UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-23096
Legg Mason ETF Equity Trust
(Exact name of registrant as specified in charter)
620 Eighth Avenue, 49th Floor, New York, NY 10018
(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Legg Mason & Co., LLC
100 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant’s telephone number, including area code: 1-877-721-1926
Date of fiscal year end: October 31
Date of reporting period: October 31, 2016
| ITEM 1. | REPORT TO STOCKHOLDERS. |
The Annual Report to Stockholders is filed herewith.
| Annual Report | October 31, 2016 |
LEGG MASON
DEVELOPED EX-US DIVERSIFIED CORE ETF
DDBI
| INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE |
Fund objective
The Fund seeks to track the investment results of an index composed of publicly traded equity securities of developed markets outside the United States.
Dear Shareholder,
We are pleased to provide the annual report of Legg Mason Developed ex-US Diversified Core ETF for the period since the Fund’s inception on December 28, 2015 through October 31, 2016. Please read on for a detailed look at prevailing economic and market conditions during the Fund’s reporting period and to learn how those conditions have affected Fund performance.
As always, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our website, www.leggmason.com. Here you can gain immediate access to market and investment information, including:
| • | Fund net asset value and market price, |
| • | Market insights and commentaries from our portfolio managers, and |
| • | A host of educational resources. |
We look forward to helping you meet your financial goals.
Sincerely,
Jane Trust, CFA
President and Chief Executive Officer
November 30, 2016
| II | Legg Mason Developed ex-US Diversified Core ETF |
Economic review
The pace of U.S. economic activity fluctuated during the period from the Fund’s inception on December 28, 2015 through October 31, 2016 (the “reporting period”). Looking back, the U.S. Department of Commerce reported that fourth quarter 2015 U.S. gross domestic product (“GDP”)i growth was 0.9%. First and second quarter 2016 GDP growth was 0.8% and 1.4%, respectively. The U.S. Department of Commerce’s second reading for third quarter 2016 GDP growth — released after the reporting period ended — was 3.2%. The improvement in GDP growth in the third quarter 2016 reflected an increase in private inventory investment, an acceleration in exports, an upturn in federal government spending and smaller decreases in state and local government spending.
While there was a pocket of weakness in May 2016, job growth in the U.S. was solid overall and a tailwind for the economy during the reporting period. When the period ended on October 31, 2016, the unemployment rate was 4.9%, as reported by the U.S. Department of Labor. The percentage of longer-term unemployed declined over the period. In October 2016, 25.2% of Americans looking for a job had been out of work for more than six months, versus 26.3% when the period began.
Turning to the global economy, in its October 2016 World Economic Outlook Update, the International Monetary Fund (“IMF”)ii said, “The forces shaping the global outlook — both those operating over the short term and those operating over the long term — point to subdued growth for 2016 and a gradual recovery thereafter, as well as to downside risks.”From a regional perspective, the IMF currently estimates 2016 growth in the Eurozone will be 1.7%, versus 2.0% in 2015. Japan’s economy is expected to expand 0.5% in 2016, the same as in 2015. Elsewhere, the IMF projects that overall growth in emerging market countries will tick up to 4.2% in 2016, versus 4.0% in 2015.
After an extended period of maintaining the federal funds rateiii at a historically low range between zero and 0.25%, the Federal Reserve Board (the “Fed”)iv increased the rate at its meeting on December 16, 2015. This marked the first rate hike since 2006. In particular, the U.S. central bank raised the federal funds rate to a range between 0.25% and 0.50%. At its meeting that concluded on November 2, 2016 (after the reporting period ended), as well as during the prior meetings of the year, the Fed kept rates on hold. In the Fed’s statement after the November meeting it said, “The Committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.”
Given the economic challenges in the Eurozone, the European Central Bank (“ECB”)v took a number of actions to stimulate growth and ward off deflation. In January 2015, before the reporting period began, the ECB announced that, beginning in March 2015, it would start a €60 billion-per-month bond buying program that is expected to run until September 2016. In December 2015, the ECB extended its monthly bond buying program until at least March 2017. Finally, in March 2016, the ECB announced that it
| Legg Mason Developed ex-US Diversified Core ETF | III |
Investment commentary (cont’d)
would increase its bond purchasing program to €80 billion-per-month. It also lowered its deposit rate to -0.4% and its main interest rate to 0%. Looking at other developed countries, in the aftermath of the June 2016 U.K. referendum to leave the European Union (“Brexit”), the Bank of England (“BoE”)vi lowered rates in October 2016 from 0.50% to 0.25% — an all-time low. After holding rates steady at 0.10% for more than five years, in January 2016, the Bank of Japanvii announced that it lowered the rate on current accounts that commercial banks hold with it to -0.10%. Elsewhere, the People’s Bank of Chinaviii kept rates steady at 4.35%.
As always, thank you for your confidence in our stewardship of your assets.
Sincerely,
Jane Trust, CFA
President and Chief Executive Officer
November 30, 2016
All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results. Forecasts and predictions are inherently limited and should not be relied upon as an indication of actual or future performance.
| i | Gross domestic product (“GDP”) is the market value of all final goods and services produced within a country in a given period of time. |
| ii | The International Monetary Fund (“IMF”) is an organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. |
| iii | The federal funds rate is the rate charged by one depository institution on an overnight sale of immediately available funds (balances at the Federal Reserve) to another depository institution; the rate may vary from depository institution to depository institution and from day to day. |
| iv | The Federal Reserve Board (the “Fed”) is responsible for the formulation of U.S. policies designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments. |
| v | The European Central Bank (“ECB”) is responsible for the monetary system of the European Union and the euro currency. |
| vi | The Bank of England (“BoE”), formally the Governor and Company of the BoE, is the central bank of the United Kingdom. The BoE’s purpose is to maintain monetary and financial stability. |
| vii | The Bank of Japan is the central bank of Japan. The bank is responsible for issuing and handling currency and treasury securities, implementing monetary policy, maintaining the stability of the Japanese financial system and the yen currency. |
| viii | The People’s Bank of China (“PBoC”) is the central bank of the People’s Republic of China with the power to carry out monetary policy and regulate financial institutions in mainland China. |
| IV | Legg Mason Developed ex-US Diversified Core ETF |
Q. What is the Fund’s investment strategy?
A. Legg Mason Developed ex-US Diversified Core ETF (the “Fund”) seeks to track the investment results of the QS DBI Developed ex-US Diversified Index (the “Underlying Index”). The Underlying Index seeks to provide exposure to equity markets in developed countries outside the United States and is based on a proprietary methodology created and sponsored by QS Investors, LLC (“QS”), the Fund’s subadviser. The Underlying Index is composed of equity securities in developed markets outside the United States that are included in the MSCI World ex-US Indexi.
The proprietary rules-based process initially groups this universe of securities into multiple investment categories based on geography and sector. Within each of these investment categories, securities are weighted by market capitalization. The process then combines those investment categories with more highly correlated historical performance into a smaller number of “clusters.” A cluster is a group of investment categories based on geography and sector that have demonstrated a tendency to behave similarly (high correlation). Thereafter, each of these clusters is equally weighted in the Underlying Index to produce a highly diversified portfolio. QS anticipates that the number of component securities in the Underlying Index will range from 900 to 1,000 from approximately 20 countries, including Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, Norway, Singapore, Spain, Sweden, Switzerland and the United Kingdom. The Underlying Index may include large, medium and small capitalization companies. The components of the Underlying Index, and the degree to which these components represent certain countries and sectors, may change over time. The Underlying Index’s components are reconstituted annually and rebalanced quarterly. The Underlying Index is reconstituted on a different date from the MSCI World ex-US Index. Securities that are removed from, or added to, the MSCI World ex-US Index are removed from, or considered for inclusion in, the Underlying Index at the next annual reconstitution or quarterly rebalancing of the Underlying Index. The Fund’s portfolio is rebalanced when the Underlying Index is rebalanced or reconstituted. The Fund may trade at times other than when the Underlying Index is rebalanced or reconstituted for a variety of reasons, including when adjustments may be made to its representative sampling process from time to time or when investing cash.
The term “diversified” highlights the purpose of QS’ Diversification Based Investing methodology, which seeks to avoid concentration risks often identified with market cap-weighted funds. The term “core” highlights the segment of the investment universe where the fund invests — as opposed to introducing value or size biases or investing in niche segments of the market.
The Fund uses a “passive” or indexing investment approach to achieve its investment objective. Unlike many investment companies, the Fund does not try to outperform its Underlying Index and does not seek temporary defensive positions when markets decline or appear overvalued. Indexing may eliminate the chance that the Fund will substantially outperform the Underlying Index and also may reduce some of the risks of active management, such as poor security selection. Indexing seeks to achieve lower costs and better after-tax performance by
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 1 |
Fund overview (cont’d)
keeping portfolio turnover low in comparison to actively managed investment companies.
QS may use a representative sampling indexing strategy to manage the Fund. “Representative sampling” is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to that of the Underlying Index. When sampling is used, the securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as return variability, risk, market capitalization, country/region exposures and sector exposures) and fundamental characteristics (such as portfolio yield, price/earnings ratios and price/book ratios) similar to those of the Underlying Index. The Fund may or may not hold all of the securities in the Underlying Index.
The Fund will invest at least 80% of its net assets, plus borrowings for investment purposes, if any, in securities that compose the Underlying Index. The equity securities that the Fund will hold are principally common stocks.
The Fund may invest up to 20% of its net assets in certain index futures, options, options on index futures, swap contracts or other derivatives related to its Underlying Index and its component securities; cash and cash equivalents; other investment companies, including exchange-traded funds; exchange-traded notes; depository receipts; and in securities and other instruments not included in its Underlying Index but which QS believes will help the Fund track its Underlying Index. The Fund may invest in exchange-traded equity index futures and currency derivatives to gain exposure to local markets and may also use currency derivatives for cash management purposes.
Q. What were the overall market conditions during the Fund’s reporting period?
A. Equity markets started out 2016 in risk-off mode as macro events dominated headlines: economic slowdowns in the U.S., China and many other markets and falling commodity prices. In mid-February, the market made a sharp reversal and rallied into quarter-end, along with commodities. Developed ex-U.S. markets declined for the quarter, while emerging markets had a gain. The banks industry was the hardest hit globally, with lower trading volumes impacting banks’ fixed income, currency and commodities divisions. Lower trading activity can be traced to multiple factors including concerns over economic growth, decreased initial public offering (IPO) activity and, specific to Europe, concerns over a potential U.K. exit from the European Union.
Developed markets outside the U.S. declined in the second calendar quarter of 2016, achieving gains only in April 2016. Most markets turned negative in May. Volatility was significant, most notably in late June after investors were surprised by the win for “Brexit” — Britain’s referendum on whether to leave the European Union. Currencies also swung over the last trading week of June 2016; the British pound declined significantly. Emerging markets remained unscathed over Brexit and ended the month of June 2016 with a solid gain, but underperformed for the quarter. Across the developed world, the Energy sector was a significant performer, followed by defensive sectors, Health Care and Consumer Staples. The banks industry and the Consumer Discretionary sector underperformed, with fairly large declines.
Equities globally advanced in the third calendar quarter of 2016 after being whipsawed
| 2 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
by the Brexit vote in late June 2016. Most of the gains occurred early in the quarter, when several major stock indices rose to new highs, before falling back slightly. Industrial commodity stocks saw some strong returns, while oil and gold prices were essentially flat. Overall, emerging markets outperformed the developed world; a number of larger emerging markets had double digit gains. Central banks continued to be accommodative, though only the Bank of Japanii made significant policy moves. Most markets saw modestly upward trends in manufacturing sentiment. Developed market returns declined slightly for the final month of the reporting period.
The Fund uses a passive investment approach to achieve its investment objective, and, therefore, made no change in investment approach in response to market conditions.
Performance review
For the period since the Fund’s inception on December 28, 2015 through October 31, 2016, Legg Mason Developed ex-US Diversified Core ETF generated a -0.32% return on a net asset value (“NAV”)iii basis and -0.12% based on its market priceiv per share.
The performance table shows the Fund’s total return since the Fund’s inception on December 28, 2015 through October 31, 2016 based on its NAV and market price as of October 31, 2016. The Fund seeks to track the investment results of an index composed of publicly traded equity securities of developed markets outside the United States, the QS DBI Developed ex-US Diversified Index, which returned -0.18% for the same period. The Fund’s unmanaged benchmark, the MSCI World ex-US Index, returned 0.86% over the same time frame. The Lipper International Large-Cap Core Funds Category Average1 returned 0.88% for the period December 31, 2015 through October 31, 2016. Please note that Lipper performance returns are based on each fund’s NAV.
| Performance Snapshot as of October 31, 2016 (unaudited) | ||||||||
| 6 Months | Total Return Since Fund Inception* | |||||||
| Legg Mason Developed ex-US Diversified Core ETF: | ||||||||
$24.87 (NAV) | -1.15 | % | -0.32 | %**† | ||||
$24.92 (Market Price) | -1.31 | % | -0.12 | %**‡ | ||||
| QS DBI Developed ex-US Diversified Index | -2.06 | % | -0.18 | % | ||||
| MSCI World ex-US Index | -0.08 | % | 0.86 | % | ||||
| Lipper International Large-Cap Core Funds Category Average1 | 1.16 | % | 0.88 | % | ||||
The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. Principal value and investment returns will fluctuate so shares, when sold, may be worth more or less than their original cost. Performance data
current to the most recent month-end is available at www.leggmason.com/etf.
Investors buy and sell shares of an exchange-traded fund (“ETF”) at market price (not NAV) in the secondary market throughout the trading day. These shares are not individually available for purchase or redemption directly from the ETF. Market price returns shown are based upon the National Best Bid and Offer (“NBBO”)v at
| 1 | Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the period ended October 31, 2016, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 143 funds for the six-month period and among the 135 funds for the ten-month period in the Fund’s Lipper category. |
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 3 |
Fund overview (cont’d)
4:00 p.m. Eastern Time. These returns do not represent investors’ returns had they traded shares at other times. Performance figures for periods shorter than one year represent cumulative figures and are not annualized.
Information showing the number of days the market price of the Fund’s shares was greater than the Fund’s NAV and the number of days it was less than the Fund’s NAV (i.e., premium or discount) for various time periods is available by visiting the Fund’s website at www.leggmason.com/etf.
As of the Fund’s current prospectus dated December 28, 2015, the gross total annual fund operating expense ratio for the Fund was 0.40%.
* The Fund’s inception date is December 28, 2015.
** Total returns are based on changes in NAV or market price, respectively. Returns reflect the deduction of all Fund expenses. Returns do not reflect the deduction of brokerage commissions or taxes that investors pay on distributions or the sale of shares.
† Total return assumes the reinvestment of all distributions at NAV.
‡ Total return assumes the reinvestment of all distributions at market price.
What were the leading contributors to performance?
A. From a sector perspective, an underweight to the Financials sector and an overweight to the Materials sector relative to the Fund’s benchmark contributed to performance. The Fund’s Underlying Index underweight to Switzerland versus the Fund’s benchmark was also additive to relative performance during the period. The currency effect proved to be a strong contributor, particularly in the U.K. where the Fund’s Underlying Index was relatively underweight.
What were the leading detractors from performance?
A. From a country perspective, overweight allocations to Italy, Denmark and Israel were the leading detractors. From a sector perspective, the Underlying Index’s overweight allocation to the Telecommunication Services sector also detracted from performance.
Looking for additional information?
The Fund’s daily NAV is available on-line at www.leggmason.com/etf. The Fund is traded under the symbol “DDBI” and its closing market price is available on most financial websites. In a continuing effort to provide information concerning the Fund, shareholders may call 1-888-386-5535 (toll free), Monday through Friday from 8:00 a.m. to 5:30 p.m. Eastern Time, for the Fund’s current NAV, market price and other information.
Thank you for your investment in Legg Mason Developed ex-US Diversified Core ETF. As always, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Fund’s investment goals.
Sincerely,
QS Investors, LLC
November 20, 2016
RISKS: The Fund is newly organized, with a limited history of operations. Equity securities are subject to market and price fluctuations. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. In rising markets, the value of large-cap stocks may not rise as much as smaller-cap stocks. Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks. Diversification
| 4 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
does not guarantee a profit or protect against a loss. The Fund may focus its investments in certain industries, increasing its vulnerability to market volatility. There is no guarantee that the Fund will achieve a high degree of correlation to the index it seeks to track. The Fund does not seek to outperform the index it tracks, and does not seek temporary defensive positions when markets decline or appear overvalued. Derivatives, such as options and futures, can be illiquid, may disproportionately increase losses and have a potentially large impact on Fund performance. Please see the Fund’s prospectus for a more complete discussion of these and other risks, and the Fund’s investment strategies.
The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. The Fund’s top five sector holdings (as a percentage of net assets) as of October 31, 2016 were: Financials (13.1%), Health Care (11.9%), Information Technology (11.4%), Telecommunication Services (10.7%) and Industrials (9.5%). The Fund’s composition may differ over time.
All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results. An index is a statistical composite that tracks a specified financial market, sector or rule-based investment process. Unlike a fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by a fund. These expenses negatively impact fund performance. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.
| i | MSCI World ex-US Index captures large and mid-cap companies across 22 of 23 developed markets countries, excluding the United States. |
| ii | The Bank of Japan is the central bank of Japan. The bank is responsible for issuing and handling currency and treasury securities, implementing monetary policy, maintaining the stability of the Japanese financial system and the yen currency. |
| iii | Net Asset Value (“NAV”) is calculated by subtracting total liabilities from total assets and dividing the results by the number of shares outstanding. |
| iv | Market Price is determined by supply and demand. It is the price at which an investor purchases or sells shares of the Fund. The Market Price may differ from the Fund’s NAV. |
| v | The National Best Bid and Offer (“NBBO”) is the best (lowest) available ask price and the best (highest) available bid price to investors when they buy and sell securities. |
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 5 |
Investment breakdown (%) as a percent of total investments
| † | The bar graph above represents the composition of the Fund’s investments as of October 31, 2016. The composition of the Fund’s investments is subject to change at any time. |
| * | Represents less than 0.1%. |
| 6 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
Example
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, such as brokerage commissions paid on purchases and sales of Fund shares; and (2) ongoing costs, including management fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds.
This example is based on an investment of $1,000 invested on May 1, 2016 and held for the six months ended October 31, 2016.
Actual expenses
The table below titled “Based on Actual Total Return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period”.
Hypothetical example for comparison purposes
The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
| Based on actual total return1 | Based on hypothetical total return1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Actual Total Return2 | Beginning Account Value | Ending Account Value | Annualized Expense Ratio | Expenses Paid During the Period3 | Hypothetical | Beginning Account Value | Ending Account Value | Annualized Expense Ratio | Expenses Paid During the Period3 | |||||||||||||||||||||||||||||||||||||||||
| -1.15% | $ | 1,000.00 | $ | 988.50 | 0.40 | % | $ | 2.00 | 5.00 | % | $1,000.00 | $ | 1,023.13 | 0.40 | % | $ | 2.03 | |||||||||||||||||||||||||||||||||
| 1 | For the six months ended October 31, 2016. |
| 2 | Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value. Total return is not annualized, as it may not be representative of the total return for the year. Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. |
| 3 | Expenses (net of fee waivers and/or expense reimbursements) are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (184), then divided by 366. |
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 7 |
| Net Asset Value | ||||
| Average annual total returns1 | ||||
| Inception* through 10/31/16 | -0.32 | %† | ||
| Cumulative total returns1 | ||||
| Inception date of 12/28/15 through 10/31/16 | -0.32 | % | ||
| Market Price | ||||
| Average annual total returns2 | ||||
| Inception* through 10/31/16 | -0.12 | %† | ||
| Cumulative total returns2 | ||||
| Inception date of 12/28/15 through 10/31/16 | -0.12 | % | ||
All figures represent past performance and are not a guarantee of future results. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when sold, may be worth more or less than their original cost. Results for longer periods will differ, in some cases, substantially. The returns shown do not reflect the deduction of brokerage commissions or taxes that investors would pay on distributions or the sale of shares. Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower. Performance figures for periods shorter than one year represent cumulative figures and are not annualized.
Investors buy and sell shares of the Fund at market price, not NAV, in the secondary market throughout the trading day. These shares are not individually available for purchase or redemption directly from the Fund. The Fund’s per share NAV is the value of one share of the Fund and is calculated by dividing the value of total assets less total liabilities by the number of shares outstanding. The NAV return is based on the NAV of the Fund and the market price return is based on the market price per share of the Fund. Market price returns shown are based upon the National Best Bid and Offer (“NBBO”) at 4:00 p.m. Eastern Time. These returns do not represent investors’ returns had they traded shares at other times. NAV and market price returns assume that dividends and capital gain distributions have been reinvested in the Fund at NAV and market price, respectively. As with other exchange-traded funds, NAV returns and market price returns may differ because of factors such as the supply and demand for Fund shares and investors’ assessment of the underlying value of the Fund’s portfolio securities.
| † | Not annualized. |
| 1 | Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value. |
| 2 | Assumes the reinvestment of all distributions, including returns of capital, if any, at market price. |
| * | Inception date of the Fund is December 28, 2015. |
| 8 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
Historical performance
Value of $10,000 invested in
Legg Mason Developed ex-US Diversified Core ETF vs. QS DBI Developed ex-US Diversified Index and MSCI World ex-US Index† — December 28, 2015 - October 2016
All figures represent past performance and are not a guarantee of future results. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when sold, may be worth more or less than their original cost. Results for longer periods will differ, in some cases, substantially. NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at NAV. The returns shown do not reflect the deduction of brokerage commissions or taxes that investors would pay on distributions or the sale of shares. Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower.
| † | Hypothetical illustration of $10,000 invested in Legg Mason Developed ex-US Diversified Core ETF on December 28, 2015, assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value through October 31, 2016. The hypothetical illustration also assumes a $10,000 investment in the QS DBI Developed ex-US Diversified Index and the MSCI World ex-US Index. The Fund’s per share NAV is the value of one share of the Fund and is calculated by dividing the value of total assets less total liabilities by the number of shares outstanding. The NAV return is based on the NAV of the Fund. The QS DBI Developed ex-US Diversified Index (the “Underlying Index”) is an index composed of publicly traded equity securities of developed markets outside the United States that are included in the MSCI World ex-US Index. The Underlying Index is based on a proprietary methodology created and sponsored by QS Investors LLC, the Fund’s subadviser. The MSCI World ex-US Index captures large and mid-cap companies across 22 of 23 developed markets countries, excluding the United States. The indices are not subject to the same management and trading expenses as a fund. An index is a statistical composite that tracks a specified financial market, sector, or rules-based investment process. Unlike a fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by a fund. These expenses negatively impact fund performance. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index. |
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 9 |
October 31, 2016
Legg Mason Developed ex-US Diversified Core ETF
| Security | Shares | Value | ||||||||||||||
| Common Stocks — 99.2% | ||||||||||||||||
| Consumer Discretionary — 8.1% | ||||||||||||||||
Auto Components — 0.6% |
| |||||||||||||||
Bridgestone Corp. | 100 | $ | 3,727 | (a) | ||||||||||||
Compagnie Generale des Etablissements Michelin | 26 | 2,814 | (a) | |||||||||||||
Continental AG | 21 | 4,025 | (a) | |||||||||||||
Denso Corp. | 100 | 4,343 | (a) | |||||||||||||
Magna International Inc. | 297 | 12,194 | ||||||||||||||
Valeo SA | 66 | 3,802 | (a) | |||||||||||||
Total Auto Components |
| 30,905 | ||||||||||||||
Automobiles — 1.2% |
| |||||||||||||||
Bayerische Motoren Werke AG | 38 | 3,311 | (a) | |||||||||||||
Daimler AG, Registered Shares | 68 | 4,845 | (a) | |||||||||||||
Ferrari NV | 160 | 8,424 | (a) | |||||||||||||
Fiat Chrysler Automobiles NV | 1,285 | 9,400 | (a) | |||||||||||||
Fuji Heavy Industries Ltd. | 100 | 3,893 | (a) | |||||||||||||
Honda Motor Co., Ltd. | 200 | 5,983 | (a) | |||||||||||||
Nissan Motor Co., Ltd. | 400 | 4,068 | (a) | |||||||||||||
Renault SA | 35 | 3,044 | (a) | |||||||||||||
Toyota Motor Corp. | 294 | 16,983 | (a) | |||||||||||||
Total Automobiles |
| 59,951 | ||||||||||||||
Distributors — 0.3% |
| |||||||||||||||
Jardine Cycle & Carriage Ltd. | 500 | 15,175 | (a) | |||||||||||||
Hotels, Restaurants & Leisure — 2.1% |
| |||||||||||||||
Aristocrat Leisure Ltd. | 1,659 | 19,320 | (a) | |||||||||||||
Compass Group PLC | 195 | 3,527 | (a) | |||||||||||||
Crown Resorts Ltd. | 1,160 | 9,583 | (a) | |||||||||||||
Domino’s Pizza Enterprises Ltd. | 193 | 9,405 | (a) | |||||||||||||
Flight Centre Travel Group Ltd. | 146 | 3,759 | (a) | |||||||||||||
Galaxy Entertainment Group Ltd. | 1,000 | 4,106 | (a) | |||||||||||||
Genting Singapore PLC | 27,500 | 14,683 | (a) | |||||||||||||
Restaurant Brands International Inc. | 198 | 8,802 | ||||||||||||||
Sands China Ltd. | 1,130 | 4,904 | (a) | |||||||||||||
TABCORP Holdings Ltd. | 2,812 | 10,351 | (a) | |||||||||||||
Tatts Group Ltd. | 4,536 | 13,990 | (a) | |||||||||||||
Total Hotels, Restaurants & Leisure |
| 102,430 | ||||||||||||||
Household Durables — 0.3% |
| |||||||||||||||
Husqvarna AB, Class B Shares | 406 | 3,054 | (a) | |||||||||||||
Panasonic Corp. | 400 | 4,175 | (a) | |||||||||||||
See Notes to Financial Statements.
| 10 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
Legg Mason Developed ex-US Diversified Core ETF
| Security | Shares | Value | ||||||||||||||
Household Durables — continued | ||||||||||||||||
Sekisui House Ltd. | 197 | $ | 3,257 | (a) | ||||||||||||
Sony Corp. | 97 | 3,069 | (a) | |||||||||||||
Techtronic Industries Co., Ltd. | 960 | 3,614 | (a) | |||||||||||||
Total Household Durables |
| 17,169 | ||||||||||||||
Media — 1.2% |
| |||||||||||||||
Altice NV, Class A Shares | 794 | 14,623 | *(a) | |||||||||||||
Altice NV, Class B Shares | 226 | 4,201 | *(a) | |||||||||||||
Publicis Groupe SA | 52 | 3,570 | (a) | |||||||||||||
REA Group Ltd. | 141 | 5,474 | (a) | |||||||||||||
Shaw Communications Inc., Class B Shares | 197 | 3,904 | ||||||||||||||
Singapore Press Holdings Ltd. | 7,259 | 19,381 | (a) | |||||||||||||
Vivendi | 152 | 3,076 | (a) | |||||||||||||
WPP PLC | 182 | 3,954 | (a) | |||||||||||||
Total Media |
| 58,183 | ||||||||||||||
Multiline Retail — 0.5% |
| |||||||||||||||
Canadian Tire Corp., Ltd., Class A Shares | 100 | 9,721 | ||||||||||||||
Dollarama Inc. | 98 | 7,323 | ||||||||||||||
Harvey Norman Holdings Ltd. | 1,509 | 5,783 | (a) | |||||||||||||
Total Multiline Retail |
| 22,827 | ||||||||||||||
Specialty Retail — 1.0% |
| |||||||||||||||
Dufry AG, Registered Shares | 27 | 3,283 | *(a) | |||||||||||||
Hennes & Mauritz AB, Class B Shares | 452 | 12,713 | (a) | |||||||||||||
Industria de Diseno Textil SA | 1,027 | 35,902 | (a) | |||||||||||||
Total Specialty Retail |
| 51,898 | ||||||||||||||
Textiles, Apparel & Luxury Goods — 0.9% |
| |||||||||||||||
adidas AG | 26 | 4,264 | (a) | |||||||||||||
Compagnie Financiere Richemont SA, Registered Shares | 190 | 12,214 | (a) | |||||||||||||
Gildan Activewear Inc. | 98 | 2,517 | ||||||||||||||
Kering SA | 15 | 3,330 | (a) | |||||||||||||
Luxottica Group SpA | 244 | 12,094 | (a) | |||||||||||||
LVMH Moet Hennessy Louis Vuitton SE | 33 | 6,002 | (a) | |||||||||||||
Swatch Group AG | 15 | 4,511 | (a) | |||||||||||||
Total Textiles, Apparel & Luxury Goods |
| 44,932 | ||||||||||||||
Total Consumer Discretionary |
| 403,470 | ||||||||||||||
| Consumer Staples — 8.4% | ||||||||||||||||
Beverages — 1.7% |
| |||||||||||||||
Anheuser-Busch InBev SA/NV | 242 | 27,774 | ||||||||||||||
Asahi Group Holdings Ltd. | 100 | 3,573 | (a) | |||||||||||||
See Notes to Financial Statements.
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 11 |
Schedule of investments (cont’d)
October 31, 2016
Legg Mason Developed ex-US Diversified Core ETF
| Security | Shares | Value | ||||||||||||||
Beverages — continued | ||||||||||||||||
Carlsberg A/S, Class B Shares | 167 | $ | 15,051 | (a) | ||||||||||||
Coca-Cola Amatil Ltd. | 472 | 3,425 | (a) | |||||||||||||
Diageo PLC | 172 | 4,579 | (a) | |||||||||||||
Heineken Holding NV | 45 | 3,461 | (a) | |||||||||||||
Heineken NV | 60 | 4,940 | (a) | |||||||||||||
Kirin Holdings Co., Ltd. | 300 | 5,170 | (a) | |||||||||||||
Pernod Ricard SA | 43 | 5,111 | (a) | |||||||||||||
Suntory Beverage & Food Ltd. | 100 | 4,369 | (a) | |||||||||||||
Treasury Wine Estates Ltd. | 899 | 7,336 | (a) | |||||||||||||
Total Beverages |
| 84,789 | ||||||||||||||
Food & Staples Retailing — 2.9% |
| |||||||||||||||
Aeon Co., Ltd. | 200 | 2,773 | (a) | |||||||||||||
Alimentation Couche-Tard Inc., Class B Shares | 394 | 19,793 | ||||||||||||||
Carrefour SA | 118 | 3,098 | (a) | |||||||||||||
Empire Co., Ltd., Class A Shares | 197 | 2,838 | ||||||||||||||
George Weston Ltd. | 98 | 7,986 | ||||||||||||||
ICA Gruppen AB | 95 | 2,948 | (a) | |||||||||||||
Koninklijke Ahold Delhaize NV | 363 | 8,282 | (a) | |||||||||||||
Loblaw Cos., Ltd. | 197 | 9,720 | ||||||||||||||
Metro AG | 112 | 3,354 | (a) | |||||||||||||
Metro Inc. | 197 | 6,089 | ||||||||||||||
Seven & I Holdings Co., Ltd. | 192 | 8,015 | (a) | |||||||||||||
Tesco PLC | 1,143 | 2,948 | *(a) | |||||||||||||
Wesfarmers Ltd. | 1,271 | 39,582 | (a) | |||||||||||||
Woolworths Ltd. | 1,443 | 25,884 | (a) | |||||||||||||
Total Food & Staples Retailing |
| 143,310 | ||||||||||||||
Food Products — 1.8% |
| |||||||||||||||
Ajinomoto Co. Inc. | 200 | 4,451 | (a) | |||||||||||||
Danone SA | 113 | 7,819 | (a) | |||||||||||||
Kerry Group PLC, Class A Shares | 386 | 28,019 | (a) | |||||||||||||
Nestle SA, Registered Shares | 388 | 28,123 | (a) | |||||||||||||
Nisshin Seifun Group Inc. | 200 | 2,950 | (a) | |||||||||||||
Nissin Foods Holdings Co., Ltd. | 100 | 5,794 | (a) | |||||||||||||
Saputo Inc. | 195 | 7,007 | ||||||||||||||
Toyo Suisan Kaisha Ltd. | 98 | 3,971 | (a) | |||||||||||||
Total Food Products |
| 88,134 | ||||||||||||||
Household Products — 0.6% |
| |||||||||||||||
Henkel AG & Co. KGaA | 35 | 3,855 | (a) | |||||||||||||
See Notes to Financial Statements.
| 12 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
Legg Mason Developed ex-US Diversified Core ETF
| Security | Shares | Value | ||||||||||||||
Household Products — continued | ||||||||||||||||
Reckitt Benckiser Group PLC | 45 | $ | 4,024 | (a) | ||||||||||||
Svenska Cellulosa AB SCA, Class B Shares | 646 | 18,294 | (a) | |||||||||||||
Unicharm Corp. | 195 | 4,645 | (a) | |||||||||||||
Total Household Products |
| 30,818 | ||||||||||||||
Personal Products — 0.8% |
| |||||||||||||||
Beiersdorf AG | 33 | 2,905 | (a) | |||||||||||||
Kao Corp. | 100 | 5,153 | (a) | |||||||||||||
L’Oreal SA | 48 | 8,597 | (a) | |||||||||||||
Shiseido Co., Ltd. | 197 | 5,082 | (a) | |||||||||||||
Unilever NV, CVA | 383 | 16,038 | (a) | |||||||||||||
Unilever PLC | 95 | 3,973 | (a) | |||||||||||||
Total Personal Products |
| 41,748 | ||||||||||||||
Tobacco — 0.6% |
| |||||||||||||||
British American Tobacco PLC | 123 | 7,061 | (a) | |||||||||||||
Imperial Brands PLC | 62 | 2,996 | (a) | |||||||||||||
Japan Tobacco Inc. | 300 | 11,418 | (a) | |||||||||||||
Swedish Match AB | 237 | 8,239 | (a) | |||||||||||||
Total Tobacco |
| 29,714 | ||||||||||||||
Total Consumer Staples |
| 418,513 | ||||||||||||||
| Energy — 8.5% | ||||||||||||||||
Energy Equipment & Services — 0.3% |
| |||||||||||||||
Saipem SpA | 12,606 | 5,171 | *(a) | |||||||||||||
Technip SA | 49 | 3,238 | (a) | |||||||||||||
Tenaris SA | 555 | 7,839 | (a) | |||||||||||||
Total Energy Equipment & Services |
| 16,248 | ||||||||||||||
Oil, Gas & Consumable Fuels — 8.2% |
| |||||||||||||||
ARC Resources Ltd. | 200 | 3,395 | ||||||||||||||
BP PLC | 3,216 | 18,992 | (a) | |||||||||||||
Caltex Australia Ltd. | 367 | 8,542 | (a) | |||||||||||||
Canadian Natural Resources Ltd. | 197 | 6,252 | ||||||||||||||
Cenovus Energy Inc. | 197 | 2,842 | ||||||||||||||
Enbridge Inc. | 197 | 8,507 | ||||||||||||||
Encana Corp. | 300 | 2,861 | ||||||||||||||
Eni SpA | 2,860 | 41,362 | (a) | |||||||||||||
Idemitsu Kosan Co., Ltd. | 197 | 4,547 | (a) | |||||||||||||
Imperial Oil Ltd. | 98 | 3,178 | ||||||||||||||
Inpex Corp. | 2,475 | 23,021 | (a) | |||||||||||||
JX Holdings Inc. | 5,341 | 21,099 | (a) | |||||||||||||
See Notes to Financial Statements.
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 13 |
Schedule of investments (cont’d)
October 31, 2016
Legg Mason Developed ex-US Diversified Core ETF
| Security | Shares | Value | ||||||||||||||
Oil, Gas & Consumable Fuels — continued | ||||||||||||||||
Oil Search Ltd. | 1,843 | $ | 9,274 | (a) | ||||||||||||
Origin Energy Ltd. | 2,332 | 9,383 | (a) | |||||||||||||
Pembina Pipeline Corp. | 98 | 3,011 | ||||||||||||||
Repsol SA | 3,007 | 42,136 | (a) | |||||||||||||
Royal Dutch Shell PLC, Class A Shares | 728 | 18,117 | (a) | |||||||||||||
Royal Dutch Shell PLC, Class B Shares | 647 | 16,701 | (a) | |||||||||||||
Santos Ltd. | 2,238 | 5,990 | (a) | |||||||||||||
Showa Shell Sekiyu KK | 394 | 3,682 | (a) | |||||||||||||
Statoil ASA | 3,383 | 55,131 | (a) | |||||||||||||
Suncor Energy Inc. | 295 | 8,852 | ||||||||||||||
TonenGeneral Sekiyu KK | 1,000 | 9,866 | (a) | |||||||||||||
Total SA | 963 | 46,084 | (a) | |||||||||||||
Tourmaline Oil Corp. | 100 | 2,621 | * | |||||||||||||
TransCanada Corp. | 197 | 8,918 | ||||||||||||||
Woodside Petroleum Ltd. | 971 | 20,802 | (a) | |||||||||||||
Total Oil, Gas & Consumable Fuels |
| 405,166 | ||||||||||||||
Total Energy |
| 421,414 | ||||||||||||||
| Financials — 13.1% | ||||||||||||||||
Banks — 8.8% |
| |||||||||||||||
Australia & New Zealand Banking Group Ltd. | 512 | 10,818 | (a) | |||||||||||||
Banco Bilbao Vizcaya Argentaria SA | 1,600 | 11,554 | (a) | |||||||||||||
Banco de Sabadell SA | 2,422 | 3,241 | (a) | |||||||||||||
Banco Santander SA | 4,304 | 21,152 | (a) | |||||||||||||
Bank Hapoalim B.M. | 2,606 | 15,030 | (a) | |||||||||||||
Bank Leumi Le-Israel | 3,474 | 13,109 | *(a) | |||||||||||||
Bank of Montreal | 98 | 6,237 | ||||||||||||||
Bank of Nova Scotia | 98 | 5,266 | ||||||||||||||
Barclays PLC | 1,480 | 3,432 | (a) | |||||||||||||
BNP Paribas SA | 139 | 8,073 | (a) | |||||||||||||
BOC Hong Kong Holdings Ltd. | 1,000 | 3,571 | (a) | |||||||||||||
CaixaBank SA | 1,031 | 3,120 | (a) | |||||||||||||
Canadian Imperial Bank of Commerce | 98 | 7,343 | ||||||||||||||
Commonwealth Bank of Australia | 290 | 16,148 | (a) | |||||||||||||
Credit Agricole SA | 297 | 3,197 | (a) | |||||||||||||
Danske Bank A/S | 941 | 29,038 | (a) | |||||||||||||
DBS Group Holdings Ltd. | 900 | 9,678 | (a) | |||||||||||||
DNB ASA | 2,079 | 30,052 | (a) | |||||||||||||
Erste Group Bank AG | 929 | 29,143 | *(a) | |||||||||||||
See Notes to Financial Statements.
| 14 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
Legg Mason Developed ex-US Diversified Core ETF
| Security | Shares | Value | ||||||||||||||
Banks — continued | ||||||||||||||||
Hang Seng Bank Ltd. | 200 | $ | 3,607 | (a) | ||||||||||||
HSBC Holdings PLC | 1,001 | 7,529 | (a) | |||||||||||||
ING Groep NV | 1,739 | 22,863 | (a) | |||||||||||||
Intesa Sanpaolo SpA | 5,949 | 13,734 | (a) | |||||||||||||
KBC Group NV | 282 | 17,164 | *(a) | |||||||||||||
Lloyds Banking Group PLC | 6,906 | 4,830 | (a) | |||||||||||||
Mediobanca SpA | 389 | 2,846 | (a) | |||||||||||||
Mitsubishi UFJ Financial Group Inc. | 1,500 | 7,770 | (a) | |||||||||||||
Mizrahi Tefahot Bank Ltd. | 443 | 5,772 | (a) | |||||||||||||
Mizuho Financial Group Inc. | 3,800 | 6,407 | (a) | |||||||||||||
National Australia Bank Ltd. | 465 | 9,877 | (a) | |||||||||||||
Nordea Bank AB | 707 | 7,422 | (a) | |||||||||||||
Oversea-Chinese Banking Corp., Ltd. | 1,667 | 10,144 | (a) | |||||||||||||
Raiffeisen Bank International AG | 348 | 5,700 | *(a) | |||||||||||||
Resona Holdings Inc. | 900 | 3,992 | (a) | |||||||||||||
Royal Bank of Canada | 98 | 6,123 | ||||||||||||||
Skandinaviska Enskilda Banken AB, Class A Shares | 389 | 3,919 | (a) | |||||||||||||
Societe Generale SA | 100 | 3,892 | (a) | |||||||||||||
Standard Chartered PLC | 444 | 3,862 | *(a) | |||||||||||||
Sumitomo Mitsui Financial Group Inc. | 200 | 6,952 | (a) | |||||||||||||
Sumitomo Mitsui Trust Holdings Inc. | 100 | 3,378 | (a) | |||||||||||||
Svenska Handelsbanken AB, Class A Shares | 359 | 4,890 | (a) | |||||||||||||
Swedbank AB, Class A Shares | 211 | 4,938 | (a) | |||||||||||||
Toronto-Dominion Bank | 197 | 8,939 | ||||||||||||||
UniCredit SpA | 3,079 | 7,621 | (a) | |||||||||||||
United Overseas Bank Ltd. | 686 | 9,250 | (a) | |||||||||||||
Westpac Banking Corp. | 572 | 13,221 | (a) | |||||||||||||
Total Banks |
| 435,844 | ||||||||||||||
Capital Markets — 1.0% |
| |||||||||||||||
Brookfield Asset Management Inc., Class A Shares | 98 | 3,432 | ||||||||||||||
Credit Suisse Group AG, Registered Shares | 246 | 3,429 | *(a) | |||||||||||||
Deutsche Bank AG, Registered Shares | 398 | 5,743 | *(a) | |||||||||||||
Deutsche Boerse AG | 33 | 2,567 | *(a) | |||||||||||||
Deutsche Boerse AG, Registered Shares | 31 | 2,316 | (a) | |||||||||||||
Hong Kong Exchanges & Clearing Ltd. | 300 | 7,929 | (a) | |||||||||||||
Julius Baer Group Ltd. | 77 | 3,116 | *(a) | |||||||||||||
Macquarie Group Ltd. | 61 | 3,691 | (a) | |||||||||||||
Nomura Holdings Inc. | 600 | 3,011 | (a) | |||||||||||||
See Notes to Financial Statements.
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 15 |
Schedule of investments (cont’d)
October 31, 2016
Legg Mason Developed ex-US Diversified Core ETF
| Security | Shares | Value | ||||||||||||||
Capital Markets — continued | ||||||||||||||||
Singapore Exchange Ltd. | 600 | $ | 3,058 | (a) | ||||||||||||
Thomson Reuters Corp. | 98 | 3,862 | ||||||||||||||
UBS Group AG, Registered Shares | 656 | 9,274 | (a) | |||||||||||||
Total Capital Markets |
| 51,428 | ||||||||||||||
Diversified Financial Services — 0.4% |
| |||||||||||||||
EXOR SpA | 65 | 2,756 | (a) | |||||||||||||
Groupe Bruxelles Lambert SA | 77 | 6,619 | (a) | |||||||||||||
Investor AB, Class B Shares | 74 | 2,627 | (a) | |||||||||||||
Kinnevik AB, Class B Shares | 119 | 3,006 | (a) | |||||||||||||
ORIX Corp. | 197 | 3,134 | (a) | |||||||||||||
Total Diversified Financial Services |
| 18,142 | ||||||||||||||
Insurance — 2.9% |
| |||||||||||||||
AEGON NV | 785 | 3,380 | (a) | |||||||||||||
Ageas | 195 | 7,118 | (a) | |||||||||||||
AIA Group Ltd. | 2,749 | 17,348 | (a) | |||||||||||||
Allianz SE, Registered Shares | 61 | 9,507 | (a) | |||||||||||||
Assicurazioni Generali SpA | 594 | 7,668 | (a) | |||||||||||||
Aviva PLC | 716 | 3,871 | (a) | |||||||||||||
AXA SA | 256 | 5,764 | (a) | |||||||||||||
Dai-ichi Life Holdings Inc. | 200 | 2,931 | (a) | |||||||||||||
Gjensidige Forsikring ASA | 362 | 6,487 | (a) | |||||||||||||
Insurance Australia Group Ltd. | 640 | 2,677 | (a) | |||||||||||||
Manulife Financial Corp. | 197 | 2,854 | ||||||||||||||
MS&AD Insurance Group Holdings Inc. | 98 | 2,910 | (a) | |||||||||||||
Muenchener Rueckversicherungs-Gesellschaft AG (MunichRe), Registered Shares | 24 | 4,651 | (a) | |||||||||||||
NN Group NV | 104 | 3,132 | (a) | |||||||||||||
Prudential PLC | 163 | 2,658 | (a) | |||||||||||||
Sampo OYJ, Class A Shares | 680 | 31,160 | (a) | |||||||||||||
Sompo Holdings Inc. | 98 | 3,174 | (a) | |||||||||||||
Sun Life Financial Inc. | 98 | 3,280 | ||||||||||||||
Suncorp Group Ltd. | 378 | 3,435 | (a) | |||||||||||||
Swiss Re AG | 54 | 5,013 | (a) | |||||||||||||
Tokio Marine Holdings Inc. | 100 | 3,946 | (a) | |||||||||||||
Tryg A/S | 228 | 4,453 | (a) | |||||||||||||
UnipolSai SpA | 1,774 | 3,400 | (a) | |||||||||||||
Zurich Insurance Group AG | 23 | 6,014 | *(a) | |||||||||||||
Total Insurance |
| 146,831 | ||||||||||||||
Total Financials |
| 652,245 | ||||||||||||||
See Notes to Financial Statements.
| 16 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
Legg Mason Developed ex-US Diversified Core ETF
| Security | Shares | Value | ||||||||||||||
| Health Care — 11.9% | ||||||||||||||||
Biotechnology — 1.3% |
| |||||||||||||||
CSL Ltd. | 574 | $ | 43,787 | (a) | ||||||||||||
Genmab A/S | 89 | 14,681 | *(a) | |||||||||||||
Shire PLC | 124 | 7,002 | (a) | |||||||||||||
Total Biotechnology |
| 65,470 | ||||||||||||||
Health Care Equipment & Supplies — 1.0% |
| |||||||||||||||
Cochlear Ltd. | 80 | 7,773 | (a) | |||||||||||||
Coloplast A/S, Class B Shares | 153 | 10,665 | (a) | |||||||||||||
Essilor International SA | 54 | 6,060 | (a) | |||||||||||||
Hoya Corp. | 100 | 4,175 | (a) | |||||||||||||
Olympus Corp. | 97 | 3,462 | (a) | |||||||||||||
Smith & Nephew PLC | 170 | 2,450 | (a) | |||||||||||||
Sysmex Corp. | 98 | 6,801 | (a) | |||||||||||||
Terumo Corp. | 97 | 3,759 | (a) | |||||||||||||
William Demant Holding A/S | 178 | 3,311 | *(a) | |||||||||||||
Total Health Care Equipment & Supplies |
| 48,456 | ||||||||||||||
Health Care Providers & Services — 0.6% |
| |||||||||||||||
Fresenius Medical Care AG & Co. KGaA | 31 | 2,526 | (a) | |||||||||||||
Fresenius SE & Co. KGaA | 51 | 3,764 | (a) | |||||||||||||
Healthscope Ltd. | 3,394 | 5,690 | (a) | |||||||||||||
Medipal Holdings Corp. | 197 | 3,360 | (a) | |||||||||||||
Ramsay Health Care Ltd. | 163 | 9,076 | (a) | |||||||||||||
Sonic Healthcare Ltd. | 489 | 7,601 | (a) | |||||||||||||
Total Health Care Providers & Services |
| 32,017 | ||||||||||||||
Health Care Technology — 0.1% |
| |||||||||||||||
M3 Inc. | 98 | 2,990 | (a) | |||||||||||||
Pharmaceuticals — 8.9% |
| |||||||||||||||
Astellas Pharma Inc. | 581 | 8,631 | (a) | |||||||||||||
AstraZeneca PLC | 178 | 9,982 | (a) | |||||||||||||
Bayer AG, Registered Shares | 94 | 9,317 | (a) | |||||||||||||
Chugai Pharmaceutical Co., Ltd. | 100 | 3,409 | (a) | |||||||||||||
Daiichi Sankyo Co., Ltd. | 194 | 4,666 | (a) | |||||||||||||
Eisai Co., Ltd. | 100 | 6,378 | (a) | |||||||||||||
GlaxoSmithKline PLC | 667 | 13,184 | (a) | |||||||||||||
Merck KGaA | 38 | 3,906 | (a) | |||||||||||||
Novartis AG, Registered Shares | 167 | 11,861 | (a) | |||||||||||||
Novo Nordisk A/S, Class B Shares | 3,106 | 110,796 | (a) | |||||||||||||
Ono Pharmaceutical Co., Ltd. | 100 | 2,543 | (a) | |||||||||||||
See Notes to Financial Statements.
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 17 |
Schedule of investments (cont’d)
October 31, 2016
Legg Mason Developed ex-US Diversified Core ETF
| Security | Shares | Value | ||||||||||||||
Pharmaceuticals — continued | ||||||||||||||||
Otsuka Holdings Co., Ltd. | 97 | $ | 4,246 | (a) | ||||||||||||
Roche Holding AG | 52 | 11,932 | (a) | |||||||||||||
Sanofi | 335 | 26,058 | (a) | |||||||||||||
Santen Pharmaceutical Co., Ltd. | 197 | 2,877 | (a) | |||||||||||||
Shionogi & Co., Ltd. | 97 | 4,780 | (a) | |||||||||||||
Takeda Pharmaceutical Co., Ltd. | 192 | 8,596 | (a) | |||||||||||||
Taro Pharmaceuticals Industries Ltd. | 100 | 10,151 | * | |||||||||||||
Teva Pharmaceutical Industries Ltd. | 2,916 | 124,436 | (a) | |||||||||||||
Teva Pharmaceutical Industries Ltd., ADR | 428 | 18,293 | ||||||||||||||
UCB SA | 412 | 27,856 | (a) | |||||||||||||
Valeant Pharmaceuticals International Inc. | 1,200 | 21,418 | * | |||||||||||||
Total Pharmaceuticals |
| 445,316 | ||||||||||||||
Total Health Care |
| 594,249 | ||||||||||||||
| Industrials — 9.5% | ||||||||||||||||
Aerospace & Defense — 0.6% |
| |||||||||||||||
Airbus Group SE | 80 | 4,750 | (a) | |||||||||||||
BAE Systems PLC | 601 | 3,986 | (a) | |||||||||||||
CAE Inc. | 297 | 4,172 | ||||||||||||||
Finmeccanica SpA | 444 | 5,398 | *(a) | |||||||||||||
Rolls-Royce Holdings PLC | 311 | 2,763 | *(a) | |||||||||||||
Rolls-Royce Holdings PLC, C Shares | 14,306 | 18 | (a)(b) | |||||||||||||
Safran SA | 41 | 2,816 | (a) | |||||||||||||
Singapore Technologies Engineering Ltd. | 2,700 | 6,075 | (a) | |||||||||||||
Total Aerospace & Defense |
| 29,978 | ||||||||||||||
Air Freight & Logistics — 0.1% |
| |||||||||||||||
Deutsche Post AG, Registered Shares | 123 | 3,810 | (a) | |||||||||||||
Airlines — 0.3% |
| |||||||||||||||
International Consolidated Airlines Group SA | 710 | 3,771 | (a) | |||||||||||||
Qantas Airways Ltd. | 1,135 | 2,642 | (a) | |||||||||||||
Singapore Airlines Ltd. | 881 | 6,415 | (a) | |||||||||||||
Total Airlines |
| 12,828 | ||||||||||||||
Building Products — 0.2% |
| |||||||||||||||
Assa Abloy AB, Class B Shares | 251 | 4,560 | (a) | |||||||||||||
Compagnie de Saint-Gobain | 79 | 3,511 | (a) | |||||||||||||
Geberit AG, Registered Shares | 9 | 3,805 | (a) | |||||||||||||
Total Building Products |
| 11,876 | ||||||||||||||
Commercial Services & Supplies — 0.6% |
| |||||||||||||||
Brambles Ltd. | 1,963 | 17,176 | (a) | |||||||||||||
See Notes to Financial Statements.
| 18 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
Legg Mason Developed ex-US Diversified Core ETF
| Security | Shares | Value | ||||||||||||||
Commercial Services & Supplies — continued | ||||||||||||||||
ISS A/S | 137 | $ | 5,385 | (a) | ||||||||||||
Secom Co., Ltd. | 98 | 7,076 | (a) | |||||||||||||
Total Commercial Services & Supplies |
| 29,637 | ||||||||||||||
Construction & Engineering — 0.6% |
| |||||||||||||||
ACS Actividades de Construccion y Servicios SA | 170 | 5,212 | (a) | |||||||||||||
CIMIC Group Ltd. | 227 | 5,109 | (a) | |||||||||||||
Ferrovial SA | 488 | 9,495 | (a) | |||||||||||||
Skanska AB, Class B Shares | 129 | 2,799 | (a) | |||||||||||||
SNC-Lavalin Group Inc. | 98 | 3,982 | ||||||||||||||
Vinci SA | 58 | 4,193 | (a) | |||||||||||||
Total Construction & Engineering |
| 30,790 | ||||||||||||||
Electrical Equipment — 0.6% |
| |||||||||||||||
ABB Ltd., Registered Shares | 433 | 8,910 | *(a) | |||||||||||||
Legrand SA | 61 | 3,445 | (a) | |||||||||||||
Prysmian SpA | 224 | 5,582 | (a) | |||||||||||||
Schneider Electric SE | 77 | 5,173 | (a) | |||||||||||||
Vestas Wind Systems A/S | 103 | 8,257 | (a) | |||||||||||||
Total Electrical Equipment |
| 31,367 | ||||||||||||||
Industrial Conglomerates — 1.1% |
| |||||||||||||||
CK Hutchison Holdings Ltd. | 1,000 | 12,370 | (a) | |||||||||||||
Jardine Matheson Holdings Ltd. | 100 | 6,082 | (a) | |||||||||||||
Keppel Corp., Ltd. | 2,746 | 10,387 | (a) | |||||||||||||
Koninklijke Philips NV | 442 | 13,310 | (a) | |||||||||||||
SembCorp Industries Ltd. | 2,263 | 4,102 | (a) | |||||||||||||
Siemens AG, Registered Shares | 99 | 11,239 | (a) | |||||||||||||
Total Industrial Conglomerates |
| 57,490 | ||||||||||||||
Machinery — 1.1% |
| |||||||||||||||
Atlas Copco AB, Class A Shares | 166 | 4,861 | (a) | |||||||||||||
CNH Industrial NV | 1,022 | 7,928 | (a) | |||||||||||||
Komatsu Ltd. | 200 | 4,458 | (a) | |||||||||||||
Kone OYJ, Class B Shares | 252 | 11,595 | (a) | |||||||||||||
Metso OYJ | 142 | 3,723 | (a) | |||||||||||||
Mitsubishi Heavy Industries Ltd. | 1,000 | 4,276 | (a) | |||||||||||||
Sandvik AB | 294 | 3,337 | (a) | |||||||||||||
Schindler Holding AG | 19 | 3,530 | (a) | |||||||||||||
Volvo AB, Class B Shares | 391 | 4,194 | (a) | |||||||||||||
Wartsila OYJ Abp | 107 | 4,626 | (a) | |||||||||||||
Zardoya Otis SA | 303 | 2,558 | (a) | |||||||||||||
Total Machinery |
| 55,086 | ||||||||||||||
See Notes to Financial Statements.
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 19 |
Schedule of investments (cont’d)
October 31, 2016
Legg Mason Developed ex-US Diversified Core ETF
| Security | Shares | Value | ||||||||||||||
Marine — 0.2% |
| |||||||||||||||
A.P. Moller — Maersk A/S, Class A Shares | 2 | $ | 2,921 | (a) | ||||||||||||
A.P. Moller — Maersk A/S, Class B Shares | 3 | 4,593 | (a) | |||||||||||||
Kuehne & Nagel International AG, Registered Shares | 24 | 3,251 | (a) | |||||||||||||
Total Marine |
| 10,765 | ||||||||||||||
Professional Services — 0.8% |
| |||||||||||||||
Adecco Group AG, Registered Shares | 51 | 3,029 | (a) | |||||||||||||
Capita PLC | 355 | 2,548 | (a) | |||||||||||||
Experian PLC | 180 | 3,456 | (a) | |||||||||||||
Randstad Holding NV | 78 | 4,012 | (a) | |||||||||||||
RELX NV | 573 | 9,655 | (a) | |||||||||||||
RELX PLC | 190 | 3,390 | (a) | |||||||||||||
Seek Ltd. | 330 | 3,667 | (a) | |||||||||||||
SGS SA, Registered Shares | 2 | 4,053 | (a) | |||||||||||||
Wolters Kluwer NV | 110 | 4,254 | (a) | |||||||||||||
Total Professional Services |
| 38,064 | ||||||||||||||
Road & Rail — 1.5% |
| |||||||||||||||
Aurizon Holdings Ltd. | 2,691 | 9,975 | (a) | |||||||||||||
Canadian National Railway Co. | 394 | 24,769 | ||||||||||||||
Canadian Pacific Railway Ltd. | 98 | 14,009 | ||||||||||||||
ComfortDelGro Corp., Ltd. | 3,800 | 6,938 | (a) | |||||||||||||
DSV A/S | 117 | 5,668 | (a) | |||||||||||||
East Japan Railway Co. | 100 | 8,816 | (a) | |||||||||||||
MTR Corp. Ltd. | 500 | 2,765 | (a) | |||||||||||||
Total Road & Rail |
| 72,940 | ||||||||||||||
Trading Companies & Distributors — 0.6% |
| |||||||||||||||
AerCap Holdings NV | 95 | 3,906 | * | |||||||||||||
Bunzl PLC | 112 | 3,007 | (a) | |||||||||||||
ITOCHU Corp. | 300 | 3,799 | (a) | |||||||||||||
Mitsubishi Corp. | 200 | 4,363 | (a) | |||||||||||||
Mitsui & Co., Ltd. | 300 | 4,164 | (a) | |||||||||||||
Noble Group Ltd. | 26,500 | 3,163 | *(a) | |||||||||||||
Sumitomo Corp. | 295 | 3,397 | (a) | |||||||||||||
Wolseley PLC | 50 | 2,598 | (a) | |||||||||||||
Total Trading Companies & Distributors |
| 28,397 | ||||||||||||||
Transportation Infrastructure — 1.2% |
| |||||||||||||||
Abertis Infraestructuras SA | 611 | 9,072 | (a) | |||||||||||||
Aena SA | 54 | 7,928 | (a) | |||||||||||||
Atlantia SpA | 419 | 10,274 | (a) | |||||||||||||
See Notes to Financial Statements.
| 20 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
Legg Mason Developed ex-US Diversified Core ETF
| Security | Shares | Value | ||||||||||||||
Transportation Infrastructure — continued | ||||||||||||||||
Hutchison Port Holdings Trust, Class U Shares | 7,689 | $ | 3,415 | (a) | ||||||||||||
Sydney Airport | 1,487 | 7,063 | (a) | |||||||||||||
Transurban Group | 2,550 | 20,112 | (a) | |||||||||||||
Total Transportation Infrastructure |
| 57,864 | ||||||||||||||
Total Industrials |
| 470,892 | ||||||||||||||
| Information Technology — 11.4% | ||||||||||||||||
Communications Equipment — 2.9% |
| |||||||||||||||
Nokia OYJ | 30,604 | 136,611 | (a) | |||||||||||||
Telefonaktiebolaget LM Ericsson, Class B Shares | 1,620 | 7,881 | (a) | |||||||||||||
Total Communications Equipment |
| 144,492 | ||||||||||||||
Electronic Equipment, Instruments & Components — 0.5% |
| |||||||||||||||
Hexagon AB, Class B Shares | 151 | 5,276 | (a) | |||||||||||||
Hitachi Ltd. | 1,000 | 5,320 | (a) | |||||||||||||
Ingenico Group SA | 58 | 4,593 | (a) | |||||||||||||
Kyocera Corp. | 100 | 4,864 | (a) | |||||||||||||
Omron Corp. | 98 | 3,758 | (a) | |||||||||||||
Total Electronic Equipment, Instruments & Components |
| 23,811 | ||||||||||||||
Internet Software & Services — 0.4% |
| |||||||||||||||
Auto Trader Group PLC | 4,020 | 18,394 | (a) | |||||||||||||
United Internet AG, Registered Shares | 66 | 2,711 | (a) | |||||||||||||
Total Internet Software & Services |
| 21,105 | ||||||||||||||
IT Services — 2.6% |
| |||||||||||||||
Amadeus IT Group SA | 687 | 32,428 | (a) | |||||||||||||
Atos SE | 53 | 5,509 | (a) | |||||||||||||
Cap Gemini SA | 116 | 9,619 | (a) | |||||||||||||
CGI Group Inc., Class A Shares | 1,195 | 56,761 | * | |||||||||||||
Fujitsu Ltd. | 1,000 | 5,927 | (a) | |||||||||||||
Nomura Research Institute Ltd. | 100 | 3,470 | (a) | |||||||||||||
Worldpay Group PLC | 4,932 | 17,170 | (a) | |||||||||||||
Total IT Services |
| 130,884 | ||||||||||||||
Semiconductors & Semiconductor Equipment — 0.8% |
| |||||||||||||||
ASML Holding NV | 96 | 10,157 | (a) | |||||||||||||
Infineon Technologies AG | 293 | 5,258 | (a) | |||||||||||||
NXP Semiconductors NV | 95 | 9,500 | * | |||||||||||||
STMicroelectronics NV | 542 | 5,165 | (a) | |||||||||||||
Tokyo Electron Ltd. | 98 | 8,865 | (a) | |||||||||||||
Total Semiconductors & Semiconductor Equipment |
| 38,945 | ||||||||||||||
See Notes to Financial Statements.
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 21 |
Schedule of investments (cont’d)
October 31, 2016
Legg Mason Developed ex-US Diversified Core ETF
| Security | Shares | Value | ||||||||||||||
Software — 3.5% |
| |||||||||||||||
Check Point Software Technologies Ltd. | 100 | $ | 8,456 | * | ||||||||||||
Constellation Software Inc. | 100 | 46,846 | ||||||||||||||
Dassault Systemes SA | 69 | 5,468 | (a) | |||||||||||||
Gemalto NV | 58 | 3,143 | (a) | |||||||||||||
Mobileye NV | 200 | 7,436 | * | |||||||||||||
NICE Ltd. | 40 | 2,651 | (a) | |||||||||||||
Open Text Corp. | 697 | 43,276 | ||||||||||||||
Sage Group PLC | 4,334 | 38,190 | (a) | |||||||||||||
SAP SE | 193 | 17,000 | (a) | |||||||||||||
Total Software |
| 172,466 | ||||||||||||||
Technology Hardware, Storage & Peripherals — 0.7% |
| |||||||||||||||
BlackBerry Ltd. | 2,787 | 19,677 | * | |||||||||||||
Canon Inc. | 300 | 8,615 | (a) | |||||||||||||
FUJIFILM Holdings Corp. | 100 | 3,785 | (a) | |||||||||||||
Ricoh Co., Ltd. | 295 | 2,405 | (a) | |||||||||||||
Total Technology Hardware, Storage & Peripherals |
| 34,482 | ||||||||||||||
Total Information Technology |
| 566,185 | ||||||||||||||
| Materials — 8.3% | ||||||||||||||||
Chemicals — 3.8% |
| |||||||||||||||
Agrium Inc. | 98 | 8,996 | ||||||||||||||
Air Liquide SA | 118 | 11,992 | (a) | |||||||||||||
Akzo Nobel NV | 154 | 9,945 | (a) | |||||||||||||
Arkema SA | 41 | 3,891 | (a) | |||||||||||||
Asahi Kasei Corp. | 1,000 | 9,023 | (a) | |||||||||||||
BASF SE | 109 | 9,612 | (a) | |||||||||||||
Croda International PLC | 75 | 3,205 | (a) | |||||||||||||
Givaudan SA, Registered Shares | 2 | 3,865 | (a) | |||||||||||||
Incitec Pivot Ltd. | 1,299 | 2,907 | (a) | |||||||||||||
Johnson Matthey PLC | 93 | 3,871 | (a) | |||||||||||||
JSR Corp. | 200 | 3,043 | (a) | |||||||||||||
Kansai Paint Co., Ltd. | 200 | 4,303 | (a) | |||||||||||||
Koninklijke DSM NV | 110 | 7,067 | (a) | |||||||||||||
Kuraray Co., Ltd. | 300 | 4,552 | (a) | |||||||||||||
Linde AG | 31 | 5,114 | (a) | |||||||||||||
Mitsubishi Chemical Holdings Corp. | 689 | 4,527 | (a) | |||||||||||||
Nippon Paint Holdings Co., Ltd. | 100 | 3,404 | (a) | |||||||||||||
Nitto Denko Corp. | 100 | 6,971 | (a) | |||||||||||||
Potash Corp. of Saskatchewan Inc. | 294 | 4,781 | ||||||||||||||
See Notes to Financial Statements.
| 22 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
Legg Mason Developed ex-US Diversified Core ETF
| Security | Shares | Value | ||||||||||||||
Chemicals — continued | ||||||||||||||||
Shin-Etsu Chemical Co., Ltd. | 197 | $ | 14,940 | (a) | ||||||||||||
Sika AG | 1 | 4,804 | (a) | |||||||||||||
Solvay SA | 116 | 13,304 | (a) | |||||||||||||
Sumitomo Chemical Co., Ltd. | 984 | 4,660 | (a) | |||||||||||||
Syngenta AG, Registered Shares | 18 | 7,226 | (a) | |||||||||||||
Teijin Ltd. | 196 | 3,793 | (a) | |||||||||||||
Toray Industries Inc. | 984 | 9,172 | (a) | |||||||||||||
Umicore | 148 | 8,997 | (a) | |||||||||||||
Yara International ASA | 256 | 9,042 | (a) | |||||||||||||
Total Chemicals |
| 187,007 | ||||||||||||||
Construction Materials — 0.6% |
| |||||||||||||||
CRH PLC | 381 | 12,348 | (a) | |||||||||||||
CRH PLC | 158 | 5,106 | (a) | |||||||||||||
HeidelbergCement AG | 31 | 2,932 | (a) | |||||||||||||
James Hardie Industries PLC | 204 | 3,041 | (a) | |||||||||||||
LafargeHolcim Ltd., Registered Shares | 85 | 4,535 | (a) | |||||||||||||
Total Construction Materials |
| 27,962 | ||||||||||||||
Containers & Packaging — 0.1% |
| |||||||||||||||
Amcor Ltd. | 431 | 4,814 | (a) | |||||||||||||
Metals & Mining — 3.3% |
| |||||||||||||||
Agnico-Eagle Mines Ltd. | 98 | 4,977 | ||||||||||||||
Anglo American PLC | 434 | 5,994 | *(a) | |||||||||||||
ArcelorMittal | 515 | 3,454 | *(a) | |||||||||||||
Barrick Gold Corp. | 492 | 8,657 | ||||||||||||||
BHP Billiton Ltd. | 1,475 | 25,832 | (a) | |||||||||||||
BHP Billiton PLC | 850 | 12,751 | (a) | |||||||||||||
Fortescue Metals Group Ltd. | 983 | 4,096 | (a) | |||||||||||||
Franco-Nevada Corp. | 98 | 6,414 | ||||||||||||||
Fresnillo PLC | 168 | 3,366 | (a) | |||||||||||||
Glencore PLC | 4,865 | 14,826 | *(a) | |||||||||||||
Goldcorp Inc. | 294 | 4,465 | ||||||||||||||
JFE Holdings Inc. | 300 | 4,300 | (a) | |||||||||||||
Mitsubishi Materials Corp. | 100 | 2,870 | (a) | |||||||||||||
Newcrest Mining Ltd. | 305 | 5,319 | (a) | |||||||||||||
Nippon Steel & Sumitomo Metal Corp. | 300 | 5,931 | (a) | |||||||||||||
Norsk Hydro ASA | 1,976 | 8,833 | (a) | |||||||||||||
Randgold Resources Ltd. | 40 | 3,551 | (a) | |||||||||||||
Rio Tinto Ltd. | 276 | 11,348 | (a) | |||||||||||||
See Notes to Financial Statements.
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 23 |
Schedule of investments (cont’d)
October 31, 2016
Legg Mason Developed ex-US Diversified Core ETF
| Security | Shares | Value | ||||||||||||||
Metals & Mining — continued | ||||||||||||||||
Rio Tinto PLC | 463 | $ | 16,052 | (a) | ||||||||||||
Silver Wheaton Corp. | 197 | 4,747 | ||||||||||||||
South32 Ltd. | 2,446 | 4,762 | (a) | |||||||||||||
Teck Resources Ltd., Class B Shares | 200 | 4,318 | ||||||||||||||
Total Metals & Mining |
| 166,863 | ||||||||||||||
Paper & Forest Products — 0.5% |
| |||||||||||||||
Oji Holdings Corp. | 1,000 | 4,236 | (a) | |||||||||||||
Stora Enso OYJ, Class R Shares | 723 | 6,833 | (a) | |||||||||||||
UPM-Kymmene OYJ | 632 | 14,701 | (a) | |||||||||||||
Total Paper & Forest Products |
| 25,770 | ||||||||||||||
Total Materials |
| 412,416 | ||||||||||||||
| Real Estate — 1.4% | ||||||||||||||||
Equity Real Estate Investment Trusts (REITs) — 0.7% |
| |||||||||||||||
Ascendas Real Estate Investment Trust | 1,700 | 2,896 | (a) | |||||||||||||
CapitaLand Commercial Trust Ltd. | 2,559 | 2,890 | (a) | |||||||||||||
CapitaLand Mall Trust | 2,000 | 2,969 | (a) | |||||||||||||
Link REIT | 492 | 3,508 | (a) | |||||||||||||
RioCan Real Estate Investment Trust | 200 | 3,889 | ||||||||||||||
Scentre Group | 1,651 | 5,272 | (a) | |||||||||||||
Suntec Real Estate Investment Trust | 2,559 | 3,085 | (a) | |||||||||||||
Unibail-Rodamco SE | 17 | 4,046 | (a) | |||||||||||||
Westfield Corp. | 925 | 6,247 | (a) | |||||||||||||
Total Equity Real Estate Investment Trusts (REITs) |
| 34,802 | ||||||||||||||
Real Estate Management & Development — 0.7% |
| |||||||||||||||
Azrieli Group Ltd. | 109 | 4,640 | (a) | |||||||||||||
CapitaLand Ltd. | 1,800 | 3,988 | (a) | |||||||||||||
Cheung Kong Property Holdings Ltd. | 492 | 3,644 | (a) | |||||||||||||
Daiwa House Industry Co., Ltd. | 100 | 2,748 | (a) | |||||||||||||
Deutsche Wohnen AG | 90 | 2,936 | (a) | |||||||||||||
Global Logistic Properties Ltd. | 2,263 | 2,887 | (a) | |||||||||||||
Hongkong Land Holdings Ltd. | 594 | 3,980 | (a) | |||||||||||||
New World Development Co., Ltd. | 3,000 | 3,740 | (a) | |||||||||||||
Swire Pacific Ltd., Class A Shares | 492 | 5,116 | (a) | |||||||||||||
Vonovia SE | 81 | 2,857 | (a) | |||||||||||||
Total Real Estate Management & Development |
| 36,536 | ||||||||||||||
Total Real Estate |
| 71,338 | ||||||||||||||
| Telecommunication Services — 10.7% | ||||||||||||||||
Diversified Telecommunication Services — 8.6% |
| |||||||||||||||
BCE Inc. | 195 | 8,859 | ||||||||||||||
See Notes to Financial Statements.
| 24 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
Legg Mason Developed ex-US Diversified Core ETF
| Security | Shares | Value | ||||||||||||||
Diversified Telecommunication Services — continued | ||||||||||||||||
BT Group PLC | 2,310 | $ | 10,616 | (a) | ||||||||||||
Deutsche Telekom AG, Registered Shares | 1,879 | 30,620 | (a) | |||||||||||||
Iliad SA | 25 | 5,242 | (a) | |||||||||||||
Koninklijke KPN NV | 11,582 | 37,747 | (a) | |||||||||||||
Nippon Telegraph & Telephone Corp. | 200 | 8,896 | (a) | |||||||||||||
Orange SA | 1,916 | 30,202 | (a) | |||||||||||||
SFR Group SA | 173 | 4,665 | (a) | |||||||||||||
Singapore Telecommunications Ltd. | 15,352 | 42,695 | (a) | |||||||||||||
Swisscom AG, Registered Shares | 69 | 31,525 | (a) | |||||||||||||
Telecom Italia SpA | 29,424 | 25,649 | *(a) | |||||||||||||
Telecom Italia SpA, Savings Shares | 18,511 | 13,117 | (a) | |||||||||||||
Telefonica Deutschland Holding AG | 650 | 2,522 | (a) | |||||||||||||
Telefonica SA | 3,781 | 38,434 | (a) | |||||||||||||
Telenor ASA | 1,990 | 31,672 | (a) | |||||||||||||
Telia Co. AB | 5,139 | 20,513 | (a) | |||||||||||||
Telstra Corp., Ltd. | 14,905 | 56,375 | (a) | |||||||||||||
TELUS Corp. | 294 | 9,519 | ||||||||||||||
TPG Telecom Ltd. | 1,536 | 8,816 | (a) | |||||||||||||
Vocus Communications Ltd. | 2,314 | 10,019 | (a) | |||||||||||||
Total Diversified Telecommunication Services |
| 427,703 | ||||||||||||||
Wireless Telecommunication Services — 2.1% |
| |||||||||||||||
KDDI Corp. | 600 | 18,247 | (a) | |||||||||||||
Millicom International Cellular SA, SDR | 108 | 4,742 | (a) | |||||||||||||
NTT DoCoMo Inc. | 500 | 12,589 | (a) | |||||||||||||
Rogers Communications Inc., Class B Shares | 589 | 23,695 | ||||||||||||||
SoftBank Group Corp. | 287 | 18,045 | (a) | |||||||||||||
StarHub Ltd. | 1,181 | 2,865 | (a) | |||||||||||||
Tele2 AB, Class B Shares | 582 | 4,804 | (a) | |||||||||||||
Vodafone Group PLC | 6,629 | 18,201 | (a) | |||||||||||||
Total Wireless Telecommunication Services |
| 103,188 | ||||||||||||||
Total Telecommunication Services |
| 530,891 | ||||||||||||||
| Utilities — 7.9% | ||||||||||||||||
Electric Utilities — 3.3% |
| |||||||||||||||
AusNet Services | 4,908 | 5,590 | (a) | |||||||||||||
Chubu Electric Power Co. Inc. | 600 | 8,826 | (a) | |||||||||||||
Chugoku Electric Power Co. Inc. | 400 | 4,679 | (a) | |||||||||||||
CLP Holdings Ltd. | 1,000 | 10,162 | (a) | |||||||||||||
Electricite de France SA | 294 | 3,298 | (a) | |||||||||||||
See Notes to Financial Statements.
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 25 |
Schedule of investments (cont’d)
October 31, 2016
Legg Mason Developed ex-US Diversified Core ETF
| Security | Shares | Value | ||||||||||||||
Electric Utilities — continued | ||||||||||||||||
Endesa SA | 155 | $ | 3,295 | (a) | ||||||||||||
Enel SpA | 5,030 | 21,610 | (a) | |||||||||||||
Fortis Inc. | 784 | 25,806 | ||||||||||||||
Hokuriku Electric Power Co. | 300 | 3,409 | (a) | |||||||||||||
Hydro One Ltd. | 300 | 5,473 | ||||||||||||||
Iberdrola SA | 2,837 | 19,337 | (a) | |||||||||||||
Kansai Electric Power Co. Inc. | 600 | 5,740 | *(a) | |||||||||||||
Kyushu Electric Power Co. Inc. | 500 | 4,561 | *(a) | |||||||||||||
Power Assets Holdings Ltd. | 1,000 | 9,401 | (a) | |||||||||||||
Red Electrica Corporacion SA | 208 | 4,339 | (a) | |||||||||||||
Shikoku Electric Power Co. Inc. | 295 | 2,776 | (a) | |||||||||||||
SSE PLC | 365 | 7,110 | (a) | |||||||||||||
Terna Rete Elettrica Nazionale SpA | 899 | 4,408 | (a) | |||||||||||||
Tohoku Electric Power Co. Inc. | 590 | 7,221 | (a) | |||||||||||||
Tokyo Electric Power Co. Holdings Inc. | 1,673 | 6,499 | *(a) | |||||||||||||
Total Electric Utilities |
| 163,540 | ||||||||||||||
Gas Utilities — 1.4% |
| |||||||||||||||
APA Group | 3,510 | 21,211 | (a) | |||||||||||||
Enagas SA | 111 | 3,187 | (a) | |||||||||||||
Gas Natural SDG SA | 175 | 3,453 | (a) | |||||||||||||
Hong Kong & China Gas Co. Ltd. | 4,600 | 9,011 | (a) | |||||||||||||
Osaka Gas Co., Ltd. | 1,968 | 8,184 | (a) | |||||||||||||
Snam SpA | 1,736 | 9,161 | (a) | |||||||||||||
Toho Gas Co., Ltd. | 984 | 9,119 | (a) | |||||||||||||
Tokyo Gas Co., Ltd. | 1,952 | 8,850 | (a) | |||||||||||||
Total Gas Utilities |
| 72,176 | ||||||||||||||
Independent Power and Renewable Electricity Producers — 0.2% |
| |||||||||||||||
Electric Power Development Co., Ltd. | 197 | 4,591 | (a) | |||||||||||||
Uniper SE | 267 | 3,554 | * | |||||||||||||
Total Independent Power and Renewable Electricity Producers |
| 8,145 | ||||||||||||||
Multi-Utilities — 2.9% |
| |||||||||||||||
AGL Energy Ltd. | 2,101 | 30,598 | (a) | |||||||||||||
ATCO Ltd., Class I Shares | 295 | 10,341 | ||||||||||||||
Canadian Utilities Ltd., Class A Shares | 392 | 11,202 | ||||||||||||||
Centrica PLC | 1,718 | 4,506 | (a) | |||||||||||||
DUET Group | 6,947 | 12,551 | (a) | |||||||||||||
E.ON SE | 2,679 | 19,555 | (a) | |||||||||||||
Engie SA | 1,226 | 17,692 | (a) | |||||||||||||
See Notes to Financial Statements.
| 26 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
Legg Mason Developed ex-US Diversified Core ETF
| Security | Shares | Value | ||||||||||||||
Multi-Utilities — continued | ||||||||||||||||
National Grid PLC | 1,104 | $ | 14,379 | (a) | ||||||||||||
RWE AG | 664 | 10,540 | *(a) | |||||||||||||
Suez | 230 | 3,645 | (a) | |||||||||||||
Veolia Environnement SA | 333 | 7,272 | (a) | |||||||||||||
Total Multi-Utilities |
| 142,281 | ||||||||||||||
Water Utilities — 0.1% |
| |||||||||||||||
Severn Trent PLC | 106 | 3,017 | (a) | |||||||||||||
United Utilities Group PLC | 263 | 3,021 | (a) | |||||||||||||
Total Water Utilities |
| 6,038 | ||||||||||||||
Total Utilities |
| 392,180 | ||||||||||||||
Total Common Stocks (Cost — $5,019,740) |
| 4,933,793 | ||||||||||||||
| Investments in Underlying Funds — 0.3% | ||||||||||||||||
Schwab International Equity ETF (Cost — $15,271) | 570 | 16,045 | ||||||||||||||
| Preferred Stocks — 0.2% | ||||||||||||||||
| Consumer Discretionary — 0.1% | ||||||||||||||||
Automobiles — 0.1% |
| |||||||||||||||
Volkswagen AG | 21 | 2,886 | (a) | |||||||||||||
| Consumer Staples — 0.1% | ||||||||||||||||
Household Products — 0.1% |
| |||||||||||||||
Henkel AG & Co. KGaA | 63 | 8,084 | (a) | |||||||||||||
Total Preferred Stocks (Cost — $10,144) |
| 10,970 | ||||||||||||||
| Expiration Date | Rights | |||||||||||||||
| Rights — 0.0% | ||||||||||||||||
EXOR SpA | 11/9/16 | 65 | 0 | *(a)(b)(c) | ||||||||||||
Ferrovial SA | 11/14/16 | 488 | 209 | * | ||||||||||||
Tele2 AB | 11/16/16 | 582 | 174 | *(a) | ||||||||||||
Total Rights (Cost — $219) |
| 383 | ||||||||||||||
Total Investments before Short-Term Investments (Cost — $5,045,374) |
| 4,961,191 | ||||||||||||||
| Rate | Shares | |||||||||||||||
| Short-Term Investments — 0.0% | ||||||||||||||||
State Street Institutional U.S. Government Money | 0.251 | % | 957 | 957 | ||||||||||||
Total Investments — 99.7% (Cost — $5,046,331#) |
| 4,962,148 | ||||||||||||||
Other Assets in Excess of Liabilities —0.3% | 12,811 | |||||||||||||||
Total Net Assets —100.0% | $ | 4,974,959 | ||||||||||||||
See Notes to Financial Statements.
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 27 |
Schedule of investments (cont’d)
October 31, 2016
Legg Mason Developed ex-US Diversified Core ETF
| * | Non-income producing security. |
| (a) | Security is valued in good faith in accordance with procedures approved by the Board of Trustees (See Note 1). |
| (b) | Illiquid security (unaudited). |
| (c) | Value is less than $1. |
| # | Aggregate cost for federal income tax purposes is $5,049,453. |
Abbreviations used in this schedule: | ||
| ADR | — American Depositary Receipts | |
| CVA | — Certificaaten van aandelen (Share Certificates) | |
| ETF | — Exchange-Traded Fund | |
| REIT | — Real Estate Investment Trust | |
| SDR | — Swedish Depositary Receipts | |
| Summary of Investments by Country** (unaudited) | ||||
| Australia | 12.6 | % | ||
| Japan | 12.2 | |||
| Canada | 11.6 | |||
| United Kingdom | 7.4 | |||
| France | 6.1 | |||
| Spain | 5.2 | |||
| Italy | 4.6 | |||
| Denmark | 4.3 | |||
| Germany | 4.3 | |||
| Israel | 4.2 | |||
| Finland | 4.2 | |||
| Netherlands | 3.9 | |||
| Singapore | 3.8 | |||
| Switzerland | 3.6 | |||
| Norway | 2.9 | |||
| Sweden | 2.7 | |||
| Hong Kong | 2.3 | |||
| Belgium | 2.2 | |||
| Ireland | 0.9 | |||
| Austria | 0.7 | |||
| Investments in Underlying Funds | 0.3 | |||
| Short-Term Investments | 0.0 | † | ||
| 100.0 | % | |||
| ** | As a percentage of total investments. Please note that the Fund holdings are as of October 31, 2016 and are subject to change. |
| † | Represents less than 0.1%. |
See Notes to Financial Statements.
| 28 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
Statement of assets and liabilities
October 31, 2016
| Assets: | ||||
Investments, at value (Cost — $5,046,331) | $ | 4,962,148 | ||
Foreign currency, at value (Cost — $4,009) | 3,969 | |||
Dividends and interest receivable | 10,775 | |||
Total Assets | 4,976,892 | |||
| Liabilities: | ||||
Investment management fee payable | 1,715 | |||
Payable for securities purchased | 218 | |||
Total Liabilities | 1,933 | |||
| Total Net Assets | $ | 4,974,959 | ||
| Net Assets: | ||||
Par value (Note 5) | $ | 2 | ||
Paid-in capital in excess of par value | 4,989,200 | |||
Undistributed net investment income | 118,012 | |||
Accumulated net realized loss on investments and foreign currency transactions | (47,730) | |||
Net unrealized depreciation on investments and foreign currencies | (84,525) | |||
| Total Net Assets | $ | 4,974,959 | ||
| Shares Outstanding | 200,000 | |||
| Net Asset Value | $24.87 | |||
See Notes to Financial Statements.
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 29 |
For the Period Ended October 31, 2016†
| Investment Income: | ||||
Dividends | $ | 152,193 | ||
Interest | 1 | |||
Less: Foreign taxes withheld | (16,128) | |||
Total Investment Income | 136,066 | |||
| Expenses: | ||||
Investment management fee (Note 2) | 16,641 | |||
Total Expenses | 16,641 | |||
| Net Investment Income | 119,425 | |||
| Realized and Unrealized Loss on Investments and Foreign Currency Transactions (Notes 1 and 3): | ||||
Net Realized Loss From: | ||||
Investment transactions | (47,730) | |||
Foreign currency transactions | (1,413) | |||
Net Realized Loss | (49,143) | |||
Change in Net Unrealized Appreciation (Depreciation) From: | ||||
Investments | (84,183) | |||
Foreign currencies | (342) | |||
Change in Net Unrealized Appreciation (Depreciation) | (84,525) | |||
| Net Loss on Investments and Foreign Currency Transactions | (133,668) | |||
| Decrease in Net Assets From Operations | $ | (14,243) | ||
| † | For the period December 28, 2015 (inception date) to October 31, 2016. |
See Notes to Financial Statements.
| 30 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
Statement of changes in net assets
| For the Period Ended October 31, 2016 | 2016† | |||
| Operations: | ||||
Net investment income | $ | 119,425 | ||
Net realized loss | (49,143) | |||
Change in net unrealized appreciation (depreciation) | (84,525) | |||
Decrease in Net Assets From Operations | (14,243) | |||
| Fund Share Transactions (Note 5): | ||||
Net proceeds from sale of shares (200,001 shares issued) | 4,989,227 | |||
Cost of shares repurchased (1 share repurchased) | (25) | |||
Increase in Net Assets From Fund Share Transactions | 4,989,202 | |||
Increase in Net Assets | 4,974,959 | |||
| Net Assets: | ||||
Beginning of period | — | |||
End of period* | $ | 4,974,959 | ||
*Includes undistributed net investment income of: | $118,012 | |||
| † | For the period December 28, 2015 (inception date) to October 31, 2016. |
See Notes to Financial Statements.
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 31 |
| For a share of beneficial interest outstanding throughout each year ended October 31, unless otherwise noted: | ||||
| 20161,2 | ||||
| Net asset value, beginning of period | $ | 24.95 | ||
| Income (loss) from operations: | ||||
Net investment income | 0.60 | |||
Net realized and unrealized loss | (0.68) | |||
Total loss from operations | (0.08) | |||
| Net asset value, end of period | $ | 24.87 | ||
Total return, at NAV3 | (0.32) | % | ||
| Net assets, end of period (000s) | $ | 4,975 | ||
| Ratios to average net assets: | ||||
Gross expenses4 | 0.40 | % | ||
Net expenses4 | 0.40 | |||
Net investment income4 | 2.87 | |||
| Portfolio turnover rate5 | 31 | % | ||
| 1 | Per share amounts have been calculated using the average shares method. |
| 2 | For the period December 28, 2015 (inception date) to October 31, 2016. |
| 3 | Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower. The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized. |
| 4 | Annualized. |
| 5 | Portfolio turnover excludes the value of portfolio securities received or delivered as a result of in-kind fund share transactions. |
See Notes to Financial Statements.
| 32 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
1. Organization and significant accounting policies
Legg Mason Developed ex-US Diversified Core ETF (the “Fund”) is a separate diversified investment series of Legg Mason ETF Equity Trust (the “Trust”). The Trust, a Maryland statutory trust, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company.
The Fund is an exchange-traded fund (“ETF”). ETFs are funds that trade like other publicly-traded securities. The Fund is designed to track an index. Similar to shares of an index mutual fund, each share of the Fund represents an ownership interest in an underlying portfolio of securities intended to track an index. Unlike shares of a mutual fund, which can be bought from and redeemed by the issuing fund by all shareholders at a price based on net asset value (“NAV”), shares of the Fund may be directly purchased from and redeemed by the Fund at NAV solely by certain large institutional investors who have entered into agreements with the Fund’s distributor (“Authorized Participants”). Also unlike shares of a mutual fund, shares of the Fund are listed on a national securities exchange and trade in the secondary market at market prices that change throughout the day.
Shares of the Fund are listed and traded at market prices on The NASDAQ Stock Market, LLC. The market price for the Fund’s shares may be different from the Fund’s NAV. The Fund issues and redeems shares at NAV only in blocks of a specified number of shares or multiples thereof (“Creation Units”). Only Authorized Participants may purchase or redeem Creation Units directly with the Fund at NAV. Creation Units are issued and redeemed generally in-kind for a basket of securities and/or cash. Except when aggregated in Creation Units, shares of the Fund are not redeemable securities. Shareholders who are not Authorized Participants may not redeem shares directly from the Fund at NAV.
The Fund seeks to track the investment results of the QS DBI Developed ex-US Diversified Index (the “Underlying Index”). The Underlying Index seeks to provide exposure to equity markets in developed countries outside the United States and is based on a proprietary methodology created and sponsored by QS Investors, LLC, the Fund’s subadviser.
The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.
(a) Investment valuation. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services,
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 33 |
Notes to financial statements (cont’d)
which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Short-term fixed income securities that will mature in 60 days or less are valued at amortized cost, unless it is determined that using this method would not reflect an investment’s fair value. Investments in open-end funds are valued at the closing net asset value per share of each fund on the day of valuation. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time). If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Fund’s Board of Trustees.
The Board of Trustees is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Legg Mason North Atlantic Fund Valuation Committee (the “Valuation Committee”). The Valuation Committee, pursuant to the policies adopted by the Board of Trustees, is responsible for making fair value determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Board of Trustees. When determining the reliability of third party pricing information for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.
The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuer’s financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts’ research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities.
| 34 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
For each portfolio security that has been fair valued pursuant to the policies adopted by the Board of Trustees, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are reported to the Board of Trustees quarterly.
The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.
GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:
| • | Level 1 — quoted prices in active markets for identical investments |
| • | Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| • | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets carried at fair value:
| ASSETS | ||||||||||||||||
| Description | Quoted Prices (Level 1) | Other Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
| Long-term investments†: | ||||||||||||||||
Common stocks: | ||||||||||||||||
Consumer discretionary | $ | 44,461 | $ | 359,009 | — | $ | 403,470 | |||||||||
Consumer staples | 81,207 | 337,306 | — | 418,513 | ||||||||||||
Energy | 50,437 | 370,977 | — | 421,414 | ||||||||||||
Financials | 47,336 | 604,909 | — | 652,245 | ||||||||||||
Health care | 49,862 | 544,387 | — | 594,249 | ||||||||||||
Industrials | 50,838 | 420,036 | $ | 18 | 470,892 | |||||||||||
Information technology | 191,952 | 374,233 | — | 566,185 | ||||||||||||
Materials | 47,355 | 365,061 | — | �� | 412,416 | |||||||||||
Real estate | 3,889 | 67,449 | — | 71,338 | ||||||||||||
Telecommunication services | 42,073 | 488,818 | — | 530,891 | ||||||||||||
Utilities | 56,376 | 335,804 | — | 392,180 | ||||||||||||
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 35 |
Notes to financial statements (cont’d)
| ASSETS (cont’d) | ||||||||||||||||
| Description | Quoted Prices (Level 1) | Other Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
Investments in underlying funds | $ | 16,045 | — | — | $ | 16,045 | ||||||||||
Preferred stocks | — | $ | 10,970 | — | 10,970 | |||||||||||
Rights | 209 | 174 | $ | 0 | * | 383 | ||||||||||
| Total long-term investments | $ | 682,040 | $ | 4,279,133 | $ | 18 | $ | 4,961,191 | ||||||||
| Short-term investments† | 957 | — | — | 957 | ||||||||||||
| Total investments | $ | 682,997 | $ | 4,279,133 | $ | 18 | $ | 4,962,148 | ||||||||
| † | See Schedule of Investments for additional detailed categorizations. |
| * | Amount represents less than $1. |
For the period ended October 31, 2016, as a result of the fair value pricing procedures for international equities utilized by the Fund, certain securities have transferred in and out of Level 1 and Level 2 measurements during the period. The Fund’s policy is to recognize transfers between levels as of the end of the reporting period. At October 31, 2016, securities valued at $4,278,959 were classified as Level 2 within the fair value hierarchy because fair value procedures were applied when the change in value of a domestic equity security index suggested that the closing prices on foreign exchanges may no longer have represented the value of those securities at the time of closing of the NYSE.
(b) Foreign currency translation. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the values of assets and liabilities, other than investments in securities, on the date of valuation, resulting from changes in exchange rates.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
| 36 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
(c) Foreign investment risks. The Fund’s investments in foreign securities may involve risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in foreign currencies or pay interest or dividends in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which affect the market and/or credit risk of the investments.
(d) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Foreign dividend income is recorded on the ex-dividend date or as soon as practicable after the Fund determines the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.
(e) Distributions to shareholders. Distributions from net investment income and distributions of net realized gains, if any, are declared at least annually. Distributions to shareholders of the Fund are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.
(f) Federal and other taxes. It is the Fund’s policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986 (the “Code”), as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute its taxable income and net realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal or state income tax provision is required in the Fund’s financial statements.
Under the applicable foreign tax laws, a withholding tax may be imposed on interest, dividends and capital gains at various rates.
(g) Reclassification. GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. During the current period, the following reclassifications have been made:
| Undistributed Net Investment Income | Accumulated Net Realized Loss | |||||||
| (a) | $ | (1,413) | $ | 1,413 | ||||
| (a) | Reclassifications are due to foreign currency transactions treated as ordinary income for tax purposes. |
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Fund’s investment manager and QS Investors, LLC (“QS”) is the Fund’s subadviser. Western Asset Management Company
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 37 |
Notes to financial statements (cont’d)
(“Western Asset”) manages the portion of the Fund’s cash and short-term instruments allocated to it. LMPFA, QS and Western Asset are wholly-owned subsidiaries of Legg Mason, Inc. (“Legg Mason”).
LMPFA provides administrative and certain oversight services to the Fund under what is a unitary fee structure. LMPFA delegates to the subadviser the day-to-day portfolio management of the Fund. The Fund is responsible for paying interest expenses, taxes, brokerage expenses, future 12b-1 fees (if any), acquired fund fees and expenses, extraordinary expenses and the management fee payable to LMPFA under the investment management agreement. LMPFA has agreed to pay all of the Fund’s organization and offering costs.
Under the investment management agreement, the Fund pays an investment management fee, calculated daily and paid monthly, at an annual rate of 0.40% of the Fund’s average daily net assets.
As compensation for its subadvisory services, LMPFA pays QS 90% of the management fee paid by the Fund to LMPFA, net of (i) all fees and expenses incurred by LMPFA under the investment management agreement (including without limitation any subadvisory fee paid to another subadviser to the Fund) and (ii) expense waivers, if any, and reimbursements. LMPFA pays Western Asset a fee of 0.02% of the portion of the Fund’s average daily net assets allocated to Western Asset for the management of cash and other short-term instruments, net of expense waivers, if any, and reimbursements.
Legg Mason Investor Services, LLC, a wholly-owned broker-dealer subsidiary of Legg Mason, serves as the distributor of Creation Units for the Fund on an agency basis.
The Fund’s Board of Trustees has adopted a Rule 12b-1 shareholder services and distribution plan and under that plan, the Fund is authorized to pay service and/or distribution fees calculated at an annual rate of up to 0.25% of its average daily net assets. No service and/or distribution fees are currently paid by the Fund, and there are no current plans to impose these fees.
All officers and one Trustee of the Trust are employees of Legg Mason or its affiliates and do not receive compensation from the Trust.
3. Investments
During the period ended October 31, 2016, the aggregate cost of purchases and proceeds from sales of investments (excluding in-kind transactions and short-term investments) were as follows:
| Purchases | $ | 1,640,471 | ||
| Sales | 1,534,528 |
During the period ended October 31, 2016, in-kind transactions (see Note 5) were as follows:
| Contributions | $ | 4,989,275 | ||
| Redemptions | — |
| 38 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
The in-kind contributions and in-kind redemptions shown in this table may not agree with the Fund Share Transactions on the Statement of Changes in Net Assets. This table represents the accumulation of the Fund’s daily net shareholder transactions while the Statement of Changes in Net Assets reflects gross shareholder transactions including any cash component of the transactions.
At October 31, 2016, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
| Gross unrealized appreciation | $ | 299,870 | ||
| Gross unrealized depreciation | (387,175) | |||
| Net unrealized depreciation | $ | (87,305) |
4. Derivative instruments and hedging activities
During the period ended October 31, 2016, the Fund did not invest in derivative instruments.
5. Fund share transactions
At October 31, 2016, the Trust had an unlimited number of shares of beneficial interest authorized with a par value of $0.00001 per share. Fund shares are issued and redeemed by the Fund only in Creation Units or Creation Unit aggregations, where 200,000 shares of the Fund constitute a Creation Unit. Such transactions are generally on an in-kind basis, with a separate cash payment, which is a balancing cash component to equate the transaction to the net asset value per share of the Fund on the transaction date. Transactions in capital shares of the Fund are disclosed in detail in the Statement of Changes in Net Assets. Authorized Participants are subject to standard creation and redemption transaction fees to offset transfer and other transaction costs associated with the issuance and redemption of Creation Units. Creations and redemptions for cash (when cash creations and redemptions are available or specified) may be subject to an additional variable fee.
6. Income tax information and distributions to shareholders
The Fund did not make any distributions during the period ended October 31, 2016.
As of October 31, 2016, the components of accumulated earnings (losses) on a tax basis were as follows:
| Undistributed ordinary income — net | $ | 121,069 | ||
| Deferred capital losses* | (47,665) | |||
| Unrealized appreciation (depreciation)(a) | (87,647) | |||
| Total accumulated earnings (losses) — net | $ | (14,243) |
| * | These capital losses have been deferred in the current period as either short-term or long-term losses. The losses will be deemed to occur on the first day of the next taxable year in the same character as they were originally deferred and will be available to offset future taxable capital gains. |
| (a) | The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable to the tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains on investments in passive foreign investment companies. |
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 39 |
Notes to financial statements (cont’d)
7. Recent accounting pronouncement
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, the “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Fund’s financial statements and related disclosures.
| 40 | Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report |
Report of independent registered public accounting firm
The Board of Trustees and Shareholders
Legg Mason ETF Equity Trust:
We have audited the accompanying statement of assets and liabilities of Legg Mason Developed ex-US Diversified Core ETF (the “Fund”), a series of Legg Mason ETF Equity Trust, including the schedule of investments, as of October 31, 2016, and the related statements of operations and changes in net assets, and the financial highlights for the period from December 28, 2015 (inception date) to October 31, 2016. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2016, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Legg Mason Developed ex-US Diversified Core ETF as of October 31, 2016, the results of its operations, the changes in its net assets, and the financial highlights for the period from December 28, 2015 (inception date) to October 31, 2016, in conformity with U.S. generally accepted accounting principles.
New York, New York
December 21, 2016
| Legg Mason Developed ex-US Diversified Core ETF 2016 Annual Report | 41 |
Additional information (unaudited)
Information about Trustees and Officers
The business and affairs of Legg Mason Developed ex-US Diversified Core ETF (the “Fund”) are conducted by management under the supervision and subject to the direction of its Board of Trustees. The business address of each Trustee is c/o Jane Trust, Legg Mason, 100 International Drive, 11th Floor, Baltimore, Maryland 21202. Information pertaining to the Trustees and officers of the Fund is set forth below.
The Statement of Additional Information includes additional information about Trustees and is available, without charge, upon request by calling the Fund at 1-888-386-5535.
| Independent Trustees† | ||
| Paul R. Ades | ||
| Year of birth | 1940 | |
| Position(s) with Trust | Trustee | |
| Term of office1 and length of time served2 | Since 1983 | |
| Principal occupation(s) during past five years | Paul R. Ades, PLLC (law firm) (since 2000) | |
| Number of funds in fund complex overseen by Trustee | 46 | |
| Other board memberships held by Trustee during past five years | None | |
| Andrew L. Breech | ||
| Year of birth | 1952 | |
| Position(s) with Trust | Trustee | |
| Term of office1 and length of time served2 | Since 1991 | |
| Principal occupation(s) during past five years | President, Dealer Operating Control Service, Inc. (automotive retail management) (since 1985) | |
| Number of funds in fund complex overseen by Trustee | 46 | |
| Other board memberships held by Trustee during past five years | None | |
| Dwight B. Crane | ||
| Year of birth | 1937 | |
| Position(s) with Trust | Trustee | |
| Term of office1 and length of time served2 | Since 1981 | |
| Principal occupation(s) during past five years | Professor Emeritus, Harvard Business School (since 2007); formerly, Professor, Harvard Business School (1969 to 2007); Independent Consultant (since 1969) | |
| Number of funds in fund complex overseen by Trustee | 46 | |
| Other board memberships held by Trustee during past five years | None | |
| 42 | Legg Mason Developed ex-US Diversified Core ETF |
| Independent Trustees cont’d | ||
| Althea L. Duersten | ||
| Year of birth | 1951 | |
| Position(s) with Trust | Trustee | |
| Term of office1 and length of time served2 | Since 2014 | |
| Principal occupation(s) during past five years | Retired (since 2011); formerly, Chief Investment Officer, North America, JPMorgan Chase (investment bank) and member of JPMorgan Executive Committee (2007 to 2011) | |
| Number of funds in fund complex overseen by Trustee | 46 | |
| Other board memberships held by Trustee during past five years | None | |
| Frank G. Hubbard | ||
| Year of birth | 1937 | |
| Position(s) with Trust | Trustee | |
| Term of office1 and length of time served2 | Since 1993 | |
| Principal occupation(s) during past five years | President, Fealds, Inc. (business development) (since 2016); formerly, President, Avatar International Inc. (business development) (1998 to 2015) | |
| Number of funds in fund complex overseen by Trustee | 46 | |
| Other board memberships held by Trustee during past five years | None | |
| Howard J. Johnson | ||
| Year of birth | 1938 | |
| Position(s) with Trust | Trustee and Chairman | |
| Term of office1 and length of time served2 | From 1981 to 1998 and since 2000 (Chairman since 2013) | |
| Principal occupation(s) during past five years | Chief Executive Officer, Genesis Imaging LLC (technology company) (since 2003) | |
| Number of funds in fund complex overseen by Trustee | 46 | |
| Other board memberships held by Trustee during past five years | None | |
| Jerome H. Miller | ||
| Year of birth | 1938 | |
| Position(s) with Trust | Trustee | |
| Term of office1 and length of time served2 | Since 1995 | |
| Principal occupation(s) during past five years | Retired | |
| Number of funds in fund complex overseen by Trustee | 46 | |
| Other board memberships held by Trustee during past five years | None | |
| Legg Mason Developed ex-US Diversified Core ETF | 43 |
Additional information (unaudited) (cont’d)
Information about Trustees and Officers
| Independent Trustees cont’d | ||
| Ken Miller | ||
| Year of birth | 1942 | |
| Position(s) with Trust | Trustee | |
| Term of office1 and length of time served2 | Since 1983 | |
| Principal occupation(s) during past five years | Retired; formerly, President, Young Stuff Apparel Group, Inc. (apparel manufacturer), division of Li & Fung (1963 to 2012) | |
| Number of funds in fund complex overseen by Trustee | 46 | |
| Other board memberships held by Trustee during past five years | None | |
| John J. Murphy | ||
| Year of birth | 1944 | |
| Position(s) with Trust | Trustee | |
| Term of office1 and length of time served2 | Since 2002 | |
| Principal occupation(s) during past five years | Founder and Senior Principal, Murphy Capital Management (investment management) (since 1983) | |
| Number of funds in fund complex overseen by Trustee | 46 | |
| Other board memberships held by Trustee during past five years | Trustee, UBS Funds (52 funds) (since 2008); Trustee, Consulting Group Capital Markets Funds (11 funds) (since 2002); Director, Fort Dearborn Income Securities, Inc. (since 2013); formerly, Director, Nicholas Applegate Institutional Funds (12 funds) (2005 to 2010) | |
| Thomas F. Schlafly | ||
| Year of birth | 1948 | |
| Position(s) with Trust | Trustee | |
| Term of office1 and length of time served2 | Since 1983 | |
| Principal occupation(s) during past five years | Chairman, The Saint Louis Brewery, LLC (brewery) (since 2012); formerly, President, The Saint Louis Brewery, Inc. (1989 to 2012); Partner, Thompson Coburn LLP (law firm) (since 2009) | |
| Number of funds in fund complex overseen by Trustee | 46 | |
| Other board memberships held by Trustee during past five years | Director, Citizens National Bank of Greater St. Louis (since 2006) | |
| 44 | Legg Mason Developed ex-US Diversified Core ETF |
| Interested Trustee and Officer | ||
| Jane Trust3 | ||
| Year of birth | 1962 | |
| Position(s) with Trust | Trustee, President and Chief Executive Officer | |
| Term of office1 and length of time served2 | Since 2015 | |
| Principal occupation(s) during past five years | Managing Director of Legg Mason & Co., LLC (“Legg Mason & Co.”) (since 2016); Officer and/or Trustee/Director of 159 funds associated with Legg Mason Partners Fund Advisor, LLC (“LMPFA”) or its affiliates (since 2015); President and Chief Executive Officer of LMPFA (since 2015); formerly, Senior Vice President of LMPFA (2015); Director of ClearBridge, LLC (formerly, Legg Mason Capital Management, LLC) (2007 to 2014); Managing Director of Legg Mason Investment Counsel & Trust Co. (2000 to 2007) | |
| Number of funds in fund complex overseen by Trustee | 152 | |
| Other board memberships held by Trustee during past five years | None | |
| Additional Officers | ||
Ted P. Becker Legg Mason 620 Eighth Avenue, 49th Floor, New York, NY 10018 | ||
| Year of birth | 1951 | |
| Position(s) with Trust | Chief Compliance Officer | |
| Term of office1 and length of time served2 | Since 2007 | |
| Principal occupation(s) during past five years | Director of Global Compliance at Legg Mason (since 2006); Chief Compliance Officer of LMPFA (since 2006); Managing Director of Compliance of Legg Mason & Co. (since 2005); Chief Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) | |
Susan Kerr Legg Mason | ||
| Year of birth | 1949 | |
| Position(s) with Trust | Chief Anti-Money Laundering Compliance Officer | |
| Term of office1 and length of time served2 | Since 2013 | |
| Principal occupation(s) during past five years | Assistant Vice President of Legg Mason & Co. and Legg Mason Investor Services, LLC (“LMIS”) (since 2010); Chief Anti-Money Laundering Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2013) and Anti-Money Laundering Compliance Officer of LMIS (since 2012); Senior Compliance Officer of LMIS (since 2011); formerly, AML Consultant, DTCC (2010); AML Consultant, Rabobank Netherlands, (2009); First Vice President, Director of Marketing & Advertising Compliance and Manager of Communications Review Group at Citigroup Inc. (1996 to 2008) | |
| Legg Mason Developed ex-US Diversified Core ETF | 45 |
Additional information (unaudited) (cont’d)
Information about Trustees and Officers
| Additional Officers cont’d | ||
Jenna Bailey Legg Mason | ||
| Year of birth | 1978 | |
| Position(s) with Trust | Identity Theft Prevention Officer | |
| Term of office1 and length of time served2 | Since 2015 | |
| Principal occupation(s) during past five years | Identity Theft Prevention Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2015); Compliance Officer of Legg Mason & Co. (since 2013); Assistant Vice President of Legg Mason & Co. (since 2011); formerly, Associate Compliance Officer of Legg Mason & Co. (2011 to 2013); Risk Manager of U.S. Distribution of Legg Mason & Co. (2007 to 2011) | |
Robert I. Frenkel Legg Mason 100 First Stamford Place, 6th Floor, Stamford, CT 06902 | ||
| Year of birth | 1954 | |
| Position(s) with Trust | Secretary and Chief Legal Officer | |
| Term of office1 and length of time served2 | Since 2007 | |
| Principal occupation(s) during past five years | Vice President and Deputy General Counsel of Legg Mason (since 2006); Managing Director and General Counsel — U.S. Mutual Funds for Legg Mason & Co. (since 2006) and Legg Mason & Co. predecessors (since 1994); Secretary and Chief Legal Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006) | |
Thomas C. Mandia Legg Mason 100 First Stamford Place, 6th Floor, Stamford, CT 06902 | ||
| Year of birth | 1962 | |
| Position(s) with Trust | Assistant Secretary | |
| Term of office1 and length of time served2 | Since 2007 | |
| Principal occupation(s) during past five years | Managing Director and Deputy General Counsel of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005); Secretary of LMPFA (since 2006); Assistant Secretary of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006); Secretary of LM Asset Services, LLC (“LMAS”) (since 2002) and Legg Mason Fund Asset Management, Inc. (“LMFAM”) (since 2013) (formerly registered investment advisers) | |
| 46 | Legg Mason Developed ex-US Diversified Core ETF |
| Additional Officers cont’d | ||
Richard F. Sennett Legg Mason 100 International Drive, 7th Floor, Baltimore, MD 21202 | ||
| Year of birth | 1970 | |
| Position(s) with Trust | Principal Financial Officer | |
| Term of office1 and length of time served2 | Since 2011 | |
| Principal occupation(s) during past five years | Principal Financial Officer and Treasurer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2011 and since 2013); Managing Director of Legg Mason & Co. and Senior Manager of the Treasury Policy group for Legg Mason & Co.’s Global Fiduciary Platform (since 2011); formerly, Chief Accountant within the SEC’s Division of Investment Management (2007 to 2011); Assistant Chief Accountant within the SEC’s Division of Investment Management (2002 to 2007) | |
Christopher Berarducci Legg Mason 620 Eighth Avenue, 49th Floor, New York, NY 10018 | ||
| Year of birth | 1974 | |
| Position(s) with Trust | Treasurer | |
| Term of office1 and length of time served2 | Since 2014 | |
| Principal occupation(s) during past five years | Director of Legg Mason & Co. (since 2015); Treasurer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2010); formerly, Vice President of Legg Mason & Co. (2011 to 2015); Assistant Controller of certain mutual funds associated with Legg Mason & Co. or its affiliates (prior to 2010) | |
Jeanne M. Kelly Legg Mason 620 Eighth Avenue, 49th Floor, New York, NY 10018 | ||
| Year of birth | 1951 | |
| Position(s) with Trust | Senior Vice President | |
| Term of office1 and length of time served2 | Since 2007 | |
| Principal occupation(s) during past five years | Senior Vice President of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2007); Senior Vice President of LMPFA (since 2006); President and Chief Executive Officer of LMAS and LMFAM (since 2015); Managing Director of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005); formerly, Senior Vice President of LMFAM (2013 to 2015) | |
| † | Trustees who are not “interested persons” of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”). |
| 1 | Each Trustee and officer serves until his or her respective successor has been duly elected and qualified or until his or her earlier death, resignation, retirement or removal. |
| 2 | Indicates the earliest year in which the Trustee became a board member for a fund in the Legg Mason fund complex or the officer took such office. |
| 3 | Ms. Trust is an “interested person” of the Fund, as defined in the 1940 Act, because of her position with LMPFA and/or certain of its affiliates. |
| Legg Mason Developed ex-US Diversified Core ETF | 47 |
Legg Mason
Developed ex-US Diversified Core ETF
Trustees
Paul R. Ades
Andrew L. Breech
Dwight B. Crane
Althea L. Duersten
Frank G. Hubbard
Howard J. Johnson
Chairman
Jerome H. Miller
Ken Miller
John J. Murphy
Thomas F. Schlafly
Jane Trust
Investment manager
Legg Mason Partners Fund Advisor, LLC
Subadviser
QS Investors, LLC
Custodian
State Street Bank & Trust Company
Transfer agent
State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts 02111
Independent registered public accounting firm
KPMG LLP
345 Park Avenue
New York, NY 10154
Legg Mason Developed ex-US Diversified Core ETF
The Fund is a separate investment series of Legg Mason ETF Equity Trust, a Maryland statutory trust.
Legg Mason Developed ex-US Diversified Core ETF
Legg Mason Funds
620 Eighth Avenue, 49th Floor
New York, NY 10018
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q, shareholders can call the Fund at 1-888-386-5535.
Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling the Fund at 1-888-386-5535, (2) at www.leggmason.com/etf and (3) on the SEC’s website at www.sec.gov.
This report is submitted for the general information of the shareholders of Legg Mason Developed ex-US Diversified Core ETF. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by a current prospectus.
Investors should consider the Fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the Fund. Please read the prospectus carefully before investing.
www.leggmason.com
© 2016 Legg Mason Investor Services, LLC
Member FINRA, SIPC
ETF Index Disclaimers
The MSCI World ex-US Index (the “MSCI Index”) was used by QS Investors, LLC (“QS”), the Fund’s subadviser, as the reference universe for selection of the companies included in the QS DBI Developed ex-US Diversified Index (the “QS DBI Index”). MSCI Inc. does not in any way sponsor, support, promote or endorse the QS DBI Index or the Legg Mason Developed ex-US Diversified Core ETF (the “Fund”). MSCI Inc. was not and is not involved in any way in the creation, calculation, maintenance or review of the QS DBI Index. The MSCI Index was provided on an “as is” basis. MSCI Inc., its affiliates and any other person or entity involved in or related to compiling, computing or creating the MSCI Index (collectively, the “MSCI Parties”) expressly disclaim all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose). Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including without limitation lost profits) or any other damages in connection with MSCI Index, the QS DBI Index, or the Fund.
QS does not guarantee the accuracy and/or the completeness of the MSCI Index or any data included therein, and QS shall not have any liability for any errors, omissions or interruptions therein. QS makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the shares of the Fund or any other person or entity from the use of the MSCI Index, trading based on the MSCI Index, or any data included therein, either in connection with the Fund or for any other use. QS makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the MSCI Index or any data included therein. Without limiting any of the foregoing, in no event shall QS have any liability for any special, punitive, direct, indirect or consequential damages (including lost profits) arising out of matters relating to the use of the MSCI Index, even if notified of the possibility of such damages.
www.leggmason.com
© 2016 Legg Mason Investor Services, LLC Member FINRA, SIPC
ETFF323369 12/16 SR16-2950
| ITEM 2. | CODE OF ETHICS. |
The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller.
| ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
The Board of Trustees of the registrant has determined that Dwight B. Crane possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an “audit committee financial expert,” and has designated Dwight B. Crane as the Audit Committee’s financial expert. Dwight B. Crane is an “independent” Trustees pursuant to paragraph (a)(2) of Item 3 to Form N-CSR.
| ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
a) Audit Fees. The aggregate fees billed in the fiscal period ending October 31, 2016 (the “Reporting Period”) for professional services rendered by the Registrant’s principal accountant (the “Auditor”) for the audit of the Registrant’s annual financial statements, or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Period, were $0 in 2016.
b) Audit-Related Fees. The aggregate fees billed in the Reporting Period for assurance and related services by the Auditor that are reasonably related to the performance of the Registrant’s financial statements were $0 in 2016.
(c) Tax Fees. The aggregate fees billed in the Reporting Period for professional services rendered by the Auditor for tax compliance, tax advice and tax planning (“Tax Services”) were $0 in 2016. These services consisted of (i) review or preparation of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state and local tax planning, advice and assistance regarding statutory, regulatory or administrative developments, and (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired or held.
There were no fees billed for tax services by the Auditors to service affiliates during the Reporting Period that required pre-approval by the Audit Committee.
(d) All Other Fees. The aggregate fees for other fees billed in the Reporting Period for products and services provided by the Auditor were $0 in October 31, 2016, other than the services reported in paragraphs (a) through (c) of this item for the Legg Mason ETF Equity Trust.
All Other Fees. There were no other non-audit services rendered by the Auditor to Legg Mason Partners Fund Advisors, LLC (“LMPFA”), and any entity controlling, controlled by or under common control with LMPFA that provided ongoing services to Legg Mason ETF Equity Trust requiring pre-approval by the Audit Committee in the Reporting Period.
(e) Audit Committee’s pre–approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
(1) The Charter for the Audit Committee (the “Committee”) of the Board of each registered investment company (the “Fund”) advised by LMPFA or one of their affiliates (each, an “Adviser”) requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund’s independent auditors to the Adviser and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Fund. The Committee may implement policies and procedures by which such services are approved other than by the full Committee.
The Committee shall not approve non-audit services that the Committee believes may impair the independence of the auditors. As of the date of the approval of this Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible.
Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund (“Covered Service Providers”) constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal year in which the permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit.
(2) For the Legg Mason ETF Equity Trust, the percentage of fees that were approved by the audit committee, with respect to: Audit-Related Fees were 100% for 2016; Tax Fees were 100% for 2016; and Other Fees were 100% for 2016.
(f) N/A
(g) Non-audit fees billed by the Auditor for services rendered to Legg Mason ETF Equity Trust, LMPFA and any entity controlling, controlled by, or under common control with LMPFA that provides ongoing services to Legg Mason ETF Equity Trust during the reporting period were $0 in 2016.
(h) Yes. Legg Mason ETF Equity Trust’s Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates, which were not pre-approved (not requiring pre-approval), is compatible with maintaining the Accountant’s independence. All services provided by the Auditor to the Legg Mason ETF Equity Trust or to Service Affiliates, which were required to be pre-approved, were pre-approved as required.
| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
a) Registrant has a separately-designated standing Audit Committee established in accordance with Section 3(a)58(A) of the Exchange Act. The Audit Committee consists of the following Board members:
Paul R. Ades
Andrew L. Breech
Dwight B. Crane
Althea L. Duersten
Frank G. Hubbard
Howard J. Johnson
Jerome H. Miller
Ken Miller
John J. Murphy
Thomas F. Schlafly
b) Not applicable
| ITEM 6. | SCHEDULE OF INVESTMENTS. |
Included herein under Item 1.
| ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 9. | PURCHASES OF SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable.
| ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
Not applicable.
| ITEM 11. | CONTROLS AND PROCEDURES. |
| (a) | The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934. |
| (b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting. |
| ITEM 12. | EXHIBITS. |
(a) (1) Code of Ethics attached hereto.
Exhibit 99.CODE ETH
(a) (2) Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.CERT
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.906CERT
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized.
Legg Mason ETF Equity Trust
| By: | /s/ Jane Trust | |
| Jane Trust | ||
| Chief Executive Officer | ||
| Date: | December 27, 2016 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/ Jane Trust | |
| Jane Trust | ||
| Chief Executive Officer | ||
| Date: | December 27, 2016 | |
| By: | /s/ Richard F. Sennett | |
| Richard F. Sennett | ||
| Principal Financial Officer | ||
| Date: | December 27, 2016 | |