Executive Summary

In January, what has been called the largest leak of personal information ever was found by a security researcher. Called “Collection #1,” the database contained over 773 million unique email addresses and 21 million unique passwords. A review determined the database had email addresses and passwords from over 2000 previous breaches and an estimated 140 million new email addresses and 10 million passwords — in total the largest data breach on the internet. Security researchers found similar sets of data, called Collection #2-5, for sale on the dark web. Collection #2-5 are estimated to contain three times as much data as Collection #1.

Fund Performance

HACK returned 18.07% for the quarter ended March 31, 2019, which was in line with its benchmark and ahead of the overall Information Technology Industry. At the sector level, Information Technology contributed the lion’s share of return, as it was up 18.5% for the quarter. This was consistent with the performance of the overall global technology sector.

At the security level, HACK’s index constituents were firing on all cylinders, led by CyberArk Software (CYBR, +60.6%), Proofpoint (PFPT, +44.9%) and Tenable Holdings (TENB, +42.7%). HACK’s few holdings that had negative returns included Sophos Group (SOPH LN, -18.8%), Trend Micro (4704 JP, -10.5%), and Solarwinds (SWI, -2.9%).

Looking at fundamental factor performance, the portfolio’s allocation to global markets was the largest contributor to return, followed by exposure to the software industry and US equities. Detractors were led by style factors Size, Momentum and Volatility.

Taking a closer look at the components of the Style factor, we see the magnitude of the contribution made by each individual factor. The largest contributor in Q1 was Trade Activity, followed by Growth, then Earnings Variability. Size was the largest detractor of the style factors, followed by Momentum and Volatility.

 

Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477), or by visiting www.etfmg.com. Read the prospectus carefully before investing.

Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility. The fund is concentrated in technology-related companies that face intense competition, both domestically and internationally, which may have an adverse effect on profit margins. Such companies may have limited product lines, markets, financial resources or personnel. The products of such companies may face obsolescence due to rapid technological developments, frequent new product introduction, unpredictable changes in growth rates, competition for the services of qualified personnel, and competition from foreign competitors with lower production costs. Technology companies are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies. Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. The Funds are non-diversified, meaning they may concentrate its assets in fewer individual holdings than a diversified fund. Investments in smaller companies tend to have limited liquidity and greater price volatility than large-capitalization companies. Diversification does not assure a profit or protect against a loss in a declining market. The Fund’s return may not match or achieve a high degree of correlation with the return of the Prime Cyber Defense Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Prime Cyber Defense Index.

The Prime Cyber Defense Index (PCYBER) provides a benchmark for investors interested in tracking companies actively involved in providing cyber security technology and services. The Index uses a market capitalization weighted allocation across the infrastructure provider and service provider categorizations as well as an equal weighted allocation methodology for all components within each sector allocation. Index components are reviewed semi-annually for eligibility, and the weights are reset accordingly. An investment cannot be made directly in an index. Fund holdings and sector allocations are subject to change at any time and should not be considered recommendations to buy or sell any security.

ETF Managers Group LLC is the investment adviser to the Fund.

The Fund is distributed by ETFMG Financial LLC. ETF Managers Group LLC and ETFMG Financial LLC are wholly owned subsidiaries of Exchange Traded Managers Group LLC (collectively, “ETFMG”). ETFMG Financial LLC is not affiliated with Prime Indexes.

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