Neither Exchange Traded Concepts, LLC, Yorkville ETF Advisors, LLC, Index Management Solutions, LLC. and their affiliates, nor SEI and its affiliates provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) you should seek advice based on your particular circumstances from an independent tax advisor.
Carefully consider the Funds' investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Funds’ prospectus, which may be obtained by clicking here. Read the prospectus carefully before investing.
Investing involves risk, including the possible loss of principal.
Narrowly focused investments typically exhibit higher volatility. The energy industry is highly volatile due to significant fluctuation in the prices of energy commodities, as well as political and regulatory developments. Rising interest rates could adversely impact the performance and/or the present value of cash flow of MLPs operating in the energy sector. The abilities of MLPs operating in the energy sector to grow and increase cash distributions can be highly dependent on their ability to make acquisitions that generate increasing cash flows.
Investments in common units of MLPs involve risks that differ from investments in common stock including risks inherent in the structure of MLPs, including (i) tax risks, (ii) risk related to limited control of management or the general partner or managing member, (iii) limited rights to vote on matters affecting the MLP, except with respect to extraordinary transactions, and (iv) conflicts of interest between the general partner or managing member and its affiliates and the limited partners or members, including those arising from incentive distribution payments or corporate opportunities, and cash flow risks. General partners typically have limited fiduciary duties to an MLP, which could allow a general partner to favor its interests over the MLP’s interests. MLP common units can be affected by macro-economic and other factors affecting the stock market in general, expectations of interest rates, investor sentiment towards MLPs or the energy sector, changes in a particular issuer’s financial condition, or unfavorable or unanticipated poor performance of a particular issuer (in the case of MLPs, generally measured in terms of distributable cash flow). Prices of common units of individual MLPs and other equity securities also can be affected by fundamentals unique to the partnership or company, including cash flow growth, cash generating power and distribution coverage. See the prospectus for more detail.
The fund invests in royalty trusts, which are dependent upon the product and sales of natural resources; as the resources deplete, production and cash flows steadily decline, which may decrease distribution rates to the fund.
The fund is treated as a regular corporation for federal income tax, which differs from most investment companies. Unlike traditional ETFs, the Fund is subject to U.S. federal income tax as well as state and local income taxes. Further, the amount of taxes currently paid by the Fund will vary depending on the amount of income, and gains derived from investments and/or sales of MLP interests and such taxes will reduce your return. A portion of the Fund’s distributions is expected to be treated as a return of capital for tax purposes. To the extent distributions represent a return of capital; an investor’s cost basis will be reduced at the time of sale potentially increasing taxes owed.
The potential tax benefits from investing in MLPs depend on them being treated as partnerships for federal income tax purposes. If the MLP is deemed to be a corporation then its income would be subject to federal taxation at the entity level, reducing the amount of cash available for distribution to the fund which could result in a reduction of the fund's value.
The Fund may defer income taxes for many years on gains attributable to its underlying MLP holdings and the deferred tax liability used to calculate the Fund’s NAV could vary dramatically from the Fund’s actual tax liability. Upon sale of an MLP security, the Fund may be liable for previously deferred taxes and, as a result, the determination of the Fund’s actual tax liability may substantially increase expenses and lower the Fund’s NAV.
Unlike most ETFs, the Fund expects to effect share redemptions principally for cash, rather than in-kind, which may make the Fund less tax-efficient than an investment in a conventional ETF. Furthermore, the Fund may need to sell portfolio securities in order to raise cash for redemptions. These factors may increase transaction costs and result in the Fund having wider bid and offering spreads than conventional ETFs.
Exchange Traded Concepts, LLC serves as the investment advisor and Yorkville ETF Advisors, LLC and Penserra Capital Management LLC serve as sub advisors to the funds. The Funds are distributed by SEI Investments Distribution Co., which is not affiliated with Exchange Traded Concepts, LLC or any of its affiliates.