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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 Investment 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: November 30
Date of reporting period: November 30, 2017
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| ITEM 1. | REPORT TO STOCKHOLDERS. |
The Annual Report to Stockholders is filed herewith.
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| Annual Report | November 30, 2017 |
CLEARBRIDGE
LARGE CAP GROWTH ESG ETF
LRGE
| INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE |
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Fund objective
The Fund seeks long-term capital appreciation through investing in large-capitalization companies with the potential for high future earnings growth.
Dear Shareholder,
We are pleased to provide the annual report of ClearBridge Large Cap Growth ESG ETF for the period since the Fund’s inception on May 22, 2017 through November 30, 2017. 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
December 29, 2017
| II | ClearBridge Large Cap Growth ESG ETF |
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The Investment Commentary covers the Fund’s initial reporting period (the Fund’s inception on May 22, 2017 through November 30, 2017).
Economic review
Economic activity in the U.S. improved during the period from the Fund’s inception on May 22, 2017 through November 30, 2017 (the “reporting period”). Looking back, the U.S. Department of Commerce reported that U.S. gross domestic product (“GDP”)i growth was 1.2%, as revised, for the first quarter of 2017. Second quarter 2017 GDP growth then accelerated to 3.1%. Finally, the U.S. Department of Commerce’s final reading for third quarter 2017 GDP growth — released after the reporting period ended — was 3.2%. Stronger growth was attributed to a number of factors, including positive contributions from private inventory investment and upturns in state and local government spending. These positive factors were partly offset by a decrease in personal consumption expenditures, nonresidential fixed investment and exports.
Job growth in the U.S. was solid overall and supported the economy during the reporting period. When the reporting period ended on November 30, 2017, the unemployment rate was 4.1%, as reported by the U.S. Department of Labor. This equaled the lowest unemployment rate since December 2000. The percentage of longer-term unemployed declined during the reporting period. In November 2017, 23.8% of Americans looking for a job had been out of work for more than six months, versus 24.0% when the period began.
Looking back, after an extended period of maintaining the federal funds rateii at a historically low range between zero and 0.25%, the Federal Reserve Board (the “Fed”)iii increased the rate at its meeting on December 16, 2015. In particular, the U.S. central bank raised the federal funds rate to a range between 0.25% and 0.50%. The Fed then kept rates on hold at each meeting prior to its meeting on December 14, 2016, at which time, the Fed raised rates to a range between 0.50% and 0.75%.
The Fed’s next rate hike occurred at its meeting that ended on March 15, 2017, as it raised rates to a range between 0.75% and 1.00%. At its meeting that concluded on June 14, 2017, the Fed then raised rates to a range between 1.00% and 1.25%. During its meeting that concluded on September 20, 2017, the Fed kept rates on hold, but reiterated its intention to begin reducing its balance sheet, saying, “In October, the Committee will initiate the balance sheet normalization program….” Finally, at its meeting that ended on December 13, 2017, after the reporting period ended, the Fed raised rates to a range between 1.25% and 1.50%.
As always, thank you for your confidence in our stewardship of your assets.
Sincerely,
Jane Trust, CFA
President and Chief Executive Officer
December 29, 2017
All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results.
| ClearBridge Large Cap Growth ESG ETF | III |
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Investment commentary (cont’d)
| 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 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. |
| iii | 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. |
| IV | ClearBridge Large Cap Growth ESG ETF |
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Q. What is the Fund’s investment strategy?
A. ClearBridge Large Cap Growth ESG ETF (the “Fund”) seeks long-term capital appreciation through investing in large-capitalization companies with the potential for high future earnings growth.
Under normal circumstances, the Fund seeks to meet its investment objective by investing at least 80% of its net assets, plus borrowings for investment purposes, if any, in equity securities or other instruments with similar economic characteristics of U.S. companies with large market capitalizations that meet its financial and environmental, social and governance (“ESG”) criteria.
Large capitalization companies are those companies with market capitalizations similar to companies in the Russell 1000 Growth Index (the “Index”)i. The size of the companies in the Index changes with market conditions and the composition of the Index. The Fund may also invest in companies that ClearBridge Investments, LLC (“ClearBridge”), the Fund’s subadviser, believes are making substantial progress toward becoming a leader in ESG policies. The Fund’s investment strategy focuses on consistent growth of capital while managing volatility.
Determination of a company’s ESG standards is based on ClearBridge’s proprietary research approach. ClearBridge will exercise judgment to determine ESG best practices based on its twenty-five year history of managing ESG investment strategies through an established proprietary process. ClearBridge utilizes a fundamental, bottom-up research approach that emphasizes company analysis, management and stock selection.
The ESG evaluation is integrated into a thorough assessment of investment worthiness based on financial criteria as well as ESG considerations including innovative workplace policies, employee benefits and programs; environmental management system strength, eco-efficiency and life-cycle analysis; community involvement, strategic philanthropy and reputation management; and strong corporate governance and independence of the board. The ESG analysis is conducted by the fundamental analyst platform on a sector-specific basis, and a proprietary ESG rating is assigned to each company.
We, as portfolio managers, seek to invest over the long term in large-capitalization companies that are considered to be of high quality with sustainable competitive advantages as evidenced by high returns on capital, strong balance sheets, and capable management teams that allocate capital in an efficient manner. We seek to invest in leadership companies where we believe the market price underestimates the magnitude of future growth. Leadership may be assessed both quantitatively and qualitatively. We seek to select securities of companies that are category leaders with characteristics to sustain that position and grow market share consistently. We perform rigorous analysis to understand company fundamentals, key competitive dynamics and industry structure with the belief that the best business models win over time. We seek to identify social or economic trends that will have an impact on the economy as a whole to support multi-year investment opportunities, allowing for compounding of earnings and cash flow. We seek companies with self-funding business models with significant recurring revenue and businesses
| ClearBridge Large Cap Growth ESG ETF 2017 Annual Report | 1 |
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Fund overview (cont’d)
with the ability to generate superior free cash flow over time. In addition, we take a disciplined approach to valuation and stress test the sustainability of profitability and growth. We will also consider emerging companies with promising future prospects that may not yet have demonstrated substantial profitability.
We will utilize fundamental analysis to identify investment candidates with these attributes, and evaluate industry dynamics, the strength of the business model and management skill. Valuation will be carefully examined using a variety of techniques that depend on the type of company being researched. Methods typically used are discounted cash flow analysis, market implied growth and returns relative to ClearBridge’s expectations, multiple comparisons and scenario analysis.
It is also our intention to engage and encourage management to improve in certain ESG areas identified by ClearBridge through the sector analysts’ lead engagements.
We will sell a security if the issuer no longer meets its financial or ESG criteria. In addition, we will seek to replace securities when the company’s risk/reward profile is no longer favorable due to price appreciation or if the company’s investment fundamentals have deteriorated meaningfully relative to original expectations. Securities may also be sold to permit investment in an issuer considered by us to be a more attractive alternative.
The Fund emphasizes investments in equity securities or related instruments of U.S. large-capitalization companies; however, it may invest in equity securities of foreign issuers with similar characteristics.
Q. What were the overall market conditions during the Fund’s reporting period?
A. The major U.S. equity indices posted positive returns for the reporting period since the Fund’s inception on May 22, 2017 through November 30, 2017, with the Index gaining 14.57%. Volatility was muted with the Chicago Board Options Exchange Volatility Index (“VIX”)ii trading at historically low levels for most of the reporting period. Throughout the reporting period, investors focused on the potential impact of policy changes on health care, taxation and regulation. In particular, there was increased optimism for a more balanced regulatory approach to sectors including Financials, Media and Health Care.
Corporate earnings growth resumed after dipping earlier in 2016, helping broad U.S. equity index returns over the period. With continued low unemployment and slow but steady economic growth, the Federal Reserve board (the “Fed”)iii raised the federal funds rate three times during the period and announced it would begin shrinking its $4.5 trillion balance sheet of Treasury bonds and mortgage-backed securities.
A dominant theme toward the end of the period was the apparent synchronization of global growth, as most major markets experienced increases in gross domestic product (“GDP”)iv growth rates and flat or decreasing unemployment. In the U.S., consumer sentiment reached a decade high in October 2017, even as the current expansion extended beyond historical norms.
The U.S. economy continued to expand during the period, with GDP growth, as measured by the U.S. Department of Commerce, reaching and surpassing 3% during the third
| 2 | ClearBridge Large Cap Growth ESG ETF 2017 Annual Report |
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calendar quarter. The employment situation also improved, as the unemployment rate reached a multidecade low of 4.1% in November 2017, as reported by the U.S. Department of Labor. Meanwhile, the Fed’s preferred measure of inflation — core personal consumption expenditures — grew less than expected over the period, with October 2017’s 1.45% rate remaining below the central bank’s long-term 2% target.
Q. How did we respond to these changing market conditions?
A. We have carefully constructed the Fund to thrive in a low growth environment, diversifying across three types of growth companies — stable, cyclical and select — that tend to do well at different stages of a market cycle. We also take into account ESG considerations, favoring companies with a strong commitment to sustainable business models as well as those showing progress in the ESG factors specific to their sector or industry.
The acceleration of equity returns and economic growth since the election has been stronger than we anticipated, benefiting some areas of the market where we have been underweight, such as Industrials stocks. We made several moves during the period to increase our consumer exposure, adding names such as Blue Buffalo Pet Products Inc., Costco Wholesale Corp. and McCormick & Co., Inc.
The Fund’s Information Technology (“IT”) sector holdings overall delivered strong absolute and relative performance during the period. Software is one of the leading sources of growth in technology spending and we added to our exposure by initiating a new position in Splunk Inc.
The Health Care stocks we own did not benefit as much under President Trump’s administration as other parts of the market. We took advantage of attractive relative valuation opportunities to add to Celgene Corp. a biotechnology company.
These portfolio changes kept us invested in companies that are able to generate organic growth regardless of economic conditions. Against this backdrop, we maintained our focus on owning a diversified basket of quality growth companies with improving or best-in-class ESG records that reflects our highest convictions.
Performance review
For the period since the ClearBridge Large Cap Growth ESG ETF’s inception on May 22, 2017 through November 30, 2017, the Fund generated a 14.38% return on a net asset value (“NAV”)v basis and 14.34% based on its market pricevi per share.
The performance table shows the Fund’s total return since the Fund’s inception on May 22, 2017 through November 30, 2017 based on its NAV and market price as of November 30, 2017. The Fund’s broad-based market index, the Russell 1000 Growth Index, returned 14.57% over the same time frame. The Lipper Large-Cap Growth Funds Category Average1 returned 11.51% for the period from May 31, 2017 through November 30, 2017. Please note that Lipper performance returns are based on each fund’s NAV.
| 1 | Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the period ended November 30, 2017, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 680 funds for the six-month period in the Fund’s Lipper category. |
| ClearBridge Large Cap Growth ESG ETF 2017 Annual Report | 3 |
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Fund overview (cont’d)
| Performance Snapshot as of November 30, 2017 (unaudited) | ||||||||
| 6 months | Total Return Since Fund Inception* | |||||||
| ClearBridge Large Cap Growth ESG ETF: | ||||||||
$28.80 (NAV) | 13.56 | % | 14.38 | %**† | ||||
$28.79 (Market Price) | 13.44 | % | 14.34 | %**‡ | ||||
| Russell 1000 Growth Index | 13.05 | % | 14.57 | % | ||||
| Lipper Large-Cap Growth Funds Category Average1 | 11.51 | % | 11.51 | %# | ||||
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”)vii at 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 May 22, 2017, the gross total annual fund operating expense ratio for the Fund was 0.59%.
* The Fund’s inception date is May 22, 2017.
** 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.
# For the six-month period May 31, 2017 through November 30, 2017.
Q. What were the leading contributors to performance?
A. On an absolute basis, the Fund had positive returns in seven of the eight economic sectors in which it was invested (among eleven sectors in total) during the reporting period. The greatest contributions to absolute returns by sector came from the IT sector. In terms of individual Fund holdings, leading contributors to performance for the period included UnitedHealth Group Inc. in the Health Care sector, Red Hat, Inc., Microsoft Corp. and PayPal Holdings Inc., all in the IT sector, as well as Amazon.com, Inc. in the Consumer Discretionary sector.
| 1 | Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the period ended November 30, 2017, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 680 funds for the six-month period in the Fund’s Lipper category. |
| 4 | ClearBridge Large Cap Growth ESG ETF 2017 Annual Report |
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Relative to the benchmark, overall stock selection contributed to performance. In particular, stock selection in the IT and Consumer Staples sectors made a significant contribution to performance for the period, while stock selection in the Financials and Consumer Discretionary sectors, an overweight allocation to the Financials sector and an underweight allocation to the Consumer Discretionary sector also helped results.
Q. What were the leading detractors from performance?
A. In terms of individual Fund holdings, the leading detractors from performance for the reporting period were Regeneron Pharmaceuticals, Inc. and Celgene Corp., both in the Health Care sector, Schlumberger NV and Pioneer Natural Resources Co., both in the Energy sector, and Xilinx, Inc. in the IT sector.
Relative to the benchmark, overall sector allocation had a negative impact on performance. In particular, stock selection in the Health Care sector and an overweight to the Energy sector were the primary detractors from returns for the period. Stock selection in the Energy sector and an underweight to the Industrials sector were also headwinds.
Q. Were there any significant changes to the Fund during the reporting period?
A. Significant changes to the Fund’s portfolio during the period included the initiation of new positions in Blue Buffalo Pet Products Inc., Costco Wholesale Corp. and McCormick & Co., Inc., all in the Consumer Staples sector, Splunk Inc. in the IT sector and Praxair, Inc. in the Materials sector. During the reporting period, we also closed positions in Xilinx, Inc. in the IT sector and Nasdaq, Inc. in the Financials sector.
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 “LRGE” and its closing market price is available on most financial websites. In a continuing effort to provide information concerning the Fund, shareholders may call 1-877-721-1926 (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 ClearBridge Large Cap Growth ESG 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,
Peter Bourbeau
Portfolio Manager
ClearBridge Investments, LLC
Mary Jane McQuillen
Portfolio Manager
ClearBridge Investments, LLC
Margaret Vitrano
Portfolio Manager
ClearBridge Investments, LLC
December 14, 2017
| ClearBridge Large Cap Growth ESG ETF 2017 Annual Report | 5 |
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Fund overview (cont’d)
RISKS: The Fund is newly organized, with a limited history of operations. Equity securities are subject to market and price fluctuations. Large capitalization companies may fall out of favor with investors based on market and economic conditions. The Fund’s environmental, social and governance (“ESG”) investment strategy may limit the types and number of investment opportunities available to the Fund and, as a result, the Fund may underperform funds that are not subject to such criteria. The Fund’s ESG investment strategy may result in the Fund investing in securities or industry sectors that underperform the market as a whole, or forgoing opportunities to invest in securities that might otherwise be advantageous to buy. The Fund may also underperform other funds screened for different ESG standards. In addition, the subadvisors may be unsuccessful in creating a portfolio composed of companies that exhibit positive ESG characteristics.
The Fund’s growth-oriented investment style may increase the risks of investing in the Fund. Growth securities typically are very sensitive to market movements because their market prices tend to reflect future expectations. Securities or other assets in the Fund’s portfolio may underperform in comparison to the general financial markets, a particular financial market or other asset classes. Please see the Fund’s prospectus for a more complete discussion of these and other risks and the Fund’s investment strategies.
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 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 November 30, 2017 were: Information Technology (37.1%), Health Care (17.4%), Consumer Discretionary (14.3%), Consumer Staples (8.2%) and Industrials (7.8%). The Fund’s composition may differ over time.
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.
| 6 | ClearBridge Large Cap Growth ESG ETF 2017 Annual Report |
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| i | The Russell 1000 Growth Index measures the performance of those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values. (A price-to-book ratio is the price of a stock compared to the difference between a company’s assets and liabilities.) The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 90% of the U.S. market. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the U.S. equity market. |
| ii | The Chicago Board Options Exchange Volatility Index (“VIX”) reflects a market estimate of future volatility, based on the weighted average of the implied volatilities for a wide range of strikes. |
| iii | 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. |
| iv | Gross domestic product (“GDP”) is the market value of all final goods and services produced within a country in a given period of time. |
| v | Net Asset Value (“NAV”) is calculated by subtracting total liabilities from total assets and dividing the results by the number of shares outstanding. |
| vi | 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. |
| vii | 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. |
| ClearBridge Large Cap Growth ESG ETF 2017 Annual Report | 7 |
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Investment breakdown (%) as a percent of total investments
| † | The bar graph above represents the composition of the Fund’s investments as of November 30, 2017. The composition of the Fund’s investments is subject to change at any time. |
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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 June 1, 2017 and held for the six months ended November 30, 2017.
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 Annualized Total Return | Beginning Account Value | Ending Account Value | Annualized Expense Ratio | Expenses Paid During the Period3 | |||||||||||||||||||||||||||||||||||||||||
| 13.56% | $ | 1,000.00 | $ | 1,135.60 | 0.59 | % | $ | 3.16 | 5.00 | % | $1,000.00 | $ | 1,022.11 | 0.59 | % | $ | 2.99 | |||||||||||||||||||||||||||||||||
| 1 | For the six months ended November 30, 2017. |
| 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 (183), then divided by 365. |
| ClearBridge Large Cap Growth ESG ETF 2017 Annual Report | 9 |
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| Net Asset Value | ||||
| Average annual total returns1 | ||||
| Inception* through 11/30/17 | 14.38 | %† | ||
| Cumulative total returns1 | ||||
| Inception date of 5/22/17 through 11/30/17 | 14.38 | % | ||
| Market Price | ||||
| Average annual total returns2 | ||||
| Inception* through 11/30/17 | 14.34 | %† | ||
| Cumulative total returns2 | ||||
| Inception date of 5/22/17 through 11/30/17 | 14.34 | % | ||
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. 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 May 22, 2017. |
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Historical performance
Value of $10,000 invested in
ClearBridge Large Cap Growth ESG ETF vs Russell 1000 Growth Index† — May 22, 2017 - November 2017
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. 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 ClearBridge Large Cap Growth ESG ETF on May 22, 2017, assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value through November 30, 2017. The hypothetical illustration also assumes a $10,000 investment in the Russell 1000 Growth 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 Russell 1000 Growth Index (the “Index”) measures the performance of those Russell 1000 Index companies with higher price-to book ratios and higher forecasted growth values. (A price-to book ratio is the price of a stock compared to the difference between a company’s assets and liabilities.) The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 90% of the U.S. market. The Index is 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. |
| ClearBridge Large Cap Growth ESG ETF 2017 Annual Report | 11 |
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November 30, 2017
ClearBridge Large Cap Growth ESG ETF
| Security | Shares | Value | ||||||||||||||
| Common Stocks — 98.4% | ||||||||||||||||
| Consumer Discretionary — 14.3% | ||||||||||||||||
Internet & Direct Marketing Retail — 5.2% | ||||||||||||||||
Amazon.com Inc. | 126 | $ | 148,270 | * | ||||||||||||
Media — 6.4% | ||||||||||||||||
Comcast Corp., Class A Shares | 1,909 | 71,664 | ||||||||||||||
Twenty-First Century Fox Inc., Class A Shares | 1,744 | 55,703 | ||||||||||||||
Walt Disney Co. | 546 | 57,232 | ||||||||||||||
Total Media | 184,599 | |||||||||||||||
Specialty Retail — 2.7% | ||||||||||||||||
Home Depot Inc. | 434 | 78,042 | ||||||||||||||
Total Consumer Discretionary | 410,911 | |||||||||||||||
| Consumer Staples — 8.2% | ||||||||||||||||
Beverages — 2.1% | ||||||||||||||||
Coca-Cola Co. | 1,290 | 59,043 | ||||||||||||||
Food & Staples Retailing — 3.3% | ||||||||||||||||
Costco Wholesale Corp. | 255 | 47,030 | ||||||||||||||
CVS Health Corp. | 622 | 47,645 | ||||||||||||||
Total Food & Staples Retailing | 94,675 | |||||||||||||||
Food Products — 2.8% | ||||||||||||||||
Blue Buffalo Pet Products Inc. | 1,728 | 53,067 | * | |||||||||||||
McCormick & Co. Inc., Non Voting Shares | 278 | 28,406 | ||||||||||||||
Total Food Products | 81,473 | |||||||||||||||
Total Consumer Staples | 235,191 | |||||||||||||||
| Energy — 4.0% | ||||||||||||||||
Energy Equipment & Services — 2.0% | ||||||||||||||||
Schlumberger Ltd. | 920 | 57,822 | ||||||||||||||
Oil, Gas & Consumable Fuels — 2.0% | ||||||||||||||||
Pioneer Natural Resources Co. | 361 | 56,330 | ||||||||||||||
Total Energy | 114,152 | |||||||||||||||
| Financials — 6.2% | ||||||||||||||||
Capital Markets — 4.3% | ||||||||||||||||
BlackRock Inc. | 139 | 69,665 | ||||||||||||||
Charles Schwab Corp. | 1,124 | 54,840 | ||||||||||||||
Total Capital Markets | 124,505 | |||||||||||||||
Consumer Finance — 1.9% | ||||||||||||||||
American Express Co. | 570 | 55,695 | ||||||||||||||
Total Financials | 180,200 | |||||||||||||||
See Notes to Financial Statements.
| 12 | ClearBridge Large Cap Growth ESG ETF 2017 Annual Report |
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ClearBridge Large Cap Growth ESG ETF
| Security | Shares | Value | ||||||||||||||
| Health Care — 17.4% | ||||||||||||||||
Biotechnology — 8.0% | ||||||||||||||||
Alexion Pharmaceuticals Inc. | 430 | $ | 47,218 | * | ||||||||||||
Biogen Inc. | 208 | 67,012 | * | |||||||||||||
Celgene Corp. | 769 | 77,538 | * | |||||||||||||
Regeneron Pharmaceuticals Inc. | 109 | 39,443 | * | |||||||||||||
Total Biotechnology | 231,211 | |||||||||||||||
Health Care Equipment & Supplies — 2.4% | ||||||||||||||||
Dentsply Sirona Inc. | 1,037 | 69,489 | ||||||||||||||
Health Care Providers & Services — 3.4% | ||||||||||||||||
UnitedHealth Group Inc. | 432 | 98,569 | ||||||||||||||
Life Sciences Tools & Services — 2.0% | ||||||||||||||||
Thermo Fisher Scientific Inc. | 296 | 57,057 | ||||||||||||||
Pharmaceuticals — 1.6% | ||||||||||||||||
Johnson & Johnson | 333 | 46,397 | ||||||||||||||
Total Health Care | 502,723 | |||||||||||||||
| Industrials — 7.8% | ||||||||||||||||
Air Freight & Logistics — 2.7% | ||||||||||||||||
United Parcel Service Inc., Class B Shares | 630 | 76,514 | ||||||||||||||
Industrial Conglomerates — 2.3% | ||||||||||||||||
Honeywell International Inc. | 430 | 67,063 | ||||||||||||||
Trading Companies & Distributors — 2.8% | ||||||||||||||||
W. W. Grainger Inc. | 362 | 80,114 | ||||||||||||||
Total Industrials | 223,691 | |||||||||||||||
| Information Technology — 37.1% | ||||||||||||||||
Communications Equipment — 2.4% | ||||||||||||||||
Palo Alto Networks Inc. | 480 | 69,960 | * | |||||||||||||
Internet Software & Services — 12.4% | ||||||||||||||||
Akamai Technologies Inc. | 1,340 | 74,745 | * | |||||||||||||
Alphabet Inc., Class A Shares | 64 | 66,315 | * | |||||||||||||
Alphabet Inc., Class C Shares | 94 | 96,013 | * | |||||||||||||
eBay Inc. | 1,050 | 36,403 | * | |||||||||||||
Facebook Inc., Class A Shares | 474 | 83,983 | * | |||||||||||||
Total Internet Software & Services | 357,459 | |||||||||||||||
IT Services — 5.5% | ||||||||||||||||
PayPal Holdings Inc. | 855 | 64,749 | * | |||||||||||||
Visa Inc., Class A Shares | 838 | 94,351 | ||||||||||||||
Total IT Services | 159,100 | |||||||||||||||
Semiconductors & Semiconductor Equipment — 1.8% | ||||||||||||||||
Texas Instruments Inc. | 540 | 52,537 | ||||||||||||||
See Notes to Financial Statements.
| ClearBridge Large Cap Growth ESG ETF 2017 Annual Report | 13 |
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Schedule of investments (cont’d)
November 30, 2017
ClearBridge Large Cap Growth ESG ETF
| Security | Shares | Value | ||||||||||||||
Software — 12.8% | ||||||||||||||||
Adobe Systems Inc. | 408 | $ | 74,040 | * | ||||||||||||
Microsoft Corp. | 1,386 | 116,659 | ||||||||||||||
Red Hat Inc. | 630 | 79,859 | * | |||||||||||||
Splunk Inc. | 542 | 43,409 | * | |||||||||||||
VMware Inc., Class A Shares | 439 | 52,728 | * | |||||||||||||
Total Software | 366,695 | |||||||||||||||
Technology Hardware, Storage & Peripherals — 2.2% | ||||||||||||||||
Apple Inc. | 368 | 63,241 | ||||||||||||||
Total Information Technology | 1,068,992 | |||||||||||||||
| Materials — 3.4% | ||||||||||||||||
Chemicals — 3.4% | ||||||||||||||||
Ecolab Inc. | 498 | 67,688 | ||||||||||||||
Praxair Inc. | 207 | 31,862 | ||||||||||||||
Total Materials | 99,550 | |||||||||||||||
Total Investments before Short-Term Investments (Cost — $2,483,988) |
| 2,835,410 | ||||||||||||||
| Rate | ||||||||||||||||
| Short-Term Investments — 1.5% | ||||||||||||||||
State Street Institutional Treasury Money Market Fund, Premier Class (Cost — $42,735) | 1.046 | % | 42,735 | 42,735 | ||||||||||||
Total Investments — 99.9% (Cost — $2,526,723) | 2,878,145 | |||||||||||||||
Other Assets in Excess of Liabilities — 0.1% | 1,801 | |||||||||||||||
Total Net Assets — 100.0% | $ | 2,879,946 | ||||||||||||||
| * | Non-income producing security. |
See Notes to Financial Statements.
| 14 | ClearBridge Large Cap Growth ESG ETF 2017 Annual Report |
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Statement of assets and liabilities
November 30, 2017
| Assets: | ||||
Investments, at value (Cost — $2,526,723) | $ | 2,878,145 | ||
Dividends and interest receivable | 3,163 | |||
Total Assets | 2,881,308 | |||
| Liabilities: | ||||
Investment management fee payable | 1,362 | |||
Total Liabilities | 1,362 | |||
| Total Net Assets | $ | 2,879,946 | ||
| Net Assets: | ||||
Par value (Note 5) | $ | 1 | ||
Paid-in capital in excess of par value | 2,517,718 | |||
Accumulated net investment income | 7,528 | |||
Accumulated net realized gain on investments | 3,277 | |||
Net unrealized appreciation on investments | 351,422 | |||
| Total Net Assets | $ | 2,879,946 | ||
| Shares Outstanding | 100,000 | |||
| Net Asset Value | $28.80 | |||
See Notes to Financial Statements.
| ClearBridge Large Cap Growth ESG ETF 2017 Annual Report | 15 |
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For the Period Ended November 30, 2017†
| Investment Income: | ||||
Dividends | $ | 15,579 | ||
Interest | 221 | |||
Total Investment Income | 15,800 | |||
| Expenses: | ||||
Investment management fee (Note 2) | 8,272 | |||
Total Expenses | 8,272 | |||
| Net Investment Income | 7,528 | |||
| Realized and Unrealized Gain on Investments (Notes 1 and 3): | ||||
Net Realized Gain From Investment Transactions | 3,277 | |||
Change in Net Unrealized Appreciation (Depreciation) From Investments | 351,422 | |||
| Net Gain on Investments | 354,699 | |||
| Increase in Net Assets From Operations | $ | 362,227 | ||
| † | For the period May 22, 2017 (inception date) to November 30, 2017. |
See Notes to Financial Statements.
| 16 | ClearBridge Large Cap Growth ESG ETF 2017 Annual Report |
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Statement of changes in net assets
| For the Period Ended November 30, 2017 | 2017† | |||
| Operations: | ||||
Net investment income | $ | 7,528 | ||
Net realized gain | 3,277 | |||
Change in net unrealized appreciation (depreciation) | 351,422 | |||
Increase in Net Assets From Operations | 362,227 | |||
| Fund Share Transactions (Note 5): | ||||
Net proceeds from sale of shares (100,000 shares issued) | 2,517,719 | |||
Increase in Net Assets From Fund Share Transactions | 2,517,719 | |||
Increase in Net Assets | 2,879,946 | |||
| Net Assets: | ||||
Beginning of period | — | |||
End of period* | $ | 2,879,946 | ||
*Includes accumulated net investment income of: | $7,528 | |||
| † | For the period May 22, 2017 (inception date) to November 30, 2017. |
See Notes to Financial Statements.
| ClearBridge Large Cap Growth ESG ETF 2017 Annual Report | 17 |
Table of Contents
| For a share of beneficial interest outstanding throughout each year ended November 30, unless otherwise noted: | ||||
| 20171,2 | ||||
| Net asset value, beginning of period | $25.18 | |||
| Income from operations: | ||||
Net investment income | 0.08 | |||
Net realized and unrealized gain | 3.54 | |||
Total income from operations | 3.62 | |||
| Net asset value, end of period | $28.80 | |||
Total return, at NAV3 | 14.38 | % | ||
| Net assets, end of period (000s) | $2,880 | |||
| Ratios to average net assets: | ||||
Gross expenses4 | 0.59 | % | ||
Net expenses4 | 0.59 | |||
Net investment income4 | 0.54 | |||
| Portfolio turnover rate5 | 7 | % | ||
| 1 | Per share amounts have been calculated using the average shares method. |
| 2 | For the period May 22, 2017 (inception date) to November 30, 2017. |
| 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.
| 18 | ClearBridge Large Cap Growth ESG ETF 2017 Annual Report |
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1. Organization and significant accounting policies
ClearBridge Large Cap Growth ESG ETF (the “Fund”) is a separate diversified investment series of Legg Mason ETF Investment 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 actively managed exchange-traded fund (“ETF”). ETFs are funds that trade like other publicly-traded securities. 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 NASDAQ . 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 created and redeemed principally in-kind (although under some circumstances its shares are created and redeemed partially for 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 long-term capital appreciation through investing in large-capitalization companies with the potential for high future earnings growth.
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, 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
| ClearBridge Large Cap Growth ESG ETF 2017 Annual Report | 19 |
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Notes to financial statements (cont’d)
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. 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.
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.
| 20 | ClearBridge Large Cap Growth ESG ETF 2017 Annual Report |
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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 | ||||||||||||
| Common stocks† | $ | 2,835,410 | — | — | $ | 2,835,410 | ||||||||||
| Short-term investments† | 42,735 | — | — | 42,735 | ||||||||||||
| Total investments | $ | 2,878,145 | — | — | $ | 2,878,145 | ||||||||||
| † | See Schedule of Investments for additional detailed categorizations. |
(b) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income (including interest income from payment-in-kind securities), adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. 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.
(c) 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.
| ClearBridge Large Cap Growth ESG ETF 2017 Annual Report | 21 |
Table of Contents
Notes to financial statements (cont’d)
(d) 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.
(e) 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 Fund had no reclassifications.
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Fund’s investment manager and ClearBridge Investments, LLC (“ClearBridge”) is the Fund’s subadviser. Western Asset Management Company (“Western Asset”) manages the portion of the Fund’s cash and short-term instruments allocated to it. LMPFA, ClearBridge and Western Asset are wholly-owned subsidiaries of Legg Mason, Inc. (“Legg Mason”).
LMPFA provides administrative and certain oversight services to the Fund. 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 and subject to the general supervision of the Fund’s Board of Trustees, LMPFA provides or causes to be furnished all investment management, supervisory, administrative and other services reasonably necessary for the operation of the Fund, including certain distribution services (provided pursuant to a separate distribution agreement) and investment advisory services (provided pursuant to separate subadvisory agreements) under a unitary fee structure. The Fund pays an investment management fee, calculated daily and paid monthly, at an annual rate of 0.59% of the Fund’s average daily net assets.
As compensation for its subadvisory services, LMPFA pays ClearBridge monthly 70% 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 monthly 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.
| 22 | ClearBridge Large Cap Growth ESG ETF 2017 Annual Report |
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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.
As of November 30, 2017, Legg Mason and its affiliates owned 90% of the Fund.
3. Investments
During the period ended November 30, 2017, the aggregate cost of purchases and proceeds from sales of investments (excluding in-kind transactions and short-term investments) were as follows:
| Purchases | $ | 223,949 | ||
| Sales | 192,996 |
During the period ended November 30, 2017, in-kind transactions (see Note 5) were as follows:
| Contributions | $ | 2,449,758 | ||
| Redemptions | — |
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 November 30, 2017, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
| Cost | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation | |||||||||||||
| Securities | $ | 2,526,723 | $ | 393,395 | $ | (41,973) | $ | 351,422 | ||||||||
4. Derivative instruments and hedging activities
During the period ended November 30, 2017, the Fund did not invest in derivative instruments.
5. Fund share transactions
At November 30, 2017, 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 50,000 shares of the Fund constitute a Creation Unit. Such transactions are made principally on an in-kind basis and, under some circumstances, partially on a cash basis, with a separate cash payment,
| ClearBridge Large Cap Growth ESG ETF 2017 Annual Report | 23 |
Table of Contents
Notes to financial statements (cont’d)
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 November 30, 2017.
As of November 30, 2017, the components of accumulated earnings (losses) on a tax basis were as follows:
| Undistributed ordinary income — net | $ | 10,805 | ||
| Unrealized appreciation (depreciation) | 351,422 | |||
| Total accumulated earnings (losses) — net | $ | 362,227 |
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 was August 1, 2017. The Fund has adopted the amendments to Regulation S-X and, upon evaluation, has concluded that the amendments do not materially impact the financial statement amounts; however, as required, additional or enhanced disclosure has been included.
| 24 | ClearBridge Large Cap Growth ESG ETF 2017 Annual Report |
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Report of independent registered public accounting firm
To the Board of Trustees of Legg Mason ETF Investment Trust and
Shareholders of the ClearBridge Large Cap Growth ESG ETF
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the ClearBridge Large Cap Growth ESG ETF (the “Fund”), a series of Legg Mason ETF Investment Trust, as of November 30, 2017, and the results of its operations, the changes in its net assets and the financial highlights for the period May 22, 2017 (commencement of operations) through November 30, 2017, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements 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 are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities as of November 30, 2017 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Baltimore, Maryland
January 17, 2018
| ClearBridge Large Cap Growth ESG ETF 2017 Annual Report | 25 |
Table of Contents
Additional information (unaudited)
Information about Trustees and Officers
The business and affairs of ClearBridge Large Cap Growth ESG 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 1-877-721-1926.
| 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 | 49 | |
| 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 | 49 | |
| 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 | 49 | |
| Other board memberships held by Trustee during past five years | None | |
| 26 | ClearBridge Large Cap Growth ESG ETF |
Table of Contents
| 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 | 49 | |
| 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 | 49 | |
| 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 | 49 | |
| 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 | 49 | |
| Other board memberships held by Trustee during past five years | None | |
| ClearBridge Large Cap Growth ESG ETF | 27 |
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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 | 49 | |
| 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 | President (since 2017) and formerly, Founder and Senior Principal (1983 to 2017), Murphy Capital Management (investment management); and Senior Vice President, Peapack-Gladstone Bank (commercial bank) (since 2017) | |
| Number of funds in fund complex overseen by Trustee | 49 | |
| Other board memberships held by Trustee during past five years | Trustee, UBS Funds (24 funds) (since 2008); Trustee, Consulting Group Capital Markets Funds (11 funds) (since 2002); Director, Fort Dearborn Income Securities, Inc. (2013 to 2016) | |
| 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); Senior Counsel (since 2017) and formerly, Partner (2009 to 2016), Thompson Coburn LLP (law firm) | |
| Number of funds in fund complex overseen by Trustee | 49 | |
| Other board memberships held by Trustee during past five years | Director, Citizens National Bank of Greater St. Louis (since 2006) | |
| 28 | ClearBridge Large Cap Growth ESG ETF |
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| 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 150 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 | 143 | |
| 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 620 Eighth Avenue, 49th Floor, New York, NY 10018 | ||
| 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) | |
| ClearBridge Large Cap Growth ESG ETF | 29 |
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Additional information (unaudited) (cont’d)
Information about Trustees and Officers
| Additional Officers cont’d | ||
Jenna Bailey Legg Mason 100 First Stamford Place, 5th Floor, Stamford, CT 06902 | ||
| 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) | |
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) | |
| 30 | ClearBridge Large Cap Growth ESG ETF |
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| 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. |
| ClearBridge Large Cap Growth ESG ETF | 31 |
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Additional information (unaudited) (cont’d)
Change in Independent Registered Public Accounting Firm
On August 14, 2017, KPMG LLP (“KPMG”) resigned, at the request of the Fund, as the independent registered public accounting firm to the Fund. The Audit Committee of the Fund’s Board of Trustees participated in, and approved, the decision to change the independent registered public accounting firm. During the Fund’s interim period from inception May 22, 2017 through August 14, 2017, (i) there were no disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG, would have caused them to make reference to the subject matter of the disagreements in connection with their report on the Fund’s financial statements for such period, and (ii) there were no “reportable events” of the kind described in Item 304(a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934, as amended.
The Audit Committee of the Fund’s Board of Trustees approved the engagement of PricewaterhouseCoopers LLP (“PwC”) as the Fund’s independent registered public accounting firm for the fiscal year ending November 30, 2017. The selection of PwC does not reflect any disagreements with or dissatisfaction by the Fund or the Board of Trustees with the performance of the Fund’s prior independent registered public accounting firm, KPMG. During the Fund’s interim period from inception May 22, 2017 through August 14, 2017, neither the Fund, nor anyone on its behalf, consulted with PwC on items which: (i) concerned the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Fund’s financial statements; or (ii) concerned the subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 of Regulation S-K) or reportable events (as described in paragraph (a)(1)(v) of said Item 304).
| 32 | ClearBridge Large Cap Growth ESG ETF |
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ClearBridge
Large Cap Growth ESG 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
ClearBridge Investments, LLC
Custodian
State Street Bank and Trust Company
Transfer agent
State Street Bank and Trust Company One Lincoln Street
Boston, Massachusetts 02111
Independent registered public accounting firm
PricewaterhouseCoopers LLP
Baltimore, MD
ClearBridge Large Cap Growth ESG ETF
The Fund is a separate investment series of Legg Mason ETF Investment Trust, a Maryland statutory trust.
ClearBridge Large Cap Growth ESG 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 1-877-721-1926.
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 1-877-721-1926, (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 ClearBridge Large Cap Growth ESG 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
© 2018 Legg Mason Investor Services, LLC
Member FINRA, SIPC
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www.leggmason.com
© 2018 Legg Mason Investor Services, LLC Member FINRA, SIPC
ETFF425113 1/18 SR17-3244
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| 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, possess the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as “audit committee financial experts,” and have designated Dwight B. Crane as the Audit Committee’s financial experts. 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 last fiscal period ending November 30, 2016 and November 30, 2017 (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 November 30, 2016 and $12,000 in November 30, 2017.
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 November 30, 2016 and $0 in November 30, 2017.
(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 November 30, 2016 and $0 in November 30, 2017. 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 Periods for products and services provided by the Auditor were $0 in November 30, 2016 and $0 in November 30, 2017, other than the services reported in paragraphs (a) through (c) of this item for the Legg Mason ETF Investment 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 Investment 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.
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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 Investment Trust, the percentage of fees that were approved by the audit committee, with respect to: Audit-Related Fees were 100% and 100% for November 30, 2016 and November 30, 2017; Tax Fees were 100% and 100% for November 30, 2016 and November 30, 2017; and Other Fees were 100% and 100% for November 30, 2016 and November 30, 2017.
(f) N/A
(g) Non-audit fees billed by the Auditor for services rendered to Legg Mason ETF Investment Trust, LMPFA and any entity controlling, controlled by, or under common control with LMPFA that provides ongoing services to Legg Mason ETF Investment Trust during the reporting period were $0 in 2016 and $160,000 in 2017.
(h) Yes. Legg Mason ETF Investment 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 Investment 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) | The independent board members are acting as the registrant’s audit committee as specified in Section 3(a)(58)(B) of the Exchange Act. The Audit Committee consists of the following Board members: |
Paul R. Ades
Andrew L. Breech
Dwight B. Crane
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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 INCOME 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
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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 Investment Trust
By: | /s/ Jane Trust | |
| Jane Trust | ||
| Chief Executive Officer | ||
Date: | January 25, 2018 | |
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: | January 25, 2018 | |
By: | /s/ Richard F. Sennett | |
Richard F. Sennett | ||
Principal Financial Officer | ||
Date: | January 25, 2018 | |