The Fund is an actively managed exchange-traded fund (“ETF”) that seeks to achieve its investment objective by investing primarily in equity securities of companies that are located in China or are economically tied to China and that participate in, enable, support, or benefit from the development and adoption of artificial intelligence (“AI”) technologies.
Under normal circumstances, the Fund invests at least 80% of its net assets, plus borrowings for investment purposes, in equity securities and derivative instruments of companies that are located in China or are economically tied to China and that derive significant revenues, profits, assets, or business exposure from AI-related activities (“China AI Companies”). For purposes of the Fund’s 80% policy, derivative instruments are valued at their notional value.
The Fund may obtain exposure to China AI Companies directly through investments in equity securities or indirectly through derivative instruments, including swap agreements and forward contracts.
A company is considered economically tied to China if it is organized in, has its principal place of business in, has principal trading activity in, or derives at least 50% of its revenues, profits, assets, or business activities from China. For purposes of this definition, China includes the People's Republic of China, Hong Kong, and Macau. Companies that are incorporated outside of China, including through variable interest entity (“VIE”) structures or other offshore holding company arrangements, may be considered economically tied to China if they conduct a substantial portion of their operations in, or derive a substantial portion of their revenues, profits, assets, or business activities from, China.
The Fund’s sub-adviser, EMQQ Global LLC (the “Sub-Adviser”), utilizes a proprietary thematic framework based on the “five-layer AI stack” paradigm (the “AI Stack”). This framework categorizes the AI ecosystem into the following five interconnected layers.
| 1. | Energy and Power Infrastructure Layer – companies that derive significant revenues, profits, or assets from electricity generation, grid infrastructure, cooling systems, industrial power equipment, renewable energy, energy transmission, and other infrastructure supporting AI-related power demand; |
| 2. | Semiconductor and Computing Layer – companies that derive significant revenues, profits, or assets from the design, manufacture, packaging, testing, or supply of semiconductors and related hardware; |
| 3. | Data Center and Networking Infrastructure Layer – companies that derive significant revenues, profits, or assets from data center development and operation, cloud infrastructure, and related digital infrastructure; |
| 4. | AI Models and Platforms Layer – companies developing or commercializing AI foundation models, large language models, machine learning systems, cloud AI platforms, AI operating systems, or related software infrastructure; and |
| 5. | AI Applications Layer – companies that derive significant revenues, profits, or assets from AI-enabled products, services, or operations in sectors such as internet commerce, financial technology, digital advertising, software, autonomous systems, robotics, logistics, healthcare, education, entertainment, cybersecurity, and enterprise productivity, rather than companies that merely “utilize” AI. |
In constructing the Fund’s portfolio, the Sub-Adviser uses a proprietary security selection methodology to identify China AI Companies that are leaders within one or more layers of the AI Stack. The Fund generally invests in China AI Companies across the AI Stack and expects to maintain significant exposure to companies located in, or economically tied to, China. The Fund may not invest equally across each of the five layers of the AI Stack and may not invest in every layer at all times. The Fund’s allocations among the layers may vary significantly based on market conditions and the Sub-Adviser’s security selection process.
In evaluating potential investments, the Sub-Adviser may consider a combination of quantitative, qualitative, and thematic factors, including a company’s participation in AI-related industries, revenue exposure to AI infrastructure or applications, research and development intensity, strategic positioning within the AI ecosystem, competitive advantages, expected growth potential, valuation, liquidity, and broader macroeconomic and geopolitical considerations.
The Fund may invest in the equity securities of companies of any market capitalization and may invest in common stocks, depositary receipts (including American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”)), preferred stocks, convertible securities, and other equity-related instruments.
The Fund may have significant exposure to sectors and industries associated with AI development and adoption, including information technology, communication services, industrials, utilities, energy, and consumer discretionary sectors. Because the Fund is thematic and non-diversified, it may invest a significant portion of its assets in a limited number of issuers, industries, or sectors. A company is considered economically tied to AI-related activities if: (i) an independent third-party data provider (e.g., Bloomberg BICS or GICS) classifies the company under a sub-industry principally associated with AI-related infrastructure, hardware, or software (e.g., Semiconductors & Semiconductor Equipment, Technology Hardware Storage & Peripherals, Communications Equipment, Electronic Equipment Instruments & Components, Software, Electrical Equipment, and Machinery).
The Fund may invest in Chinese issuers, including A-shares, Hong Kong-listed securities, ADRs, GDRs, and variable interest entity (“VIE”) structures, to the extent permitted by applicable law and the Fund’s investment policies. VIE structures are offshore holding company arrangements which allow Chinese companies in which the government restricts foreign ownership to raise capital from foreign investors on exchanges outside of China.
The Fund will invest in U.S. government securities, including U.S. Treasury bills, notes, and bonds, which will serve as collateral for the Fund’s derivatives holdings.
The Fund may sell a security when the Sub-Adviser determines that the company no longer meets the Fund’s thematic criteria, exhibits deteriorating fundamentals, faces adverse regulatory or competitive developments, reaches the Sub-Adviser’s valuation target, or when the Sub-Adviser identifies more attractive investment opportunities.
