Fees and Expenses of the
Fund
The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may also
incur usual and customary brokerage commissions when buying or selling shares of the Fund, which are not reflected in this table or the example that
follows:
Annual Fund Operating
Expenses
(expenses that you pay each year
as a percentage of the value of your investment)
|
|
|
|
Management
Fees
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0.40%
|
|
Distribution and/or Service (12b-1) Fees
|
None
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Other
Expenses
|
0.00%
|
|
Total Annual Fund Operating
Expenses
|
0.40%
|
Example
The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other
funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all your shares at the end of a period. The example also assumes that your investment has a 5% return each year and that the Fund’s
operating expenses remain the same. The example does not reflect brokerage commissions that you may pay when you purchase and sell Fund shares. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
|
|
|
|
1 Year
|
$41
|
|
3 Years
|
$128
|
|
5 Years
|
$224
|
|
10 Years
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$505
|
Portfolio Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account.
These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 32% of the average value of its
portfolio.
Principal Investment Strategies
The Fund seeks to track the investment results of the Index, which is comprised of equity securities issued by
small-capitalization companies listed on U.S. exchanges that meet certain environmental, social, and governance (“ESG”) criteria. The Index
selects from the securities included in the MSCI USA Small Cap Index (the “Base Index”), which generally consists of equity securities that
comprise the small-cap segment of the U.S. market. MSCI Inc. (“MSCI”), is the index provider for the Index and the Base Index. The Index and
the Base Index are owned, calculated and controlled by MSCI, in its sole discretion. Neither the sub-adviser nor its affiliates has any discretion to select Index components or change the Index methodology. As of December 31, 2019, the Index was
comprised of 645 securities.
The Index identifies equity securities from the Base Index that satisfy certain ESG criteria,
based on ESG performance data collected by MSCI ESG Research, Inc. ESG performance is measured on an industry-specific basis, with assessment categories varying by industry. Environmental assessment categories can include how a company is addressing
climate change, natural resource use, and waste management and emission management. Social evaluation categories can include a company’s relations with employees and suppliers, product safety and sourcing practices. Governance assessment
categories can include governance practices and business ethics. The ESG criteria also consider how well a company adheres to national and international laws and regulations as well as commonly accepted global norms related to ESG matters. Index
rules generally exclude companies with significant activities in certain controversial businesses, including those involving alcohol, tobacco, nuclear power, gambling, firearms and other weapons, among others. Companies otherwise eligible for
inclusion in the Index that exceed certain carbon-based ownership and emissions thresholds are excluded from the Index.
Companies that meet the ESG criteria are then ranked within their respective
sectors based on their ESG performance score. The highest ranked companies in each sector are identified as eligible for inclusion in the Index until such point that the aggregate weight of companies in the sector reaches 50% of the market cap of
such sector in the Base Index. For example, if the market capitalization of all consumer discretionary sector companies included in the Base Index totals $200 million, then the Index would screen these consumer discretionary sector companies, rank
them based on ESG performance scores, and add the highest scoring companies to the Index until such point that their combined total market capitalization reaches $100 million. Once the universe of eligible Index components is established, MSCI
optimizes the weightings of individual components to approximate the sector weightings of the Base Index, within certain constraints established by the Index.
In seeking to track the investment results of the Index, the Fund attempts to replicate the Index by investing all, or
substantially all, of its assets in the securities represented in the Index in approximately the same proportions as the Index. The Index is normally rebalanced and reconstituted quarterly in February, May, August, and November. The Index may also
remove a security at any time in response to a corporate event such as bankruptcy, delisting, merger or acquisition that causes the security to become ineligible for inclusion in the Index. The Fund makes changes to its portfolio shortly after
any Index changes are made public.
Under normal market conditions, the Fund invests at least 80% of the sum of its net assets
and the amount of any borrowings for investment purposes in component securities of the Index. In addition, under normal market conditions, the Fund invests at least 80% of the sum of its net assets and the amount of any borrowings for investment
purposes in the securities of small-capitalization companies. Small-capitalization companies are defined as companies that fall in the range of companies included in the MSCI USA Small Cap Index as of the last business day of the month in which its
most recent reconstitution was completed. The MSCI USA Small Cap Index is designed to measure the performance of the small cap segments of the U.S. market. As of December 31, 2019, the MSCI USA Small Cap Index had a float-adjusted market
capitalization range from $41.0 million to $10.8 billion, with an average market capitalization of $2.0 billion. “Float-adjusted” means that the share amounts used in calculating the Index reflect only shares available to investors, with
shares held by control groups, public companies and government agencies excluded.
To the extent the Index concentrates (i.e.,
holds 25% or more of its total assets) in the securities of companies in a particular industry or group of industries, the Fund will concentrate its investments to approximately the same extent as the Index.
Principal Risks
You could lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund listed below are presented alphabetically to facilitate your ability to find particular risks and compare them
with the risks of other funds. Each risk summarized below is considered a “principal risk” of investing in the Fund, regardless of the order in which it
appears.
Concentration Risk—To the extent that
the Fund’s portfolio is concentrated in the securities of issuers in a particular market, industry, group of industries, sector or asset class, the Fund may be adversely affected by the performance of those securities, may be subject to
increased price volatility and may be more susceptible to adverse economic, market, political or regulatory occurrences affecting that market, industry, group of industries, sector or asset class.
Cybersecurity Risk—Cybersecurity breaches may allow an unauthorized party to gain access to Fund assets, customer data, or proprietary information, or cause the Fund and/or its service providers to
suffer data corruption or lose operational functionality. Such events could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial
loss.
Equity Security Risk—Equity
securities may decline significantly in price over short or extended periods of time, and such declines may occur because of declines in the equity market as a whole, or because of declines in only a particular country, company, industry, or sector
of the market.
ESG Strategy Risk—Because the
Fund’s ESG investment strategy may exclude securities of certain issuers for non-financial reasons, the Fund may forgo some market opportunities available to funds that do not use an ESG investment strategy. This may cause the Fund to
underperform the stock market as a whole or other funds that do not use an ESG investment strategy. In addition, there is a risk that the companies identified by the Fund’s ESG investment strategy do not operate as expected when addressing ESG
issues.
Index Provider Risk—There is no assurance that the
Index will be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated or disseminated accurately. To correct any such error, the index provider may carry out an unscheduled rebalance or other modification of the Index
constituents or weightings, which may increase the Fund’s costs. Index providers generally do not provide any representation or warranty in relation to the quality, accuracy or completeness of data in the indexes in which they license,
and generally do not guarantee that an index will be calculated in accordance with its stated methodology. Losses or costs associated with any index provider errors generally will be borne by the Fund and its
shareholders.
Investment Style Risk—The Fund invests in the securities included in, or representative of, the Index regardless of their investment merit. The Fund does not attempt to outperform the Index or take
defensive positions in declining markets. As a result, the Fund’s performance may be adversely affected by a general decline in the market segments relating to the Index. In addition, because the Index selects securities for inclusion based on
ESG criteria, a Fund may forgo some market opportunities available to funds that do not use these criteria.
Market Trading Risks—The Fund is an exchange-traded fund (“ETF”), and as with all ETFs, Fund shares may be bought and sold in the secondary market
at market prices. Although it is expected that the market price of a Fund share typically will approximate its net asset value (“NAV”), there may be times when the market price and the NAV diverge more significantly, particularly in times of market volatility or steep market declines. Thus, you may pay more or
less than NAV when you buy Fund shares on the secondary market, and you may receive more or less than NAV when you sell those shares. Although the Fund’s shares are listed for trading on a national securities exchange, it is possible that an
active trading market may not develop or be maintained, in which case transactions may occur at wider bid/ask spreads (which may be especially pronounced for smaller funds). Trading of the Fund’s shares may be halted by the activation of
individual or market-wide trading halts (which halt trading for a specific period of time when the price of a particular security or overall market prices decline by a specified percentage). In times of market stress, the Fund’s underlying
portfolio holdings may become less liquid, which in turn may affect the liquidity of the Fund’s shares and/or lead to more significant differences between the Fund’s market price and its NAV. Market makers are under no obligation to make
a market in the Fund’s shares, and authorized participants are not obligated to submit purchase or redemption orders for the Fund’s shares. In the event market makers cease making a market in the Fund's shares or authorized participants
stop submitting creation or redemption orders, Fund shares may trade at a larger premium or discount to NAV.
Service Provider Operational Risk—The Fund’s service providers, such as the Fund’s administrator, custodian or transfer agent, may experience disruptions or
operating errors that could negatively impact the Fund. Although service providers are required to have appropriate operational risk management policies and procedures, and to take appropriate precautions to avoid and mitigate risks that could lead
to disruptions and operating errors, it may not be possible to identify all of the operational risks that may affect the Fund or to develop processes and controls to completely eliminate or mitigate their occurrence or
effects.
Small-Cap Stock Risk—Small-cap stocks
involve substantial risk. Prices of small-cap stocks may be subject to more abrupt or erratic movements, and to wider fluctuations, than stock prices of larger, more established companies or the market averages in general. It may be difficult to
sell small-cap stocks at the desired time and price.
Tracking
Error Risk—Tracking error is the divergence of the Fund’s performance from that of the Index. Tracking error may occur because of, for example, pricing differences, transaction costs, the Fund’s holding of uninvested cash,
differences in timing of the accrual of distributions, changes to the Index or the need to meet various new or existing regulatory requirements. This risk may be heightened during times of increased market volatility or other unusual market
conditions. Tracking error also may result because the Fund incurs fees and expenses, but the Index does not.
