N-CSRS 1 fp0058331_ncsrs.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: August 31, 2020

 

 

 

Item 1. Reports to Stockholders.

 

 

Hoya Capital Housing ETF
Ticker: HOMZ

 

Semi-Annual Report

August 31, 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

Portfolio Allocation

5

Schedule of Investments

6

Statement of Assets and Liabilities

10

Statement of Operations

11

Statements of Changes in Net Assets

12

Financial Highlights

13

Notes to the Financial Statements

14

Expense Example

22

Approval of Sub-Advisory Agreement & Board Consideration

23

Review of Liquidity Risk Management Program

25

Federal Tax Information

26

Information About Portfolio Holdings

26

Information About Proxy Voting

26

Frequency Distribution of Premiums and Discounts

27

Information About the Fund’s Trustees

27

 

 

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 1, 2020 through August 31, 2020 (the “current fiscal period”).

 

HOMZ is a passively-managed ETF that offers diversified exposure across the U.S. housing sector, one of the largest and most critical asset classes in the world. 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 including homebuilders, residential real estate investment trusts (“REITs”), home improvement companies, and real estate services and technology firms.

 

During this current fiscal period, the market value and net asset value (“NAV”) for HOMZ generated a cumulative total return of 10.96% and 10.40%, respectively, compared to a return of 7.15% on the S&P 400 Index and 19.63% on the S&P 500 Index. Hoya Capital Housing 100 Index increased 10.53%. Meanwhile, outstanding shares ended the current fiscal period at 1,000,000.

 

During the current fiscal period, Hoya Capital Real Estate reduced the expense ratio for HOMZ from 0.45% to 0.30%, effective August 1, 2020. With the fee cut, HOMZ is the lowest-cost ETF out of three funds in the FactSet’s Equity: U.S. Homebuilding segment as of the end of the current fiscal period. (1)

 

The U.S. Housing Industry emerged as a leader of the early post-pandemic economic recovery during the current fiscal period as key housing market indicators exhibited a sharp rebound towards the end of period following a slowdown at the outset of the coronavirus pandemic. During this period of significant uncertainty, Americans have exhibited a propensity to prioritize housing-related investments, underscoring our belief that housing is the ultimate “essential service.”

 

During the current fiscal period, the Home Improvement & Furnishings and the Home Building & Construction sectors were the leading contributors to the fund’s performance. Performance among these sectors was driven by a confluence of favorable near-term factors and long-term tailwinds that converged during the period that generated a highly favorable environment for the single-family housing industry, in particular. New Home Sales (2) and Existing Home Sales (3) each rose to their highest annualized rate in nearly fourteen years in August 2020.

 

Leading detractors during the current fiscal period were the Home Ownership & Rental Operations and the Home Financing, Technology & Services sectors. Performance among these sectors was pressured by a rise in the rate of deferred or missed rental payments and by a rise in rates of mortgage forbearance. A rise in the unemployment rate and relief measures during the pandemic resulted in a temporary deferral of these

 

1

 

 

Hoya Capital Housing ETF

 

obligations, but rent collection and mortgage forbearance metrics showed steady improvement towards the end of the current fiscal period according to data from NAREIT (4) and Black Knight (5), respectively.

 

Ironically, one of the emerging constraints on the future upside in home sales amid this robust housing demand seen during the current fiscal period is the lack of available homes to sell amid an intensifying housing shortage. The supply of Existing Homes dipped 19.9% in August from last year, representing a 3.0-month supply at the current sales pace, the lowest in the survey’s history. (6) The supply of Newly Built Homes, meanwhile, dipped 13% from last year with just 3.3 months of supply, the lowest on record going back to 1963. (7)

 

Amid this intensifying housing shortage, we believe demographic trends over the next decade are highly supportive of significant growth in housing demand. 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. (8)

 

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 especially uncertain amid the coronavirus pandemic, we believe that capturing diversified exposure across the entire U.S. housing sector is one of the most effective ways to capture these compelling growth trends.

 

We believe that HOMZ is positioned to potentially capture these compelling secular growth trends of the US Housing Industry over the next decade including the recovery in new home construction, the realization of deferred home improvement spending, the positive effects of the mounting housing shortage, and benefits from efficiencies to the home construction and transaction process captured by emerging real estate technologies.

 

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,

 

2

 

 

Hoya Capital Housing ETF

 

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.

 

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.

 

The S&P Mid-Cap 400, also known as the S&P 400, is a broad-based unmanaged index of approximately 400 mid-capitalization stocks which is widely recognized as representative of the mid-cap segment of the U.S. equity market.

 

(1) Lowest expense ratio out of 3 US-registered ETFs in the FactSet Equity: US Homebuilding Segment as of 8/28/2020. Expense ratio data for other ETFs were obtained from the funds’ prospectuses, data pulled as of 8/28/2020. ETFs in the same FactSet segment may track different indexes, have differences in holdings, and show different performance.

 

(2) New Home Sales: US Census Bureau. Monthly New Residential Sales, August 2020 (Release Date: September 24, 2020) New Home Sales is an economic indicator which records sales of newly constructed residences in the United States of America.

 

(3) Existing Home Sales: National Association of Realtors, Existing Home Sales, August 2020 (Release Date: September 22, 2020). Existing-Home Sales data measures sales and prices of existing single-family homes for the nation overall, and gives breakdowns for the West, Midwest, South, and Northeast regions of the country. These figures include condos and co-ops, in addition to single-family homes.

 

(4) REIT Industry August 2020 Rent Collection: NAREIT. (Release Date: August 24, 2020) NAREIT conducts a monthly survey of REIT rent collections in the wake of the COVID-19 pandemic and related economic dislocation. Nareit’s survey includes listed equity REITs that combined own and operate between 10% and 20% of commercial real estate in the U.S.

 

(5) Black Knight’s McDash Flash Forbearance Tracker, Week Ending August 25, 2020. (Release Date: August 28, 2020) Black Knight’s Forbearance Tracker provides a near-real-time market view of borrower forbearance requests and advances. It tracks daily forbearance activity and estimates the principal, interest, taxes, and insurance loan payment obligations at summary level.

 

(6) Existing Home Inventory: National Association of Realtors, Existing Home Sales, August 2020 (Release Date: September 22, 2020). Inventory indicates the number of properties marked as active on the market. When a seller lists a property, it becomes counted as inventory. Inventory is calculated monthly by taking a count of the number of active listings on the last day of the month.

 

(7) New Home Supply: US Census Bureau. Monthly New Residential Sales, August 2020 (Release Date: September 24, 2020) The months’ supply is the ratio of houses for sale to houses sold. This statistic provides an indication of the size of the for-sale inventory in relation to the number of houses currently being sold. The months’ supply indicates how long the current for-sale inventory would last given the current sales rate if no additional new houses were built.

 

(8) 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.

 

 

3

 

 

Hoya Capital Housing ETF

 

Past performance does not guarantee future results.

 

The Hoya Capital Housing 100TM 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 adviser 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.

 

4

 

 

Hoya Capital Housing ETF

 

Portfolio Allocation

As of August 31, 2020 (Unaudited)

 

 

Sector

Percent of
Net Assets

Residential REITs & Real Estate Operators (a)

25.9%

Home Furnishings & Home Goods

17.3

Homebuilders

15.8

Home Building Products & Materials

15.5

Mortgage Lenders & Servicers

9.8

Home Improvement Retailers

6.0

Real Estate Technology, Brokerage & Services

4.8

Property, Title & Mortgage Insurance

4.7

Short-Term Investments

0.2

Other Assets in Excess of Liabilities (b)

0.0

Total

100.0%

 

(a)

The Index, and consequently the Fund, is expected to concentrate its investments in the 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 the Financial Statements.

(b)

Represents less than 0.05% of net assets.

 

5

 

 

Hoya Capital Housing ETF

 

Schedule of Investments

August 31, 2020 (Unaudited)

 

 

 

Shares

 

Security Description

 

Value

 
       

COMMON STOCKS — 99.8%

       
       

Home Building Products & Materials — 15.5%

       
    2,880  

American Woodmark Corporation (a)

  $ 252,000  
    4,120  

A.O. Smith Corporation

    201,756  
    2,440  

Armstrong World Industries, Inc.

    179,926  
    7,680  

Beacon Roofing Supply, Inc. (a)

    260,275  
    960  

Cavco Industries, Inc. (a)

    183,274  
    2,640  

Eagle Materials, Inc.

    215,873  
    2,880  

Fortune Brands Home & Security, Inc.

    242,151  
    5,800  

Leggett & Platt, Inc.

    237,800  
    880  

Lennox International, Inc.

    246,691  
    7,560  

Louisiana-Pacific Corporation

    249,026  
    3,880  

Masco Corporation

    226,204  
    2,080  

Mohawk Industries, Inc. (a)

    192,046  
    3,560  

Owens Corning

    240,798  
    5,200  

PotlatchDeltic Corporation

    239,408  
    1,840  

PPG Industries, Inc.

    221,536  
    280  

Sherwin-Williams Company

    187,894  
    2,320  

Simpson Manufacturing Company, Inc.

    228,149  
    1,360  

Trex Company, Inc. (a)

    203,306  
    1,080  

Watsco, Inc.

    264,589  
    8,680  

Weyerhaeuser Company

    263,091  
              4,535,793  
       

Home Furnishings & Home Goods — 17.3%

       
    5,320  

Aaron’s, Inc.

    297,335  
    80  

Amazon.com, Inc. (a)

    276,077  
    41,840  

At Home Group, Inc. (a)

    799,562  
    27,080  

Bed Bath & Beyond, Inc.

    329,834  
    560  

Costco Wholesale Corporation

    194,690  
    7,640  

Herman Miller, Inc.

    182,061  
    2,440  

iRobot Corporation (a)

    180,633  
    7,360  

La-Z-Boy, Inc.

    239,200  
    2,840  

Middleby Corporation (a)

    278,036  
    920  

RH (a)

    304,106  
    5,600  

Sleep Number Corporation (a)

    268,800  
    1,560  

Target Corporation

    235,888  
    3,000  

Tempur Sealy International, Inc. (a)

    256,620  

 

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

 

6

 

 

Hoya Capital Housing ETF

 

Schedule OF INVESTMENTS
August 31, 2020 (Unaudited) (Continued)

 

 

 

Shares

 

Security Description

 

Value

 
       

COMMON STOCKS — 99.8% (Continued)

       
       

Home Furnishings & Home Goods — 17.3% (Continued)

       
    3,320  

TJX Companies, Inc.

  $ 181,903  
    1,480  

Walmart, Inc.

    205,498  
    1,080  

Wayfair, Inc. - Class A (a)

    320,285  
    1,520  

Whirlpool Corporation

    270,134  
    2,720  

Williams-Sonoma, Inc.

    238,707  
              5,059,369  
       

Home Improvement Retailers — 6.0%

       
    2,880  

Home Depot, Inc.

    820,915  
    5,680  

Lowe’s Companies, Inc.

    935,439  
              1,756,354  
       

Homebuilders — 15.8%

       
    6,400  

DR Horton, Inc.

    456,768  
    11,440  

KB Home

    409,094  
    5,800  

Lennar Corporation - Class A

    433,956  
    10,720  

MDC Holdings, Inc.

    465,034  
    5,080  

Meritage Homes Corporation (a)

    487,832  
    120  

NVR, Inc. (a)

    500,201  
    10,480  

PulteGroup, Inc.

    467,303  
    19,200  

Taylor Morrison Home Corporation (a)

    451,776  
    12,040  

Toll Brothers, Inc.

    508,329  
    25,560  

TRI Pointe Group, Inc. (a)

    431,453  
              4,611,746  
       

Mortgage Lenders & Servicers — 9.8%

       
    11,760  

AGNC Investment Corporation

    165,933  
    24,480  

Annaly Capital Management, Inc.

    179,928  
    6,840  

Bank of America Corporation

    176,062  
    19,040  

Chimera Investment Corporation

    169,266  
    7,280  

Citizens Financial Group, Inc.

    188,334  
    1,560  

First Republic Bank

    176,140  
    18,800  

Huntington Bancshares, Inc.

    176,908  
    1,760  

JPMorgan Chase & Company

    176,334  
    1,600  

M&T Bank Corporation

    165,216  
    93,520  

MFA Financial, Inc.

    250,634  
    22,160  

New Residential Investment Corporation

    171,518  

 

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

 

7

 

 

Hoya Capital Housing ETF

 

Schedule OF INVESTMENTS
August 31, 2020 (Unaudited) (Continued)

 

 

 

Shares

 

Security Description

 

Value

 
       

COMMON STOCKS — 99.8% (Continued)

       
       

Mortgage Lenders & Servicers — 9.8% (Continued)

       
    1,520  

PNC Financial Services Group, Inc.

  $ 169,024  
    15,600  

Regions Financial Corporation

    180,336  
    4,640  

Truist Financial Corporation

    180,078  
    32,600  

Two Harbors Investment Corporation

    177,670  
    6,400  

Wells Fargo & Company

    154,560  
              2,857,941  
       

Property, Title & Mortgage Insurance — 4.7%

       
    1,600  

Allstate Corporation

    148,800  
    5,640  

Fidelity National Financial, Inc.

    185,161  
    3,120  

First American Financial Corporation

    164,019  
    20,440  

MGIC Investment Corporation

    187,435  
    10,400  

Old Republic International Corporation

    167,544  
    2,080  

Progressive Corporation

    197,683  
    10,200  

Radian Group, Inc.

    157,488  
    1,560  

Travelers Companies, Inc.

    181,022  
              1,389,152  
       

Real Estate Technology, Brokerage & Services — 4.8%

       
    3,280  

CoreLogic, Inc.

    217,792  
    6,080  

RE/MAX Holdings, Inc. - Class A

    213,651  
    32,240  

Realogy Holdings Corporation

    357,219  
    2,320  

RealPage, Inc. (a)

    145,279  
    5,280  

Redfin Corporation (a)

    251,170  
    2,720  

Zillow Group, Inc. - Class C (a)

    233,267  
              1,418,378  
       

Residential REITs & Real Estate Operators — 25.9% (b)

       
    11,000  

American Campus Communities, Inc.

    372,900  
    14,440  

American Homes 4 Rent - Class A

    413,561  
    9,720  

Apartment Investment & Management Company - Class A

    350,212  
    2,280  

AvalonBay Communities, Inc.

    360,377  
    3,880  

Camden Property Trust

    352,847  
    13,720  

CubeSmart

    433,826  
    5,680  

Equity LifeStyle Properties, Inc.

    376,527  
    6,120  

Equity Residential

    345,474  
    1,480  

Essex Property Trust, Inc.

    320,435  

 

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

 

8

 

 

Hoya Capital Housing ETF

 

Schedule OF INVESTMENTS
August 31, 2020 (Unaudited) (Continued)

 

 

 

Shares

 

Security Description

 

Value

 
       

COMMON STOCKS — 99.8% (Continued)

       
       

Residential REITs & Real Estate Operators — 25.9% (b) (Continued)

       
    4,080  

Extra Space Storage, Inc.

  $ 434,724  
    14,240  

Healthpeak Properties, Inc.

    393,594  
    31,080  

Host Hotels & Resorts, Inc.

    349,028  
    13,720  

Invitation Homes, Inc.

    392,804  
    3,040  

Mid-America Apartment Communities, Inc.

    356,045  
    37,240  

Park Hotels & Resorts, Inc.

    353,408  
    1,840  

Public Storage

    390,816  
    2,640  

Sun Communities, Inc.

    393,571  
    9,640  

UDR, Inc.

    335,568  
    10,360  

Ventas, Inc.

    426,936  
    7,320  

Welltower, Inc.

    421,046  
              7,573,699  
       

TOTAL COMMON STOCKS (Cost $27,337,622)

    29,202,432  
                 
       

SHORT-TERM INVESTMENTS — 0.2%

       
    49,151  

First American Government Obligations Fund - Class X, 0.07% (c)

    49,151  
       

TOTAL SHORT-TERM INVESTMENTS (Cost $49,151)

    49,151  
       

TOTAL INVESTMENTS — 100.0% (Cost $27,386,773)

    29,251,583  
       

Other Assets in Excess of Liabilities — 0.0%(d)

    9,991  
       

NET ASSETS — 100.0%

  $ 29,261,574  

 

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.

(b)

The Index, and consequently the Fund, is expected to concentrate its investments in the 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 the Financial Statements.

(c)

Rate shown is the annualized seven-day yield as of August 31, 2020.

(d)

Represents less than 0.05% of net assets.

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

August 31, 2020 (Unaudited)

 

 

ASSETS

       

Investments in securities, at value *

  $ 29,251,583  

Dividends and interest receivable

    17,011  

Total assets

    29,268,594  
         

LIABILITIES

       

Management fees payable

    7,020  

Total liabilities

    7,020  
         

NET ASSETS

  $ 29,261,574  
         

Net Assets Consist of:

       

Paid-in capital

  $ 27,229,531  

Total distributable earnings (accumulated deficit)

    2,032,043  

Net assets

  $ 29,261,574  
         

Net Asset Value:

       

Net Assets

  $ 29,261,574  

Shares outstanding^

    1,000,000  

Net asset value, offering and redemption price per share

  $ 29.26  
         

*Identified Cost:

       

Investments in Securities

  $ 27,386,773  

 

^

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 August 31, 2020 (Unaudited)

 

 

INCOME

       

Dividends

  $ 215,959  

Interest

    95  

Total investment income

    216,054  
         

EXPENSES

       

Management fees

    35,409  

Total expenses

    35,409  

Net investment income (loss)

    180,645  
         

REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS

       

Net realized gain (loss) on investments

    180,947  

Net change in unrealized appreciation (depreciation) on investments

    2,011,193  

Net realized and unrealized gain (loss) on investments

    2,192,140  

Net increase (decrease) in net assets resulting from operations

  $ 2,372,785  

 

 

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

 

11

 

 

Hoya Capital Housing ETF

 

Statements of Changes in Net Assets

 

 

   

Period Ended
August 31, 2020
(Unaudited)

   

Period Ended
February 29, 2020 (1)

 

OPERATIONS

               

Net investment income (loss)

  $ 180,645     $ 108,859  

Net realized gain (loss) on investments

    180,947       (26,086 )

Change in unrealized appreciation (depreciation) of investments

    2,011,193       (146,383 )

Net increase (decrease) in net assets resulting from operations

    2,372,785       (63,610 )
                 

DISTRIBUTIONS TO SHAREHOLDERS

               

Net distributions to shareholders

    (168,273 )     (109,411 )

Total distributions to shareholders

    (168,273 )     (109,411 )
                 

CAPITAL SHARE TRANSACTIONS

               

Proceeds from shares sold

    16,850,008       11,554,402  

Payments for shares redeemed

    (1,174,355 )      

Transaction fees (see Note 6)

          28  

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

    15,675,653       11,554,430  

Net increase (decrease) in net assets

  $ 17,880,165     $ 11,381,409  
                 

NET ASSETS

               

Beginning of period

  $ 11,381,409     $  

End of period

  $ 29,261,574     $ 11,381,409  

 

(a)

A summary of capital share transactions is as follows:

 

   

Shares

   

Shares

 

Subscriptions

    625,000       425,000  

Redemptions

    (50,000 )      

Net increase (decrease)

    575,000       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 each period

 

 

   

Period Ended
August 31, 2020
(Unaudited)

   

Period Ended
February 29, 2020
(1)

 

Net asset value, beginning of period

  $ 26.78     $ 25.00  
                 

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

               

Net investment income (loss) (2)

    0.26       0.43  

Net realized and unrealized gain (loss) on investments

    2.46       1.80 (7) 

Total from investment operations

    2.72       2.23  
                 

DISTRIBUTIONS TO SHAREHOLDERS:

               

Distributions from:

               

Net investment income

    (0.24 )     (0.45 )

Total distributions

    (0.24 )     (0.45 )
                 

CAPITAL SHARE TRANSACTIONS:

               

Transaction fees (see Note 6)

          0.00 (3) 
                 

Net asset value, end of period

  $ 29.26     $ 26.78  
                 

Total return (4)

    10.40 %     8.88 %
                 

SUPPLEMENTAL DATA:

               

Net assets at end of period (000’s)

  $ 29,262     $ 11,381  
                 

RATIOS TO AVERAGE NET ASSETS:

               

Expenses to average net assets (5)

    0.41 %     0.45 %

Net investment income (loss) to average net assets (5)

    2.09 %     1.60 %

Portfolio turnover rate (6)

    6 %(4)     11 %(4)

 

(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

August 31, 2020 (Unaudited)

 

 

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 August 31, 2020, and the period covered by these Notes to Financial Statements is the period from March 1, 2020 to August 31, 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
August 31, 2020 (Unaudited) (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
August 31, 2020 (Unaudited) (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

  $ 29,202,432     $     $     $ 29,202,432  

Short-Term Investments

    49,151                   49,151  

Total Investments in Securities

  $ 29,251,583     $     $     $ 29,251,583  

 

^

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
August 31, 2020 (Unaudited) (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
August 31, 2020 (Unaudited) (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. There were no 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.

 

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 0.30% based on the Fund’s average daily net assets. Prior to August 1, 2020, the Fund paid the Adviser at an annual rate of 0.45% based on the Fund’s average daily net assets.

 

18

 

 

Hoya Capital Housing ETF

 

NOTES TO the FINANCIAL STATEMENTS
August 31, 2020 (Unaudited) (Continued)

 

 

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.

 

A Trustee and all officers of the Trust are affiliated with the Administrator, and Custodian.

 

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 $1,608,528 and $963,320, 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 and redemptions were $16,189,388 and $1,142,835, respectively.

 

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 )

 

19

 

 

Hoya Capital Housing ETF

 

NOTES TO the FINANCIAL STATEMENTS
August 31, 2020 (Unaudited) (Continued)

 

 

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.

 

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

 

20

 

 

Hoya Capital Housing ETF

 

NOTES TO the FINANCIAL STATEMENTS
August 31, 2020 (Unaudited) (Continued)

 

 

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 – RISKS

 

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 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.

 

COVID-19 Risk. 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 uncertainty may in turn impact the value of the Fund’s investments.

 

21

 

 

Hoya Capital Housing ETF

 

Expense Example

For the Six-Months Ended August 31, 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 in the Expense Example table.

 

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
March 1, 2020

Ending
Account Value
August 31, 2020

Expenses
Paid During
the Period
(1)

Actual

$ 1,000.00

$ 1,104.00

$2.17

Hypothetical (5% annual return before expenses)

$ 1,000.00

$ 1,023.14

$2.09

 

(1)

The dollar amounts shown as expenses paid during the period are equal to the annualized six-month expense ratio, 0.41%, multiplied by the average account value during the period, multiplied by 184/365, to reflect the one-half year period.

 

22

 

 

Hoya Capital Housing ETF

 

Approval of Sub-Advisory Agreement & Board Consideration

(Unaudited)

 

 

Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on April 21-22, 2020 (the “Meeting”), the Board of Trustees (the “Board”) of ETF Series Solutions (the “Trust”) considered the approval of the continuation of the Investment Sub-Advisory Agreement (the “Agreement”) among Hoya Capital Real Estate, LLC (“Hoya” or the “Adviser”), Penserra Capital Management, LLC (“Penserra” or the “Sub-Adviser”), and the Trust, on behalf of the Hoya Capital Housing ETF (the “Fund”).

 

Prior to the Meeting, the Board, including the Trustees who are not parties to the Agreement or “interested persons” of any party thereto, as defined in the 1940 Act (the “Independent Trustees”), reviewed written materials from the Sub-Adviser (the “Materials”) regarding, among other things: (i) the nature, extent, and quality of the services provided by the Sub-Adviser; (ii) the historical performance of the Fund; (iii) the cost of the services provided and the profits realized by the Sub-Adviser from services rendered to the Fund; (iv) the extent to which the sub-advisory fee for the Fund reflects economies of scale shared with the Fund shareholders; and (v) other factors the Board deemed to be relevant.

 

The Board also considered that the Sub-Adviser, along with other service providers of the Fund, presented written information to help the Board evaluate the Sub-Adviser’s fees and other aspects of the Agreement. Additionally, a representative from the Sub-Adviser provided an oral overview of the services provided to the Fund by the Sub-Adviser and additional information about the Sub-Adviser’s personnel and operations. The Board then discussed the written materials and oral presentation that it had received and any other information that the Board received at the Meeting and deliberated on the approval of the Agreement in light of this information. In its deliberations, the Board did not identify any single piece of information discussed below that was all-important or controlling.

 

Approval of the Sub-Advisory Agreement with the Sub-Adviser

 

Nature, Extent, and Quality of Services Provided. The Board considered the scope of services provided to the Fund under the Sub-Advisory Agreement, noting that Penserra would continue to provide investment management services to the Fund. The Board noted the responsibilities that Penserra has as the Fund’s investment sub-adviser, including: responsibility for the general management of the day-to-day investment and reinvestment of the assets of the Fund; determining the daily baskets of deposit securities and cash components; executing portfolio security trades for purchases and redemptions of the Fund’s shares conducted on a cash-in-lieu basis; oversight of general portfolio compliance with relevant law; responsibility for daily monitoring of tracking error and quarterly reporting to the Board; and implementation of Board directives as they relate to the Fund.

 

23

 

 

Hoya Capital Housing ETF

 

Approval of SUB-Advisory Agreement & Board Consideration
(Unaudited) (Continued)

 

 

In considering the nature, extent, and quality of the services provided by Penserra, the Board considered reports of the Trust’s CCO with respect to Penserra’s compliance program and Penserra’s experience providing investment management services to other ETFs, including other series of the Trust. Penserra’s registration form (“Form ADV”) was provided to the Board, as was the response of Penserra to a detailed series of questions which included, among other things, information about the background and experience of the portfolio managers primarily responsible for the day-to-day management of the Fund. The Board further considered the oral information provided by the Sub-Adviser with respect to the impact of the COVID-19 pandemic on the Sub-Adviser’s operations.

 

Historical Performance. The Board noted that it had received information regarding the Fund’s performance for various time periods in the Materials and primarily considered the Fund’s performance for periods ended March 31, 2020. Because the Fund is designed to track the performance of an index that is not affiliated with Penserra, the Board considered the extent to which the Fund tracked its index before fees and expenses. The Board noted that the Fund slightly outperformed its underlying index before fees and expenses for the one-year and since inception periods. The Board further noted that the Fund had less than two years of operating history, which was a relatively short period of time over which to evaluate the Fund’s performance and draw meaningful conclusions.

 

Cost of Services Provided and Economies of Scale. The Board reviewed the advisory fees paid by Hoya to Penserra for its services to the Fund. The Board considered that the fees paid to Penserra are paid by Hoya and noted that the fee reflected an arm’s-length negotiation between Hoya and Penserra. The Board also took into account analyses of Penserra’s profitability with respect to the Fund.

 

The Board expressed the view that Penserra might realize economies of scale in managing the Fund as assets grow in size and noted that the fee schedule includes breakpoints as assets grow in size. The Board further noted that because the Fund pays Hoya a unified fee, any benefits from the breakpoints in the sub-advisory fee schedule would accrue to Hoya, rather than to Fund shareholders. Consequently, the Board determined that it would monitor fees as the Fund grows to determine whether economies of scale were being effectively shared with the Fund and its shareholders.

 

Conclusion. No single factor was determinative of the Board’s decision to approve the Sub-Advisory Agreement; rather, the Board based its determination on the total mix of information available to it. Based on a consideration of all the factors in their totality, the Board, including a majority of the Independent Trustees, determined that the Sub-Advisory Agreement, including the compensation payable under the agreement, was fair and reasonable to the Fund. The Board, including a majority of the Independent Trustees, therefore determined that the approval of the continuation of the Sub-Advisory Agreement was in the best interests of the Fund and its shareholders.

 

24

 

 

Hoya Capital Housing ETF

 

Review of Liquidity Risk Management Program

(Unaudited)

 

 

Pursuant to Rule 22e-4 under the Investment Company Act of 1940, the Trust, on behalf of the series of the Trust covered by this shareholder report (the “Series”), has adopted a liquidity risk management program to govern the Trust’s approach to managing liquidity risk. Rule 22e-4 seeks to promote effective liquidity risk management, thereby reducing the risk that a fund will be unable to meet its redemption obligations and mitigating dilution of the interests of fund shareholders. The Trust’s liquidity risk management program is tailored to reflect the Series’ particular risks, but not to eliminate all adverse impacts of liquidity risk, which would be incompatible with the nature of such Series.

 

The investment adviser to the Series has adopted and implemented its own written liquidity risk management program (the “Program”) tailored specifically to assess and manage the liquidity risk of the Series.

 

At a recent meeting of the Board of Trustees of the Trust, the Trustees received a report pertaining to the operation, adequacy, and effectiveness of implementation of the Program for the period ended December 31, 2019. The report concluded that the Program is reasonably designed to assess and manage the Series’ liquidity risk and has operated adequately and effectively to manage such risk. The report reflected that there were no liquidity events that impacted the Series’ ability to timely meet redemptions without dilution to existing shareholders. The report further noted that no material changes have been made to the Program since its implementation.

 

There can be no assurance that the Program will achieve its objectives in the future. Please refer to the prospectus for more information regarding the Series’ exposure to liquidity risk and other principal risks to which an investment in the Series may be subject.

 

25

 

 

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 Part F of Form N-PORT. The Fund’s 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 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 Statement of Additional Information (“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.

 

26

 

 

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.

 

Information About the Fund’s Trustees
(Unaudited)

 

 

The SAI includes additional information about the Fund’s Trustees and is available without charge, upon request, by calling (800) 617-0004 or by accessing the SEC’s website at www.sec.gov or by accessing the Fund’s website at www.thehousingetf.com.

 

27

 

 

(This Page Intentionally Left Blank.)

 

 

(This Page Intentionally Left Blank.)

 

 

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 2200
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.

 

Not applicable for semi-annual reports.

 

Item 3. Audit Committee Financial Expert.

 

Not applicable for semi-annual reports.

 

Item 4. Principal Accountant Fees and Services.

 

Not applicable for semi-annual reports.

 

Item 5. Audit Committee of Listed Registrants.

 

Not applicable for semi-annul reports.

 

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 first 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.

 

Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.

 

Not applicable to open-end investment companies.

 

Item 13. Exhibits.

 

(a)(1) Any code of ethics or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Not Applicable.

 

(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 registrant’s independent public accountant. There was no change in the registrant’s independent 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 11/06/2020  

 

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 11/06/2020  

 

  By (Signature and Title)* /s/ Kristen M. Weitzel  
    Kristen M. Weitzel, Treasurer (principal financial officer)  

 

  Date 11/06/2020  

  

*Print the name and title of each signing officer under his or her signature.