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 811-22961
Alpha Architect ETF Trust
(Exact name of registrant as specified in charter)
213 Foxcroft
Road
Broomall, PA 19008
(Address of principal executive offices) (Zip code)
213 Foxcroft
Road
Broomall, PA 19008
(Name and address of agent for service)
215-882-9983
Registrant's telephone number, including area code
Date of fiscal year end: September 30, 2020
Date of reporting period: March 31, 2020
Item 1. Reports to Stockholders.
Alpha Architect ETF Trust
Freedom 100 Emerging Markets ETF
Semi-Annual Report
March 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.
Freedom 100 Emerging Markets ETF
TABLE OF CONTENTS
Tabular Presentation of Schedule of Investments
As of March 31, 2020 (Unaudited)
Alpha Architect Freedom 100 Emerging Markets ETF
| Sector | % Net Assets | |
| Manufacturing | 23.1% | |
| Financials | 21.4% | |
| Information Technology | 16.7% | |
| Consumer Discretionary | 7.3% | |
| Materials | 7.2% | |
| Utilities | 5.8% | |
| Industrials | 3.7% | |
| Consumer Staples | 3.2% | |
| Energy | 3.2% | |
| Health Care | 3.2% | |
| Telecommunication Services | 1.7% | |
| Finance and Insurance | 1.3% | |
| Mining, Quarrying, and Oil and Gas Extraction | 1.1% | |
| Professional, Scientific, and Technical Services | 0.5% | |
| Administrative and Support and Waste Management and Remediation Services (a) | 0.0% | |
| Other Assets | 0.6% | |
| Total | 100.0% |
| (a) | Rounds to 0.0% |
| 1. | Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment adviser's internal sector classifications. |
1
| Freedom 100 Emerging Markets ETF |
| Schedule of Investments |
| March 31, 2020 (Unaudited) |
| Shares | Value | |||||||
| COMMON STOCKS - 99.4% | ||||||||
| Chile - 15.9% | ||||||||
| 3,012,884 | Banco de Chile | $ | 243,241 | |||||
| 4,997 | Banco de Credito e Inversiones S.A. | 169,311 | ||||||
| 853,276 | Colbun S.A. | 92,715 | ||||||
| 111,356 | Empresas CMPC S.A. | 237,960 | ||||||
| 39,776 | Empresas COPEC S.A. | 227,721 | ||||||
| 99,018 | Enel Americas S.A. ADR | 600,049 | ||||||
| 16,983,481 | Itau CorpBanca | 44,031 | ||||||
| 26,058 | Latam Airlines Group S.A. | 66,979 | ||||||
| 88,822 | S.A.C.I. Falabella | 195,722 | ||||||
| 5,216 | Sociedad Quimica y Minera de Chile S.A. ADR | 117,621 | ||||||
| 1,995,350 | ||||||||
| India - 2.2% | ||||||||
| 1,062 | Axis Bank Ltd. | 26,869 | ||||||
| 231 | Dr. Reddy’s Laboratories Ltd. ADR | 9,316 | ||||||
| 2,848 | HDFC Bank Ltd. ADR | 109,534 | ||||||
| 6,378 | ICICI Bank Ltd. ADR | 54,213 | ||||||
| 7,000 | Infosys Ltd. ADR | 57,470 | ||||||
| 628 | Tata Motors Ltd. ADR (a) | 2,964 | ||||||
| 855 | Vedanta Ltd. ADR | 3,044 | ||||||
| 2,467 | Wipro Ltd. ADR | 7,648 | ||||||
| 271,058 | ||||||||
| Indonesia - 4.7% | ||||||||
| 304,639 | Adaro Energy Tbk PT | 18,491 | ||||||
| 231,173 | Bank Central Asia Tbk PT | 391,548 | ||||||
| 66,064 | Bank Permata Tbk PT (a) | 4,192 | ||||||
| 567,511 | Barito Pacific Tbk PT (a) | 25,227 | ||||||
| 33,434 | Chandra Asri Petrochemical Tbk PT | 10,762 | ||||||
| 148,547 | Charoen Pokphand Indonesia Tbk PT | 44,992 | ||||||
| 9,251 | Gudang Garam Tbk PT | 23,312 | ||||||
| 54,054 | Indah Kiat Pulp & Paper Corp. Tbk PT | 13,290 | ||||||
| 431,494 | Kalbe Farma Tbk PT | 31,747 | ||||||
| 558,718 | Sarana Menara Nusantara Tbk PT | 23,123 | ||||||
| 586,684 | ||||||||
| Mexico - 3.1% | ||||||||
| 169,472 | America Movil S.A.B. de C.V. | 100,729 | ||||||
| 7,397 | Arca Continental S.A.B. de C.V. | 29,856 | ||||||
| 5,271 | Becle S.A.B. de C.V. | 6,406 | ||||||
| 933 | Fomento Economico Mexicano S.A.B. de C.V. ADR | 56,456 | ||||||
| 16,554 | Grupo Bimbo S.A.B. de C.V. | 24,277 | ||||||
| 4,255 | Grupo Carso S.A.B. de C.V. | 8,356 | ||||||
| 592 | Grupo Elektra S.A.B. de C.V. | 34,189 | ||||||
| 21,068 | Grupo Financiero Banorte S.A.B. de C.V. | 57,727 | ||||||
| 20,616 | Grupo Financiero Inbursa S.A.B. de C.V. | 14,774 | ||||||
| 27,446 | Grupo Mexico S.A.B. de C.V. | 50,895 | ||||||
| 383,665 | ||||||||
The accompanying notes are an integral part of these financial statements.
2
| Freedom 100 Emerging Markets ETF |
| Schedule of Investments |
| March 31, 2020 (Unaudited) |
| Shares | Value | |||||||
| Philippines - 5.6% | ||||||||
| 5,416 | Ayala Corp. | $ | 49,773 | |||||
| 163,908 | Ayala Land, Inc. | 97,327 | ||||||
| 35,847 | Bank of the Philippine Islands | 43,558 | ||||||
| 36,302 | BDO Unibank, Inc. | 73,874 | ||||||
| 29,780 | International Container Terminal Services, Inc. | 43,739 | ||||||
| 75,995 | JG Summit Holdings, Inc. | 78,147 | ||||||
| 4,875 | Manila Electric Co. | 21,567 | ||||||
| 44,514 | Metropolitan Bank & Trust Co. | 35,009 | ||||||
| 9,809 | SM Investments Corp. | 157,762 | ||||||
| 191,750 | SM Prime Holdings, Inc. | 107,072 | ||||||
| 707,828 | ||||||||
| Poland - 14.5% | ||||||||
| 11,590 | Alior Bank S.A. (a) | 36,088 | ||||||
| 9,377 | Asseco Poland S.A. | 131,478 | ||||||
| 26,111 | Bank Polska Kasa Opieki S.A. | 354,370 | ||||||
| 4,052 | CCC S.A. | 29,367 | ||||||
| 8,158 | CD Projekt S.A. | 570,156 | ||||||
| 33,911 | Cyfrowy Polsat S.A. | 195,274 | ||||||
| 5,533 | Dino Polska S.A. (a) | 216,823 | ||||||
| 9,526 | Eurocash S.A. | 39,149 | ||||||
| 2,107 | KRUK S.A. | 33,363 | ||||||
| 164 | LPP S.A. | 207,351 | ||||||
| 1,813,419 | ||||||||
| Republic of Korea - 21.8% | ||||||||
| 1,345 | Celltrion, Inc. (a) | 253,050 | ||||||
| 837 | Hyundai Mobis Co., Ltd. | 116,541 | ||||||
| 1,907 | Hyundai Motor Co. | 138,950 | ||||||
| 573 | LG Chem Ltd. | 143,562 | ||||||
| 1,720 | Naver Corp. | 240,194 | ||||||
| 927 | POSCO | 122,600 | ||||||
| 208 | Samsung Biologics Co., Ltd. (a) | 82,356 | ||||||
| 1,093 | Samsung C&T Corp. | 80,447 | ||||||
| 27,887 | Samsung Electronics Co., Ltd. | 1,093,855 | ||||||
| 6,699 | SK Hynix, Inc. | 458,395 | ||||||
| 2,729,950 | ||||||||
| South Africa - 4.7% | ||||||||
| 10,700 | Absa Group Ltd. | 44,869 | ||||||
| 872 | Capitec Bank Holdings Ltd. | 42,904 | ||||||
| 5,384 | Discovery Ltd. | 23,468 | ||||||
| 48,432 | FirstRand Ltd. | 109,047 | ||||||
| 11,470 | Impala Platinum Holdings Ltd. | 48,572 | ||||||
| 26,153 | MTN Group Ltd. | 70,758 | ||||||
| 7,412 | Nedbank Group Ltd. | 34,255 | ||||||
| 29,993 | Sanlam Ltd. | 85,675 | ||||||
| 9,200 | Sasol Ltd. (a) | 18,996 | ||||||
| 18,867 | Standard Bank Group Ltd. | 108,093 | ||||||
| 586,637 | ||||||||
The accompanying notes are an integral part of these financial statements.
3
| Freedom 100 Emerging Markets ETF |
| Schedule of Investments |
| March 31, 2020 (Unaudited) |
| Shares | Value | |||||||
| Taiwan - 23.9% | ||||||||
| 151,669 | Cathay Financial Holding Co., Ltd. | $ | 177,039 | |||||
| 56,875 | Formosa Chemicals & Fibre Corp. | 126,006 | ||||||
| 20,317 | Formosa Petrochemical Corp. | 54,686 | ||||||
| 73,118 | Formosa Plastics Corp. | 181,577 | ||||||
| 120,593 | Fubon Financial Holding Co., Ltd. | 149,737 | ||||||
| 203,144 | Hon Hai Precision Industry Co., Ltd. | 469,546 | ||||||
| 1,747 | Largan Precision Co., Ltd. | 221,253 | ||||||
| 24,723 | MediaTek, Inc. | 267,738 | ||||||
| 82,685 | Nan Ya Plastics Corp. | 149,558 | ||||||
| 24,922 | Taiwan Semiconductor Manufacturing Co., Ltd. ADR | 1,191,022 | ||||||
| 2,988,162 | ||||||||
| Thailand - 2.2% | ||||||||
| 6,175 | Advanced Info Service PLC | 37,821 | ||||||
| 10,833 | Bangkok Bank PLC | 33,175 | ||||||
| 53,300 | Bangkok Dusit Medical Services PLC | 30,696 | ||||||
| 14,408 | Central Pattana PLC (a) | 18,769 | ||||||
| 20,475 | Charoen Pokphand Foods PLC | 15,161 | ||||||
| 3,683 | Gulf Energy Development PLC | 16,834 | ||||||
| 14,625 | Kasikornbank PLC | 40,777 | ||||||
| 13,433 | PTT Global Chemical PLC | 12,484 | ||||||
| 4,441 | The Siam Cement PLC | 43,845 | ||||||
| 15,058 | The Siam Commercial Bank PLC | 31,775 | ||||||
| 281,337 | ||||||||
| United Kingdom - 0.0% (b) | ||||||||
| 83 | WNS Holdings Ltd. ADR (a) | 3,567 | ||||||
| United States - 0.8% | ||||||||
| 3,272 | Reliance Industries Ltd. (a)(c) | 100,778 | ||||||
| TOTAL COMMON STOCKS (Cost $16,882,989) | 12,448,435 | |||||||
| MONEY MARKET FUNDS - 0.3% | ||||||||
| 36,489 | First American Government Obligations Fund - Class X, 0.43% (d) | 36,489 | ||||||
| TOTAL MONEY MARKET FUNDS (Cost $36,489) | 36,489 | |||||||
| TOTAL INVESTMENTS (Cost $16,919,478) - 99.7% | 12,484,924 | |||||||
| Other Assets in Excess of Liabilities - 0.3% | 37,285 | |||||||
| TOTAL NET ASSETS - 100.0% | $ | 12,522,209 | ||||||
Percentages are stated as a percent of net assets.
ADR - American Depository Receipt
(a) Non-Income producing security.
(b) Rounds to zero.
(c) 144A Restricted Security
(d) Rate shown is the 7-day effective yield.
The accompanying notes are an integral part of these financial statements.
4
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2020 (Unaudited)
| Freedom 100 Emerging Markets ETF | ||||
| Assets: | ||||
| Investments, at value | $ | 12,484,924 | ||
| Dividends and interest receivable | 42,898 | |||
| Foreign currencies, at value | - | |||
| Total assets | 12,527,822 | |||
| Liabilities: | ||||
| Accrued investment advisory fees | 5,613 | |||
| Total liabilities | 5,613 | |||
| Net Assets | $ | 12,522,209 | ||
| Net Assets Consist of: | ||||
| Capital stock | $ | 16,453,245 | ||
| Total Distributable Earnings | (3,931,036 | ) | ||
| Net Assets: | $ | 12,522,209 | ||
| Calculation of Net Asset Value Per Share: | ||||
| Net Assets | $ | 12,522,209 | ||
| Shares Outstanding (unlimited shares of beneficial interest authorized, no par value) | 650,000 | |||
| Net Asset Value per Share | $ | 19.26 | ||
| Cost of Investments | $ | 16,919,478 | ||
The accompanying notes are an integral part of these financial statements.
5
STATEMENT OF OPERATIONS
For the Period Ended March 31, 2020 (Unaudited)
| Freedom 100 Emerging Markets ETF | ||||
| Investment Income: | ||||
| Dividend income (net of foreign withholding tax of $23,999) | $ | 82,664 | ||
| Interest income | 430 | |||
| Total investment income | 83,094 | |||
| Expenses: | ||||
| Investment advisory fees | 34,829 | |||
| Total expenses | 34,829 | |||
| Net investment income | 48,265 | |||
| Realized and Unrealized Gain (Loss) on Investments: | ||||
| Net realized gain (loss) on: | ||||
| Investments | (74,664 | ) | ||
| In-kind redemptions | 574,102 | |||
| Foreign currency | (9,245 | ) | ||
| 490,193 | ||||
| Net change in unrealized depreciation on: | ||||
| Investments | (3,646,504 | ) | ||
| Foreign currency | (828,812 | ) | ||
| (4,475,316 | ) | |||
| Net realized and unrealized loss on investments: | (3,985,123 | ) | ||
| Net decrease in net assets resulting from operations | $ | (3,936,858 | ) | |
The accompanying notes are an integral part of these financial statements.
6
STATEMENT OF CHANGES IN NET ASSETS
| Freedom 100 Emerging Markets ETF | ||||||||
| Six Months Ended March 31, 2020 (Unaudited) | Year Ended September 30, 2019 | |||||||
| Increase (Decrease) in Net Assets from: | ||||||||
| Operations: | ||||||||
| Net investment income | $ | 48,265 | $ | 125,770 | ||||
| Net realized gain (loss) on investments | 490,193 | (15,841 | ) | |||||
| Net change in unrealized appreciation (depreciation) on investments | (4,475,316 | ) | 40,744 | |||||
| Net increase (decrease) in net assets resulting from operations | (3,936,858 | ) | 150,673 | |||||
| Distributions to Shareholders: | ||||||||
| Net investment income | (50,277 | ) | (94,575 | ) | ||||
| Total distributions | (50,277 | ) | (94,575 | ) | ||||
| Capital Share Transactions: | ||||||||
| Proceeds from shares sold | 6,648,410 | 12,593,305 | ||||||
| Payments for shares redeemed | (2,806,470 | ) | - | |||||
| Transaction Fees (See Note 1) | 4,162 | 13,839 | ||||||
| Net increase in net assets from net change in capital share transactions | 3,846,102 | 12,607,144 | ||||||
| Total increase (decrease) in net assets | (141,033 | ) | 12,663,242 | |||||
| Net Assets: | ||||||||
| Beginning of Period | 12,663,242 | - | ||||||
| End of Period | $ | 12,522,209 | $ | 12,663,242 | ||||
| Changes in Shares Outstanding | ||||||||
| Shares outstanding, beginning of year | 500,000 | - | ||||||
| Shares sold | 250,000 | 500,000 | ||||||
| Shares reinvested | - | - | ||||||
| Shares repurchased | (100,000 | ) | - | |||||
| Shares outstanding, end of year | 650,000 | 500,000 | ||||||
The accompanying notes are an integral part of these financial statements.
7
FINANCIAL HIGHLIGHTS
March 31, 2020 (Unaudited)
| Ratios to Average Net Assets | ||||||||||||||||||||||||||||
| Net Asset Value, Beginning of Period | Net Investment Income(1) | Net Realized and Unrealized Gains/(Losses) on Investments | Net Increase/ (Decrease) in Net Asset Value Resulting from Operations | Distributions from Net Investment Income | Total Distributions | Transaction Fees (See Note 1) | Net Asset Value, End of Period | Total Return(2) | Net Assets, End of Period (000’s) | Net Expenses(3)(4) | Gross Expenses(3) | Net Investment Income (Loss)(3) | Portfolio Turnover Rate(5) | |||||||||||||||
| Freedom 100 Emerging Markets ETF | ||||||||||||||||||||||||||||
| September 30, 2019 to March 31, 2020 | $25.33 | 0.09 | (6.08) | (5.99) | (0.09) | (0.09) | 0.01 | $19.26 | (23.68%) | $12,522 | 0.49% | 0.49% | 0.68% | 21.7% | ||||||||||||||
| May 23, 2019 (6) to September 30, 2019 | $25.00 | 0.31 | 0.19 | 0.50 | (0.20) | (0.20) | 0.03 | $25.33 | 2.11% | $12,663 | 0.49% | 0.49% | 3.42% | 0.3% | ||||||||||||||
| (1) | Net investment income per share represents net investment income divided by the daily average shares of beneficial interest outstanding throughout the period. |
| (2) | All returns reflect reinvested dividends, if any, but do not reflect the impact of taxes. Total return for a period of less than one year is not annualized. |
| (3) | For periods of less than one year, these ratios are annualized. |
| (4) | Net expenses include effects of any reimbursement or recoupment. |
| (5) | Portfolio turnover is not annualized and is calculated without regard to short-term securities having a maturity of less than one year. |
| (6) | Commencement of operations. |
8
NOTES TO FINANCIAL STATEMENTS
March 31, 2020 (UNAUDITED)
NOTE 1 – ORGANIZATION
Freedom 100 Emerging Markets ETF (the “Fund”) is a series of the Alpha Architect ETF Trust (the “Trust”), which is organized as a Delaware statutory trust on October 11, 2013. The Trust is registered with the 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 (“Shares”) is registered under the Securities Act of 1933, as amended (the “Securities Act”). The Fund is considered non-diversified under the 1940 Act. Non-diversified funds generally hold securities of fewer issuers than diversified funds and may be more susceptible to the risks associated with these particular issuers, or to a single economic, political or regulatory occurrence affecting these issuers. The Fund qualifies as an investment company as defined in the Financial Accounting Standards Codification Topic 946-Financial Services- Investment Companies. The investment objective of the Fund is to track the total return performance, before fees and expenses, of its index, called the Life + Liberty Freedom 100 Emerging Markets Index.
Freedom 100 Emerging Markets ETF commenced operations on May 23, 2019.
The Life + Liberty Freedom 100 Emerging Markets Index was developed in 2017 by Life + Liberty Investments, LLC, Freedom 100 Emerging Markets ETF’s index provider. The Life + Liberty Freedom 100 Emerging Markets Index consists of approximately 100 equity securities listed in emerging market countries that are determined based on quantified data covering 79 personal and economic freedom factors which are categorized into three main types of freedoms: the rights to life, liberty, and property. A quantitative model is used to weigh the countries based on human and economic freedom metrics, and securities within countries are then selected based upon market capitalization and liquidity metrics.
Shares of the Freedom 100 Emerging Markets ETF are listed and traded on Cboe BZX Exchange, Inc. (“Cboe”). Market prices for the shares may be different from their net asset value (“NAV”). The Fund issues and redeems shares on a continuous basis at NAV only in blocks of 50,000 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 in share amounts less than a Creation Unit. Except when aggregated in Creation Units, shares are not redeemable securities of the Fund. Shares of the Fund 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 DTC participant and, in each case, must have executed a Participant 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 the 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.
Authorized Participants may be required to pay a Transaction Fee to compensate the Trust or its custodian for costs incurred in connection with creation and redemption transactions. The standard transaction fee, which is payable to the Trust’s custodian, typically applies to in-kind purchases of the Fund effected through the clearing process on any business day, regardless of the number of Creation Units purchased or redeemed that day (“Standard Transaction Fees”).
9
ALPHA ARCHITECT ETF TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 2020 (UNAUDITED)
Variable fees are imposed to compensate the Fund for the transaction costs associated with the cash transactions fees. Certain fund deposits consisting of cash-in-lieu or cash value may be subject to a variable charge (“Variable Transaction Fees”), which is payable to the Fund, of up to 2.00% of the value of the order in addition to the standard Transaction Fees. Variable Transaction Fees received by the Fund, if any, are displayed in the Capital Share Transactions sections of the Statements of Changes in Net Assets.
Because, among other things, the Fund imposes transaction fees on purchases and redemptions of Shares to cover the custodial and other costs incurred by the Fund in effecting trades, the Board determined that it is not necessary to adopt policies and procedures to detect and deter market timing of the Fund’s Shares.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
| A. | Security Valuation. Equity securities that are traded on a national securities exchange, except those listed on the NASDAQ Global Market® (“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 most recent quoted bid for exchange-traded or the mean between the most recent quoted bid and ask price for NASDAQ securities will be used. Equity securities that are not traded on a listed exchange are generally 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. Redeemable securities issued by open-end investment companies are valued at the investment company’s applicable net asset value, with the exception of exchange-traded open-end investment companies which are priced as equity securities. |
Securities for which quotations are not readily available are valued by a committee established by the Trust’s Board of Trustees (the “Board”) in accordance with procedures established by the Board. This “fair valuation” process is designed to value the subject security at the price the Trust would reasonably expect to receive upon its current sale. 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 net asset value of its shares to differ significantly from the net asset value that would be calculated without regard to such considerations. As of March 31, 2020, the Fund did not hold any “fair valued” securities.
10
ALPHA ARCHITECT ETF TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 2020 (UNAUDITED)
As described above, the Fund may use various methods to measure the fair value of its investments on a recurring basis. 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, 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.
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 fair value classification of the Fund’s investments as of March 31, 2020:
| DESCRIPTION | LEVEL 1 | LEVEL 2 | LEVEL 3 | TOTAL | ||||||||||||
| Freedom 100 Emerging Markets ETF | ||||||||||||||||
| Assets* | ||||||||||||||||
| Common Stocks | $ | 12,448,435 | $ | - | $ | - | $ | 12,448,435 | ||||||||
| Money Market Funds | 36,489 | - | - | 36,489 | ||||||||||||
| Total Investments in Securities | $ | 12,484,924 | $ | - | $ | - | $ | 12,484,924 | ||||||||
| * | For further detail on each asset class, see the Schedule of Investments |
During the fiscal period ended March 31, 2020, the Fund did not invest in any Level 3 investments and recognized no transfers to/from Level 3. Transfers between levels are recognized at the end of the reporting period.
| B. | Risks. Markets may perform poorly and the returns from the securities in which the Fund invests may underperform returns from the general securities markets. Securities markets may experience periods of high volatility and reduced liquidity in response to governmental actions or intervention, economic or market developments, or other external factors. The value of a company’s securities may rise or fall in response to company, market, economic or other news. |
Foreign securities may underperform U.S. securities and may be more volatile than U.S. securities. Risks relating to investments in foreign securities (including, but not limited to, depositary receipts and participation certificates) and to securities of issuers with significant exposure to foreign markets include: currency exchange rate fluctuation; less available public information about the issuers of securities; less stringent regulatory standards; lack of uniform accounting, auditing and financial reporting standards; and country risks including less liquidity, high inflation rates, unfavorable economic practices, political instability and expropriation and nationalization risks.
11
ALPHA ARCHITECT ETF TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 2020 (UNAUDITED)
The risks of foreign securities typically are greater in emerging and less developed markets. For example, in addition to the risks associated with investments in any foreign country, political, legal and economic structures in these less developed countries may be new and changing rapidly, which may cause instability and greater risk of loss. These securities markets may be less developed and securities in those markets are generally more volatile and less liquid than those in developed markets. Investing in emerging market countries may involve substantial risk due to, among other reasons, limited information; higher brokerage costs; different accounting, auditing and financial reporting standards; less developed legal systems and thinner trading markets as compared to those in developed countries; different clearing and settlement procedures and custodial services; and currency blockages or transfer restrictions. Emerging market countries also are more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets. Certain emerging markets also may face other significant internal or external risks, including a heightened risk of war and ethnic, religious and racial conflicts. In addition, governments in many emerging market countries participate to a significant degree in their economies and securities markets, which may impair investment and economic growth of companies in those markets. Such markets may also be heavily reliant on foreign capital and, therefore, vulnerable to capital flight.
See the Fund’s Prospectus and Statement of Additional Information regarding the risks of investing in shares of the Fund.
| C. | Foreign Currency. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts using the spot rate of exchange at the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. |
The Fund isolates that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. That portion of gains (losses) attributable to changes in foreign exchange rates is included on the “Statement of Operations” under “Net realized gain (loss) – Foreign currency” and “Change in Net Unrealized Appreciation (Depreciation) – Foreign Currency.” The remainder of gains (losses) attributable to securities is included on the “Statement of Operations” under “Net realized gain (loss) – Investments,” “Net realized gain (loss) – In-kind redemptions,” and “Change in Net Unrealized Appreciation (Depreciation) – Investments.
The Fund reports net realized foreign exchange gains or losses that arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates.
12
ALPHA ARCHITECT ETF TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 2020 (UNAUDITED)
| D. | Federal Income Taxes. The Fund intends to continue to comply with the requirements of subchapter M of the Internal Revenue Code of 1986, as amended, as necessary to qualify as a regulated investment company and distribute substantially all net taxable investment income and net realized gains to shareholders in a manner which results in no tax cost to the Fund. Therefore, no federal income tax provision is required. As of and during the fiscal period ended March 31, 2020, the Fund did not have any tax positions that did not meet the “more-likely-than-not” threshold of being sustained by the applicable tax authority. As of and during the fiscal period ended March 31, 2020, the Fund did not have liabilities for any unrecognized tax benefits. The Fund would/will recognize 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 fiscal period ended March 31, 2020, the Fund did not incur any interest or penalties. |
The Fund is subject to examination by U.S. taxing authorities for the tax periods since the Fund’s commencement of operations. The Fund may be subject to taxes imposed on realized and unrealized gains on securities of certain foreign countries in which the Fund invests. The foreign tax expense, if any, was recorded on an accrual basis and is included in “Net realized gain (loss) on investments” and “Net increase (decrease) in unrealized appreciation or depreciation on investments” on the accompanying Statements of Operations. The amount of foreign tax owed, if any, is included in “Payable for foreign taxes” on the accompanying Statements of Assets and Liabilities and is comprised of withholding taxes on foreign dividends and taxes on unrealized gains.
| E. | 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 income is recorded on the ex-dividend date, net of any foreign taxes withheld at source. Interest income is recorded on an accrual basis. Withholding taxes on foreign dividends have been provided for in accordance with the Fund’s understanding of the applicable tax rules and regulations. |
| F. | Distributions to Shareholders. Distributions to shareholders from net investment income for the Fund are declared and paid on a quarterly basis and distributions to shareholders from net realized gains on securities normally are declared and paid on an annual basis. Distributions are recorded on the ex-dividend date. The Fund may distribute more frequently, if necessary for tax purposes. |
| G. | Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of increases and decreases in net assets from operations during the period. Actual results could differ from those estimates. |
| H. | 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 shares outstanding for the Fund, rounded to the nearest cent. The Fund’s shares will not be priced on the days on which NYSE is closed for regular trading. The offering and redemption price per share for the Fund is equal to the Fund’s net asset value per share. |
13
ALPHA ARCHITECT ETF TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 2020 (UNAUDITED)
| I. | Guarantees and Indemnifications. In the normal course of business, the Fund enter into contracts with service providers that contain general indemnification clauses. Additionally, as is customary, the Trust’s organizational documents permit the Trust to indemnify its officers and trustees against certain liabilities under certain circumstances. 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. As of the date of this Report, no claim has been made for indemnification pursuant to any such agreement of the Fund. |
| J. | Reclassification of Capital Accounts. 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 net asset value per share. In addition, the Fund realized net capital gains resulting from in-kind redemptions, in which shareholders exchanged Fund shares for securities held by the Fund rather than for cash. Because such gains are not taxable to the Fund, and are not distributed to shareholders, they have been reclassified from accumulated net realized losses to paid-in capital. For the fiscal year and period ended September 30, 2019, the following table shows the reclassifications made for Freedom 100 Emerging Markets ETF. |
| Undistributed Net Investment Gain (Loss) | Accumulated Net Realized Gain (Loss) | Paid in Capital | ||||||||||
| Freedom 100 Emerging Markets ETF | $ | (8,097 | ) | $ | 8,097 | $ | - | |||||
NOTE 3 -COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS.
Empowered Funds, LLC (the “Adviser”) serves as the investment adviser to the Fund. Pursuant to an Investment Advisory Agreement (the “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 transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Fund to operate. The Adviser administers the Fund’s business affairs, provides office facilities and equipment and certain clerical, bookkeeping and administrative services. The Adviser agrees to pay all expenses incurred by the Fund except for the fee paid to the Adviser pursuant to the Advisory Agreement, payments under any distribution plan adopted pursuant to Rule 12b-1, brokerage expenses, acquired fund fees and expenses, taxes, interest (including borrowing costs), litigation expenses and other non-routine or extraordinary expenses.
At an in-person Board meeting held on May 16, 2019, the Board of Trustees of the Trust (the “Trustees”) including each Trustee who is not an “interested person” of the Trust, as defined in the 1940 Act (the “Independent Trustees”), approved the Advisory Agreement. The table below represents the annual rate based on average daily net assets that the Fund pays the Adviser monthly:
| Freedom 100 Emerging Markets ETF | 0.49 | % |
14
ALPHA ARCHITECT ETF TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 2020 (UNAUDITED)
NOTE 4 - PURCHASES AND SALES OF SECURITIES
For the fiscal period ended March 31, 2020, purchases and sales of securities for the Fund, excluding short-term securities and in-kind transactions, were as follows:
| Purchases | Sales | |||||||
| Freedom 100 Emerging Markets ETF | $ | 7,295,769 | $ | 2,965,994 | ||||
For the fiscal period ended March 31, 2020, in-kind transactions associated with creations and redemptions were as follows:
| Purchases | Sales | |||||||
| Freedom 100 Emerging Markets ETF | $ | 2,282,420 | $ | 2,811,559 | ||||
There were no purchases or sales of U.S. Government securities during the year.
NOTE 5 – TAX INFORMATION
The components of tax basis cost of investments and net unrealized appreciation (depreciation) for federal income tax purposes at March 31, 2020 were as follows*:
| Freedom 100 Emerging Markets ETF | ||||
| Tax cost of of investments | $ | 12,605,196 | ||
| Gross tax unrealized appreciation | 736,653 | |||
| Gross tax unrealized depreciation | (696,258 | ) | ||
| Net tax unrealized appreciation (depreciation) | $ | 40,395 | ||
| Undistributed ordinary income | 23,447 | |||
| Undistributed long-term gain | - | |||
| Total distributable earnings | 23,447 | |||
| Other accumulated gain (loss) | (7,744 | ) | ||
| Total accumulated gain (loss) | $ | 56,098 | ||
* Because tax adjustments are calculated annually at the end of the Fund’s fiscal year, the above table does not reflect tax adjustments for the current fiscal year. For the previous fiscal year’s federal income tax information, please refer to the Notes to Financial Statements section in the Fund’s most recent annual report.
The difference between book and tax-basis cost is attributable to the realization for tax purposes of unrealized gains on investments in REITs, partnerships, passive foreign investment companies and wash sales. Under tax law, certain capital and foreign currency losses realized after October 31 and within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year.
For the period ended September 30, 2019, the Freedom 100 Emerging Markets ETF did not defer any qualified late year losses.
At September 30, 2019, the Freedom 100 Emerging Markets ETF had the following capital loss carryforwards:
| Unlimited Short-Term | Unlimited Long-Term | |||||||
| Freedom 100 Emerging Markets ETF | $ | (7,744 | ) | $ | - | |||
NOTE 6 – DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid by the Fund during the fiscal period ended March 31, 2020 were as follows:
| Fiscal Period Ended March 31, 2020 | Fiscal Period Ended September 30, 2019 | |||||||
| Ordinary Income | Ordinary Income | |||||||
| Freedom 100 Emerging Markets ETF | $ | 50,277 | $ | 94,575 | ||||
15
ALPHA ARCHITECT ETF TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 2020 (UNAUDITED)
NOTE 7 – OTHER INFORMATION
In August 2018, FASB issued ASU 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 2018-13 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 is currently evaluating the impact these changes will have on the Fund’s financial statements and disclosures.
Freedom 100 Emerging Markets ETF (Ticker: FRDM) is not offered or sold by Life + Liberty Indexes or any of its affiliates, licensors or contractors (the “LL Parties”) nor do any of the LL Parties offer any express or implicit guarantee, warranty or assurance either with regard to the results of using the Freedom 100 Emerging Markets Index (the “Index”) or the Index Price at any time or in any other respect. The Index is calculated and published by the LL Parties. Life + Liberty Indexes has entered an agreement with FRDM’s Adviser to sponsor the Fund. The LL Parties use commercially reasonable efforts to ensure that the Index is calculated correctly. Neither publication of the Index by the LL Parties nor the licensing of the Index or Index trademark (s) for the purpose of use in connection with the Freedom 100 Emerging Markets ETF (Ticker: FRDM) constitutes a recommendation by any of the LL Parties to invest in the Freedom 100 Emerging Markets ETF (Ticker: FRDM). “Freedom 100” and “Life + Liberty Indexes” are trademarks of Life + Liberty Investments, LLC.
NOTE 8 – SUBSEQUENT EVENTS
In preparing these financial statements, management of the Fund has evaluated events and transactions for potential recognition or disclosure through date the financial statements were issued.
There were no transactions that occurred during the period subsequent to March 31, 2020, that materially impacted the amounts or disclosures in the Fund’s financial statements.
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 of Trustees of the Trust has approved a new Distribution Agreement to enable Quasar to continue serving as the Fund’s distributor.
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.
16
FREQUENCY DISTRIBUTION OF PREMIUMS AND DISCOUNTS
(Unaudited)
Closing Price vs. NAV
The following Frequency Distribution of Premiums and Discounts chart is provided to show the frequency at which the closing price for the Fund was at a premium or discount to its daily net asset value (NAV). Shareholders may pay more than net asset value when they buy Fund shares and receive less than net asset value when they sell those shares, because shares are bought and sold at current market prices. The chart presented represents past performance and cannot be used to predict future results.
| Freedom 100 Emerging Markets ETF | ||||
| Fiscal Year Ended September 30, 2019 | ||||
| Premium/Discount Range | Number of Trading Days | % of Total Trade Days | ||
| 1.00% or more | 22 | 24.18% | ||
| 0.75% to 0.999% | 19 | 20.88% | ||
| 0.50% to 0.749% | 19 | 20.88% | ||
| 0.25% to 0.499% | 11 | 12.09% | ||
| 0.00% to 0.249% | 14 | 15.37% | ||
| -0.001% to -0.249% | 3 | 3.30% | ||
| -0.25% to -0.499% | 3 | 3.30% | ||
| -0.50% to -0.749% | 0 | 0.00% | ||
| -0.75% to -0.999% | 0 | 0.00% | ||
| -1.00% or more | 0 | 0.00% | ||
| 91 | 100.00% | |||
| Freedom 100 Emerging Markets ETF | ||||
| Period Ended March 31, 2020 | ||||
| Premium/Discount Range | Number of Trading Days | % of Total Trade Days | ||
| 1.00% or more | 11 | 8.73% | ||
| 0.75% to 0.999% | 10 | 7.94% | ||
| 0.50% to 0.749% | 16 | 12.70% | ||
| 0.25% to 0.499% | 25 | 19.84% | ||
| 0.00% to 0.249% | 29 | 23.01% | ||
| -0.001% to -0.249% | 19 | 15.08% | ||
| -0.25% to -0.499% | 4 | 3.17% | ||
| -0.50% to -0.749% | 5 | 3.97% | ||
| -0.75% to -0.999% | 2 | 1.59% | ||
| -1.00% or more | 5 | 3.97% | ||
| 126 | 100.00% | |||
17
Expense Example
March 31, 2020 (Unaudited)
As a shareholder of the Alpha Architect ETF Trust, 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 mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held the entire period (October 1, 2019 to March 31, 2020).
Actual Expenses
The first line of the table below provides information about actual account values 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 October 1, 2019 to March 31, 2020” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values 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 cost were included, your costs would have been higher.
| Annualized | Beginning | Ending | Expenses Paid During | |||||
| Expense | Account Value | Account Value | Period October 1, 2019 to | |||||
| Ratio | October 1, 2019 | March 31, 2020 | March 31, 2020 | |||||
| Freedom 100 Emerging Markets ETF | ||||||||
| Actual | 0.49% | $ 1,000.00 | $ 763.20 | $ 2.16 | ||||
| Hypothetical (5% annual return before expenses) | 0.49% | 1,000.00 | 1,022.55 | 2.48 |
1. The dollar amounts shown as expenses paid during the period are equal to the annualized six-month expense ratio multiplied by the average account value during the period, multiplied by 183/366, to reflect the one-half year period.
18
Federal Tax Information (Unaudited)
QUALIFIED DIVIDEND INCOME/DIVIDENDS RECEIVED DEDUCTION
For the fiscal year ended September 30, 2019, certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, 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 as follows:
| Freedom 100 Emerging Markets ETF | 83.66 | % |
For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received deduction for the fiscal year ended September 30, 2019 was as follows:
| Freedom 100 Emerging Markets ETF | 0.11 | % |
SHORT TERM CAPITAL GAIN
The percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions under the Internal Revenue Section 871 (k)(2)(C) for the Fund was 0.00% (unaudited).
19
Foreign Tax Credit Pass Through
(Unaudited)
Pursuant to Section 853 of the Internal Revenue code, the Fund designated the following amounts as foreign taxes paid for the period ended September 30, 2019. Foreign taxes paid for financial statement purposes of Section 853 may be less than actual foreign taxes paid for financial statement purposes.
| Creditable Foreign Tax Credit Paid | Per Share Amount | Portion of Ordinary Income Distribution Derived From Foreign Sourced Income | ||||||||
| Freedom 100 Emerging Markets ETF | $32,393 | $0.0648 | 99.91% | |||||||
Foreign taxes paid or withheld should be included in taxable income with an offsetting deduction from gross income or as a credit for taxes paid to foreign governments.
Above figures may differ from those cited elsewhere in this report due to difference in the calculation of income and gains under GAAP purposes and Internal Revenue Service purposes.
Shareholders are strongly advised to consult their own tax advisers with respect to the tax consequences of their investments in the Fund.
20
OFFICERS AND AFFILIATED TRUSTEE
The table below sets forth certain information about each of the Trust’s executive officers as well as its affiliated Trustee.
| Name and Year of Birth |
Position(s) Held with the Trust |
Term of Office and Length of Time Served |
Principal Occupation(s) During Past Five Years |
|
Wesley R. Gray 1980 |
Chief Executive Officer/Chief Investment Officer | Indefinite term; Trustee since 2014; CEO / CIO since 2010 |
CEO / CIO, Alpha Architect (Since 2010) Assistant Professor of Finance, Drexel University (2010-2014) |
|
John R. Vogel 1983 |
Chief Financial Officer/Chief Investment Officer | Indefinite term; Principal Financial Officer since 2014, CFO / CIO since 2011 | CFO / CIO, Alpha Architect (Since 2011) |
|
Patrick R. Cleary 1982 |
Chief Operating Officer/Chief Compliance Officer | Indefinite term; CCO / COO since 2015. COO since 2014. |
CCO / COO, Alpha Architect (Since 2015) |
The following table sets forth certain information about the Trust’s Independent Trustees.
| Name, Address, and Year of Birth |
Position(s) Held with Trust |
Term of Office and Length of Time Served |
Principal Occupation During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee |
Other Directorships Held by Trustee During Past 5 Years |
| Independent Trustees | |||||
|
Daniel Dorn Born: 1975 c/o Alpha Architect Trust 213 Foxcroft Road, Broomall, PA 19008 |
Trustee | Since 2014 |
Associate Professor of Finance, Drexel University, LeBow College of Business (2003 – present)
|
8 | None |
|
Chukwuemeka (Emeka) O. Oguh Born: 1983 c/o Alpha Architect Trust 213 Foxcroft Road, Broomall, PA 19008 |
Trustee | Since 2018 | Co-founder and CEO, PeopleJoy (2016 – present); Co-founder and CEO, Apptempo (2013 – 2015); Head of Product, Dataminr (2011 – 2013); Fund of Funds analyst, Merrill Lynch (2005 – 2009) | 8 | None |
|
Michael S. Pagano, Ph.D., CFA Born: 1962 c/o Alpha Architect Trust 213 Foxcroft Road, Broomall, PA 19008 |
Trustee | Since 2014 |
The Robert J. and Mary Ellen Darretta Endowed Chair in Finance, Villanova University (1999 - present); Associate Editor of The Financial Review (2009 - present) and Editorial Board Member of the International Journal of Managerial Finance (2005 - present), Atlantic Economic Journal (2014 – 2015) and Advances in Quantitative Analysis of Finance and Accounting (2010 - present); Founder, Michael S. Pagano, LLC (business consulting firm) (2008 - present); Member of FINRA’s Market Regulation Committee (2009 - present); Member of Bloomberg’s Tradebook Advisory Council (2012 - 2014).
|
8 | None |
Additional information about the Affiliated Trustee and Independent Trustees is available in the Statement of Additional Information (SAI).
21
BOARD REVIEW AND APPROVAL OF ADVISORY CONTRACT
(Unaudited)
The Board (the members of which are referred
to as “Trustees”) of the Alpha Architect ETF Trust (the “Trust”) met in person on February 8, 2019 to consider
the approval of Advisory Agreement between the Trust, on behalf of the Freedom 100 Emerging Markets ETF (the “Fund”),
and Empowered Funds, LLC (the “Adviser”). In accordance with Section 15(c) of the 1940 Act, the Board requested, reviewed
and considered materials furnished by the Adviser relevant to the Board’s consideration of whether to approve the Advisory
Agreement. In connection with considering approval of the Advisory Agreement, the Trustees who are not “interested persons”
of the Trust, as that term is defined in the 1940 Act (the “Independent Trustees”), met in executive session with counsel
to the Trust, who provided assistance and advice. In reaching the decision to approve the Advisory Agreement, the Board considered
and reviewed information provided by the Adviser, including among other things information about its personnel, operations, financial
condition, and compliance and risk management. The Board also reviewed a copy of the proposed Advisory Agreement. During their
review and consideration, the Board focused on and reviewed the factors they deemed relevant, including:
Nature, Quality and Extent of Services. The Board was presented and considered information concerning the nature, quality and extent of the overall services expected to be provided by the Adviser to the Fund. In this connection, the Board considered the responsibilities of the Adviser, recognizing that the Adviser had invested significant time and effort in structuring the Trust and the Fund, obtaining the necessary exemptive relief from the Securities and Exchange Commission (“SEC”) and arranging service providers for the Fund. In addition, the Board considered that, going forward, the Adviser would be responsible for providing investment advisory services to the Fund, monitoring compliance with the Fund’s objectives, policies and restrictions, and carrying out directives of the Board. The Board also considered the services expected to be provided by the Adviser in the oversight of the Trust’s administrator, transfer agent and custodian. In addition, the Board evaluated the integrity of the Adviser’s personnel, the experience of the portfolio management team in managing assets and the adequacy of the Adviser’s resources. The Board also considered the Fund’s investment strategy would require trading in emerging markets.
Performance. The Board noted that, as the Fund had not yet commenced investment operations, it had no investment performance. The Board was advised that the Adviser had performed extensive research on the strategy of the Fund. The Board also noted the Adviser had been managing other ETFs within the Trust.
Comparative Fees and Expenses. In considering the proposed advisory fees, the Board reviewed and considered the fees in light of the nature, quality and extent of the services expected to be provided by the Adviser. With respect to the advisory fee and expense ratio for the Fund, the Board also considered the fee and expense ratio versus the fees and expenses charged to other ETFs and mutual funds within the emerging markets universe. The Board noted that there were few passively-managed and actively-managed ETFs and mutual funds using strategies directly comparable to that to be used for the Fund, and it was therefore difficult to compare a Fund’s management fee and estimated expenses with the fees and expenses of comparable passively-managed and actively-managed ETFs and mutual funds.
Costs and Profitability. The Board further considered information regarding the profits that may be realized by the Adviser in connection with providing services to the Fund. The Advisor’s potential level of profitability was discussed, as well as the current levels of compensation paid to the Adviser’s personnel versus the market. A discussion regarding the Advisor’s potential profitability in light of its fixed and variable costs, as well the Advisor’s support agreement with the Fund’s sponsor. The Board, however, reviewed financial information provided by the Adviser with respect to the Fund, and the anticipated costs associated with the personnel, systems and equipment necessary to manage the Fund and to meet the regulatory and compliance requirements adopted by the SEC and other regulatory bodies as well as other expenses the Adviser would pay in accordance with the Advisory Agreement. The Board also took into consideration that the Adviser would be responsible for paying all expenses incurred by the Fund except for the fees paid to the Adviser pursuant to the Agreements, payments under any distribution plan adopted pursuant to Rule 12b-1, brokerage expenses, acquired fund fees and expenses, taxes, interest (including borrowing costs), litigation expenses and other non-routine or extraordinary expenses.
Other Benefits. The Board further considered the extent to which the Adviser might derive ancillary benefits from Fund operations. For example, the Adviser may engage in soft dollar transactions in the future, although it did not currently plan to do so.
Economies of Scale. The Board also considered whether economies of scale would be realized by the Fund as it commences operations and its assets grow, including the extent to which this is reflected in the level of fees to be charged. The Board that the advisory fee for the Fund did not include breakpoints but concluded that it was premature – as the Fund had not yet commenced operations, to meaningfully evaluate potential economies of scale.
Conclusion. No single factor was determinative of the Board’s decision to approve the 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, approved the Advisory Agreement, including the compensation payable under the Agreement.
22
ALPHA ARCHITECT ETF TRUST
INFORMATION ABOUT PORTFOLIO HOLDINGS
(Unaudited)
The Fund files its complete schedules of portfolio holdings for its first and third fiscal quarters with the Securities and Exchange Commission (“SEC”) on Part F of Form N-PORT. The Fund’s Form N-PORT is available without charge, upon request, by calling (215) 882-9983. Furthermore, you may obtain the Form N-PORT on the SEC’s website at www.sec.gov. The Fund’s portfolio holdings are posted on its website at http://www.freedometfs.com/frdm 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 (215) 882-9983, by accessing the SEC’s website at www.sec.gov, or by accessing the Fund’s website at http://www.freedometfs.com/frdm.
When available, information regarding how the Fund voted proxies relating to portfolio securities during the twelve months ending June 30 will be (1) available by calling (215) 882-9983 and (2) the SEC’s website at www.sec.gov.
(Unaudited)
ALPHA ARCHITECT ETF TRUST (the “Trust”) is strongly committed to preserving and safeguarding the personal financial information of any customers of the Trust. Confidentiality is extremely important to us.
Regulation S-P requires, among others, each investment company to “adopt written policies and procedures that address administrative, technical, and physical safeguards for the protection of customer records and information.”
However, Pursuant to Regulation S-P’s definition of “customer,” the Trust currently does not have, nor does it anticipate having in the future, any customers. In addition, the Trust does not collect any non-public personal information from any consumers.
Nonetheless, the Trust has instituted certain technical, administrative and physical safeguards through which Trust would seek to protect personal financial information about any customers from unauthorized use and access. First, technical procedures are used in order to limit the accessibility and exposure of Trust-maintained information contained in electronic form. If customer information were obtained by the Trust, such technical procedures would cover such information.
Second, administrative procedures that are in place, would be used to control the number and type of employees, affiliated and nonaffiliated persons, to whom customer information (if the Trust were to obtain any) would be accessible.
Third, physical safeguards have been established, which if customer information were obtained by the Trust, to prevent access to such information contained in hard-copy form.
As these procedures illustrate, the Trust realizes the importance of information confidentiality and security and emphasizes practices which are aimed at achieving those goals.
23
Adviser
Empowered Funds, LLC
213 Foxcroft Road
Broomall, PA 19008
Distributor
Quasar Distributors, LLC
111 East Kilbourn Avenue, Suite 1250
Milwaukee, Wisconsin 53202
Custodian
U.S. Bank National Association
Custody Operations
1555 North River Center Drive, Suite 302
Milwaukee, Wisconsin 53212
Transfer Agent
U.S. Bancorp Fund Services, LLC
doing business as U.S. Bank Global Fund Services
615 East Michigan Street
Milwaukee, Wisconsin 53202
Independent Registered Public Accounting Firm
Spicer Jeffries LLP
4601 DTC Boulevard, Suite 700
Denver, CO 80237
Legal Counsel
Pellegrino, LLC
303 West Lancaster Avenue, Suite 302
Wayne, PA 19087
Freedom 100 Emerging Markets ETF
Symbol – FRDM
CUSIP – 02072L607
24
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-annual 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 Principal Executive Officer and Treasurer 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 quarter 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. |
(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 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) | Alpha Architect ETF Trust |
| By (Signature and Title) | /s/ Wesley Gray | |
| Wesley Gray, President, Principal Executive Officer |
| Date | 05/29/2020 |
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/ Wesley Gray | |
| Wesley Gray, President, Principal Executive Officer |
| Date | 05/29/2020 |
| By (Signature and Title) | /s/ John R. Vogel | |
| John R. Vogel, Chief Financial Officer and Treasurer |
| Date | 05/29/2020 |