Investment advisor: VegTech LLC; Sub-Adviser Penserra Capital Management LLC
Launch date: December 28, 2021
Expense ratio: 0.76%
Investment objective: The fund seeks long-term growth of capital.
Fundamental investment strategy: The Fund invests in innovative and sustainable solutions in the food and materials sectors. This involves investing across the entire food and materials supply chain, starting with agriculture technology (“AgTech”) and proceeding through food, nutrition, bio-tech, flavor and texture, ingredient and consumer goods companies. These types of companies focus on enhancing the sustainability and efficiency of the food and materials supply system.
The Fund is an actively managed exchange-traded fund (“ETF”). The Fund will invest under normal circumstances at least 80% of its net assets (plus any borrowings for investment purposes) in the securities of plant-based innovation companies (“VegTechTM Companies”) or companies making a positive impact on climate change matters (“Climate Companies”)*. VegTechTM Companies are companies that (1) innovate or use technology in their primary products by utilizing at least one plant ingredient, or innovate or use technology to enable or support companies that do the same; and (2) the end product is animal-free, except for trace amounts. The Adviser believes that VegTechTM Companies are a critical component in the global food and materials systems shift towards sustainability and efficiency, and that they promote positive climate change.
In looking for VegTechTM Companies, the Adviser searches for companies it considers to be innovators in developing products and technologies contributing to a nutritional, efficient and sustainable food supply system, such as plant-based products, alternative proteins, innovative production and materials processes, advancements in nutrition, food and bio-tech innovations, and the latest technology and advancements in scientific research.
Technology is a critical element of these advancements. These include cell-cultured and precision fermentation technology companies that use plant-based carbohydrates in the process of growing cells, nutrients, proteins, flavors, and ingredients. It also includes plant-based agriculture and AgTech, such as vertical farming and agricultural robotics companies, and innovative plant-based materials and scientific services.
To be considered an innovator by the Adviser, a company should work to advance a nutritious, efficient and sustainable food supply system and must use at least one plant or plant-derived ingredient and the end product, component, or service is animal-free; or, the company may help other businesses produce animal-free (inclusive of trace amounts) end products using plant-derived ingredients by offering specialized products, machinery, services, or technologies. These companies are part of a long-term secular trend towards building a food and materials supply system that is efficient and sustainable and prolific with the end goal of feeding more people, more nutritiously, in a shorter amount of time, using fewer resources while creating less damage. The Adviser looks for VegTechTM Companies that are also part of a circular economy with an established food waste goal or policy.
Further, the company should show positive performance, as determined through an analysis of quantitative and fundamental data or expert knowledge of the sector. Additionally, a VegTechTM Company produces no primary products designed solely for industrial farm animal production (“primary products” meaning more than 50% of revenues come in their entirety from the sale of these products, as shown conclusively in a public financial statement), must not perform animal testing unless required to do so by law in order to bring a product to market, and must have a minimum market capitalization of $25 million.
For a VegTechTM Company to qualify as such, the issuer’s plant-based “primary products,” “primary services,” or “primary assets” must account for more than 50% of the company’s revenues or assets, as disclosed in public financial statements as available. The Adviser performs a qualitative and quantitative analysis as feasible to determine whether a company is a VegTechTM Company.
The Fund is non-diversified, which means that it may invest a significant portion of its assets in the securities of a single issuer or small number of issuers.
The Adviser may sell securities from the portfolio if the company’s fundamentals no longer meet the Adviser’s criteria for a VegTechTM Company. The Adviser may sell a security when its price reaches a set target, or if it believes that other investments are more attractive, or for other reasons we may determine. In selling a security, the Adviser will take into account prudent portfolio management practices and the interests of shareholders, which may result in the position being sold over a period of time, rather than immediately, even if the issuer no longer qualifies as a VegTechTM or Climate Company.
Sustainable investing approach: The Adviser believes VegTechTM Companies contribute to several United Nations (UN) Sustainable Development Goals (“SDG”). Within the SDG framework, these goals include “Climate Action,” “Life on Land,” “Life Below Water,” “Zero Hunger,” and “Good Health and Well-being.”
To qualify as a Climate Company, the issuer must meet at least one of the following criteria:
(1) The company has committed to reducing greenhouse gas emissions by signing a pledge to measure and reduce those emissions. Acceptable pledges include, but are not limited to, the United Nations “Climate Neutral Now” and Global Optimism’s “The Climate Pledge;”
(2) The company sells a product that generates less greenhouse gas emissions than typical replacement products, as determined by a formal evaluation. Acceptable evaluations follow the standards defined by the International Organization for Standardization (ISO 14040 or ISO 14044);
(3) The company has disclosed a commitment to reducing greenhouse gas emissions;
(4) The company has greenhouse gas emissions lower than its average peer, per unit of sales or assets, as measured by Bloomberg or a similar data provider; or
(5) The company has a Climate Rating from a third-party environmental, social and governance (“ESG”) data provider such as Bloomberg or Ethos ESG that is above average for peers or that indicates the company is aligned with the Paris Agreement to limit global warming to 2 and preferably 1.5 degrees Celsius.
The Fund will predominantly invest in the equity securities of VegTechTM and Climate companies, which may include, but are not limited to, common and preferred publicly-traded stocks of U.S. and foreign companies, rights and warrants, partnership interests and business trust shares. The Fund may also invest in initial public offerings (“IPOs”) of VegTechTM or Climate companies or in companies that have recently completed an IPO. The Fund’s foreign investments may be direct or through American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”). The Fund’s portfolio is expected to be a focused portfolio with typically fewer than 50 holdings, although the number of such holdings may increase over time if the universe of VegTechTM and Climate companies increases. The Fund may experience high portfolio turnover from time to time.
The Adviser maintains an internal, proprietary, and systematic research process to determine which companies qualify as VegTechTM or Climate companies. The Adviser conducts its own screening research by reviewing financial statements, websites, and brochures. The Adviser may also conduct company interviews and analyzes product labels prior to investing in any company.
In identifying VegTech Companies, the Adviser considers companies with primary products, services, or assets in the following categories:
•Plant-based and Alternative Protein Companies. Companies that produce end products that are typically derived from plants, fungi, microbes, or algae, to support a sustainable, efficient and nutritious food supply system. These may include companies that employ food scientists to develop beef alternatives or alternative proteins that use less land and water and generate less methane than standard animal agriculture, or may include food or materials companies that produce products that include plants and plant derivatives. It could also include companies that offer products or services that support and enable the plant-based category, such as specialized food processors, and food machinery companies.
•Cell-cultured Technology Companies. Companies that use bioscience and engineering to produce, or help produce, cell-cultured foods or alternative proteins. These foods are sometimes called “cell-based,” “lab-grown,” or “cultured” products and are considered part of the field of synthetic biology. These technologies can increase food production and mitigate environmental impact by growing animal cells outside of animals in a nutrient solution that includes plant-derived carbohydrates and other ingredients in a way that significantly changes the production of protein. This reduces the use of land, water, and antibiotics. These companies need only use a trace amount (i.e., 1% or less) of animal cells to grow a significantly larger amount, and thus can positively impact food security. These companies may also support and enable other companies to use plant carbohydrates to grow animal cells, by producing bioreactors (a temperature controlled tank filled with the nutrient solution and used to grow cells outside of an animal), cell culture media (a solution of basic nutrients, including plant-derived carbohydrates, designed to allow cells to grow in a bioreactor), or cell culture meat scaffolding (this can be a plant-based material made into a shape that resembles a piece of meat, used in a bioreactor; as the cells grow on the material, the material degrades and is replaced by cells).
•Precision Fermentation Technology Companies. Companies that grow algae or microbes, such as yeasts and fungi fed with plant-derived carbohydrates to produce nutrients, alternative proteins, flavors, and ingredients. These companies may include one that uses microbes in a bioreactor to produce casein, whey, or heme. Similar to cell-cultured food companies, these companies can produce greater quantities of food in a way that significantly reduces the need for deleterious industrial farming of protein, thus reducing the use of land, water and antibiotics and positively impacting food security. It could also include companies that support and enable the category such as a bioreactor maker or a yeast bioengineering company.
•Sustainable Agricultural and AgTech Companies. Companies that produce plants (vegetables, pulses, tubers, legumes, fruits, nuts, seeds, and grains), fungi, microbes, and algae; or companies that offer technologies, services, or products that support the business of plant-based agriculture. These companies may include ones using vertical farming technology and robotics to grow food near population centers with less land, water, pesticide, and manure than standard industrialized animal factories, furthering the Fund’s sustainability goals. It may include companies that support and enable this category, such as makers of farm equipment, sustainable fertilizers, water conservation equipment, carbon sequestration services, biodiversity protection services, agroecology services, greenhouse technology, or offer robotic and automation tools for plant-based farming.
•Sustainable Materials and Packaging. It includes issuers that use plant-based ingredients in their products, including cosmetics companies that do not engage in animal testing. These companies could produce eco-friendly packaging, body care products, textiles, building materials, or various biodegradable and compostable materials, for example. Companies may use biobased inputs such as food waste, and turn it into usable materials while diverting it from landfills, as part of a circular economy. It may include companies with products or services that support and enable the category, such as companies that engage in ecologically minded construction or develop machinery for biobased recycling.
•Scientific Services. Companies in bioengineering, bioscience, nutrition, or food science that support or enable businesses in sustainable food production, such as alternative proteins and plant-based products. A scientific service company may include one that sequences and tests plant genomes to identify high protein variants of food for human consumption or for use in materials.
*Fund name will change effective on February 28, 2025 from VegTech Plant-based Innovation & Climate ETF. Also, effective December 31, 2024 the exchange listing for the Fund will change from the NYSE Arca, Inc. to the Cboe BZX Exchange, Inc.
**Also effective on February 28, 202 the fund’s principal investment strategy will change, as follows: The Fund will invest under normal circumstances at least 80% of its net assets (plus any borrowings for investment purposes) in the securities of innovative companies focused on sustainable, regenerative and resilient food systems (“VegTechTM Companies”) or companies making a positive impact on climate change matters (“Climate Companies”).
Notes of Explanation: For mutual funds, expense ratio may vary by share class and launch date applies to the launch date of the earliest share class. Sources: Fund prospectus or other offering document, as disclosed.
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