vice President, U.S. Bancorp Fund Services, LLC (since 2015); Assistant Vice President, U.S. Bancorp Fund Services, LLC (2011–2015); Manager, PricewaterhouseCoopers LLP (accounting firm) (2005–2011).

Brett M. Wickmann

Born: 1982

Assistant Treasurer

Indefinite term;

since 2017

Vice President, U.S. Bancorp Fund Services, LLC (since 2017); Assistant Vice President, U.S. Bancorp Fund Services, LLC (2012–2017).

Elizabeth A. Winske

Born: 1983

Assistant Treasurer

Indefinite term;

since 2017

Assistant Vice President, U.S. Bancorp Fund Services, LLC (since 2016); Officer, U.S. Bancorp Fund Services, LLC (2012–2016).

Jason E. Shlensky

Born: 1987

Assistant Treasurer

Indefinite term;

since 2019

Assistant Vice President, U.S. Bancorp Fund Services, LLC (since 2019); Officer, U.S. Bancorp Fund Services, LLC (2014–2019).

Isabella K. Gentile

Born: 1994

Assistant Secretary

Indefinite term;

since 2020

Regulatory Administration Attorney, U.S. Bancorp Fund Services, LLC (since 2019), Regulatory Administration Intern, U.S. Bancorp Fund Services, LLC (2018-2019) and Law Student (2016-2019).

 

The Statement of Additional Information (“SAI”) includes additional information about the Trustees and is available without charge, upon request, by calling toll-free at (800) 617-0004, by accessing the SEC’s website at www.sec.gov, or by accessing the Funds’ website at www.thehousingetf.com.

 

26

 

 

Hoya Capital Housing ETF

 

Expense Example

For the Six-Months Ended February 29, 2020 (Unaudited)

 

 

As a shareholder of the Fund 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. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated 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 the 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.

 

 

Beginning
Account Value
September 1, 2019

Ending
Account Value
February 29, 2020

Expenses
Paid During
the Period
(1)

Actual

$ 1,000.00

$ 989.80

$2.23

Hypothetical (5% annual return before expenses)

$ 1,000.00

$ 1,022.63

$2.26

 

(1)

The dollar amount shown as expenses paid during the period is equal to the annualized expense ratio, 0.45%, multiplied by the average account value during the period, multiplied by 182/366, to reflect the one-half year period.

 

27

 

 

Hoya Capital Housing ETF

 

Federal Tax Information

(Unaudited)

 

 

For the fiscal year ended February 29, 2020, certain dividends paid by the Funds may be subject to the maximum rate of 23.8%, as provided for by the Jobs and Growth Tax relief Reconciliation Act of 2003.

 

The percentage of dividends declared from ordinary income designated as qualified dividend income was 73.01%.

 

For corporate shareholders, the percentage of ordinary income distributions qualified for the corporate dividend received deduction for the fiscal year ended February 29, 2020 was 72.64%.

 

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 the Fund was 0.00%.

 

Information About Portfolio Holdings
(Unaudited)

 

 

The Fund files its complete schedules of portfolio holdings for its first and third fiscal quarters with the SEC on Form N-Q or Part F of Form N-PORT (beginning with filings after March 31, 2020). The Fund’s Form N-Q or Part F of Form N-PORT is available without charge, upon request, by calling toll-free at (800) 617-0004. Furthermore, you may obtain the Form N-Q or Part F of Form N-PORT on the SEC’s website at www.sec.gov. The Fund’s portfolio holdings are posted on its website at www.thehousingetf.com daily.

 

Information About Proxy Voting
(Unaudited)

 

 

A description of the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is provided in the SAI. The SAI is available without charge, upon request, by calling toll-free at (800) 617-0004, by accessing the SEC’s website at www.sec.gov, or by accessing the Fund’s website at www.thehousingetf.com.

 

When available, information regarding how the Fund voted proxies relating to portfolio securities during the twelve-months ending June 30 is available by calling toll-free at (800) 617-0004 or by accessing the SEC’s website at www.sec.gov.

 

28

 

 

Hoya Capital Housing ETF

 

Frequency Distribution of Premiums and Discounts

(Unaudited)

 

 

Information regarding how often shares of the Fund trade on the exchange at a price above (i.e., at a premium) or below (i.e., at a discount) the NAV of the Fund is available, without charge, on the Fund’s website at www.thehousingetf.com.

 

29

 

 

Adviser

Hoya Capital Real Estate, LLC
137 Rowayton Avenue, Suite 430
Rowayton, Connecticut 06853

 

Index Provider

Hoya Capital Index Innovations, LLC
137 Rowayton Avenue, Suite 430
Rowayton, Connecticut 06853

 

Sub-Adviser

Penserra Capital Management, LLC
4 Orinda Way, Suite 100-A
Orinda, California 94563

 

Distributor

Quasar Distributors, LLC
111 East Kilbourn Avenue, Suite 1250
Milwaukee, Wisconsin 53202

 

Custodian

U.S. Bank National Association
1555 North Rivercenter Drive, Suite 302
Milwaukee, Wisconsin 53212

 

Transfer Agent

U.S. Bancorp Fund Services, LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202

 

Independent Registered Public Accounting Firm

Cohen & Company, Ltd.
342 North Water Street, Suite 830
Milwaukee, Wisconsin 53202

 

Legal Counsel

Morgan, Lewis & Bockius LLP
1111 Pennsylvania Avenue, NW
Washington, DC 20004

 

Hoya Capital Housing ETF

Symbol – HOMZ
CUSIP – 26922A230

 

 

 

 

Item 2. Code of Ethics.

 

The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer and principal financial officer. The registrant has not made any amendments to its code of ethics during the period covered by this report. The registrant has not granted any waivers from any provisions of the code of ethics during the period covered by this report.

A copy of the registrant’s Code of Ethics is filed herewith.

 

Item 3. Audit Committee Financial Expert.

 

The registrant’s board of trustees has determined that there is at least one audit committee financial expert serving on its audit committee. Mr. Leonard Rush is the “audit committee financial expert” and is considered to be “independent” as each term is defined in Item 3 of Form N-CSR.

 

Item 4. Principal Accountant Fees and Services.

 

The registrant has engaged its principal accountant to perform audit services, audit-related services, tax services and other services during the past two fiscal years. “Audit services” refer to performing an audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. “Audit-related services” refer to the assurance and related services by the principal accountant that are reasonably related to the performance of the audit. “Tax services” refer to professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. There were no “Other services” provided by the principal accountant. The following table details the aggregate fees billed or expected to be billed for each of the last two fiscal years for audit fees, audit-related fees, tax fees and other fees by the principal accountant.

 

Hoya Capital Housing ETF

  FYE 2/29/2020
Audit Fees $14,500
Audit-Related Fees N/A
Tax Fees $4,500
All Other Fees N/A

 

The audit committee has adopted pre-approval policies and procedures that require the audit committee to pre-approve all audit and non-audit services of the registrant, including services provided to any entity affiliated with the registrant.

 

 

 

The percentage of fees billed by Cohen & Company, Ltd. applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows:

 

Hoya Capital Housing ETF

  FYE 2/29/2020
Audit-Related Fees 0%
Tax Fees 0%
All Other Fees 0%

 

All of the principal accountant’s hours spent on auditing the registrant’s financial statements were attributed to work performed by full-time permanent employees of the principal accountant. (If more than 50 percent of the accountant’s hours were spent to audit the registrant's financial statements for the most recent fiscal year, state how many hours were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.)

 

The following table indicates the non-audit fees billed or expected to be billed by the registrant’s accountant for services to the registrant and to the registrant’s investment adviser (and any other controlling entity, etc.—not sub-adviser) for the last two years. The audit committee of the board of trustees/directors has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser is compatible with maintaining the principal accountant's independence and has concluded that the provision of such non-audit services by the accountant has not compromised the accountant’s independence.

 

Hoya Capital Housing ETF

Non-Audit Related Fees FYE 2/29/2020
Registrant N/A
Registrant’s Investment Adviser N/A

 

Item 5. Audit Committee of Listed Registrants.

 

The registrant is an issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934, (the “Act”) and has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Act. The independent members of the committee are as follows: David A. Massart, and Leonard M. Rush.

 

Item 6. Investments.

 

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.

 

There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of trustees.

 

Item 11. Controls and Procedures.

 

(a)The Registrant’s President (principal executive officer) and Treasurer (principal financial officer) 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 half year 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.

 

Item12. 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. Filed herewithin.

 

(2) A separate certification for each principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

 

(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.

 

(4) Change in the registrant’s independent public accountant. There was no change in the registrant’s public accountant for the period covered by this report.

 

(b)Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.

 

 

 

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 Series Solutions  
     
By (Signature and Title)* /s/ Kristina R. Nelson   
  Kristina R. Nelson, President (principal executive officer)  
     
Date 4/28/2020  

 

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/ Kristina R. Nelson   
  Kristina R. Nelson, President (principal executive officer)  
     
Date 4/28/2020  
     
By (Signature and Title)* /s/ Kristen M. Weitzel  
  Kristen M. Weitzel, Treasurer (principal financial officer)  
     
Date 4/28/2020