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: 811-23494
T. Rowe Price Exchange-Traded Funds, Inc.
(Exact name of registrant as specified in charter)
100 East Pratt Street, Baltimore, MD 21202
(Address of principal executive offices)
David Oestreicher
100 East Pratt Street, Baltimore, MD 21202
(Name and address of agent for service)
Registrant’s telephone number, including area code: (410) 345-2000
Date of fiscal year end: December 31
Date of reporting period: December 31, 2023
Item 1. Reports to Shareholders
(a) Report pursuant to Rule 30e-1
ANNUAL REPORT
December 31, 2023
| | T. ROWE PRICE |
| TGRT | Growth ETF |
| | For more insights from T. Rowe Price investment professionals, go to troweprice.com. |
HIGHLIGHTS
| ■ | U.S. stocks rose in the second half of 2023 as a resilient economy and signs of cooling inflation raised hopes that the Federal Reserve was nearing an end to its tightening cycle. |
| ■ | The Growth Exchange-Traded Fund outperformed its benchmark, the Russell 1000 Growth Index, on a net asset value basis and on a market price basis from its inception on June 14, 2023, until December 31, 2023. |
| ■ | The fund seeks to invest in quality companies that will likely benefit from innovation and/or disruption and have business models that can generate high growth and returns. Financials was the largest overweight sector at year-end, while consumer staples represented the most underweight sector. |
| ■ | We expect that equity market returns will be more subdued in 2024 and that further gains will depend on companies demonstrating meaningful earnings and free cash flow growth after the past year’s rally, which was largely driven by multiple expansion. |
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T. ROWE PRICE GROWTH ETF
Market Commentary
Dear Shareholder
Global stock and bond indexes were broadly positive during 2023 as most economies managed to avoid the recession that was widely predicted at the start of the year. Technology companies benefited from investor enthusiasm for artificial intelligence developments and led the equity rally, while fixed income benchmarks rebounded late in the year amid falling interest rates.
For the 12-month period, the technology-oriented Nasdaq Composite Index rose about 43%, reaching a record high and producing the strongest result of the major benchmarks. Growth stocks outperformed value shares, and developed market stocks generally outpaced their emerging markets counterparts. Currency movements were mixed over the period, although a weaker dollar versus major European currencies was beneficial for U.S. investors in European securities.
Within the S& P 500 Index, which finished the year just short of the record level it reached in early 2022, the information technology, communication services, and consumer discretionary sectors were all lifted by the tech rally and recorded significant gains. A small group of tech-oriented mega-cap companies helped drive much of the market’s advance. Conversely, the defensive utilities sector had the weakest returns in the growth-focused environment, and the energy sector also lost ground amid declining oil prices. The financials sector bounced back from the failure of three large regional banks in the spring and was one of the top-performing segments in the second half of the year.
The U.S. economy was the strongest among the major markets during the period, with gross domestic product growth coming in at 4.9% in the third quarter, the highest since the end of 2021. Corporate fundamentals were also broadly supportive. Year-over-year earnings growth contracted in the first and second quarters of 2023, but results were better than expected, and earnings growth turned positive again in the third quarter. Markets remained resilient despite a debt ceiling standoff in the U.S., the outbreak of war in the Middle East, the continuing conflict between Russia and Ukraine, and a sluggish economic recovery in China.
Inflation remained a concern, but investors were encouraged by the slowing pace of price increases as well as the possibility that the Federal Reserve was nearing the end of its rate-hiking cycle. The Fed held rates steady after raising its short-term lending benchmark rate to a target range of 5.25% to 5.50% in July,
the highest level since March 2001, and at its final meeting of the year in December, the central bank indicated that there could be three 25-basis-point rate cuts in 2024.
The yield of the benchmark 10-year U.S. Treasury note briefly reached 5.00% in October for the first time since late 2007 before falling back to 3.88% by period-end, the same level where it started the year, amid cooler-than-expected inflation readings and less-hawkish Fed rhetoric. Fixed income benchmarks were lifted late in the year by falling yields. Investment-grade and high yield corporate bonds produced solid returns, supported by the higher coupons that have become available over the past year, as well as increasing hopes that the economy might be able to avoid a recession.
Global economies and markets showed surprising resilience in 2023, but considerable uncertainty remains as we look ahead. Geopolitical events, the path of monetary policy, and the impact of the Fed’s rate hikes on the economy all raise the potential for additional volatility. We believe this environment makes skilled active management a critical tool for identifying risks and opportunities, and our investment teams will continue to use fundamental research to help identify securities that can add value to your portfolio over the long term.
Thank you for your continued confidence in T. Rowe Price.
Sincerely,
Robert Sharps
CEO and President
T. ROWE PRICE GROWTH ETF
Management’s Discussion of Fund Performance
INVESTMENT OBJECTIVE
The fund seeks to provide long-term capital growth.
FUND COMMENTARY
How did the fund perform over the reporting period?
The Growth Exchange-Traded Fund (ETF) returned 14.03% (based on net asset value) and 14.19% (at market price) from its inception on June 14, 2023, until December 31, 2023. The fund outperformed the Russell 1000 Growth Index, which returned 12.57%, on a net asset value and on a market price basis. It also outperformed its Lipper peer group. (Past performance cannot guarantee future results.)
What factors influenced the fund’s performance?
The consumer discretionary sector contributed the most to relative performance
PERFORMANCE COMPARISON
| | Total Return |
| Periods Ended 12/31/23 | 6 Months | Since
Inception
6/14/23 |
| Growth ETF (Based on Net Asset Value) | 11.71% | 14.03% |
| Growth ETF (At Market Price)* | 11.78 | 14.19 |
| Russell 1000 Growth Index | 10.59 | 12.57 |
| Lipper Large-Cap Growth Funds Index | 10.64 | 12.38 |
*Market returns are based on the midpoint of the bid/ask spread at market close (typically, 4 p.m. ET) and do not represent returns an investor would have received if shares were traded at other times.
over the period thanks to strong stock selection. Our sizable underweight in electric vehicle maker Tesla, whose shares retreated in the second half of 2023 amid signs of weakening demand, made it a leading contributor to relative returns. Ross Stores was another key contributor after the off-price retailer reported better-than-expected quarterly earnings and raised its full-year forecast twice over our reporting period. Like many discount retailers, Ross Stores performed well as rising inflation and rental costs across the U.S. led consumers to seek out cheaper deals for clothing and shoes. The information technology (IT) sector helped relative returns owing to favorable stock selection, led by Intuit. Shares of the owner of TurboTax and other financial software rallied after a better-than-expected earnings report in November reassured investors about its longer-term growth prospects after a disappointing third-quarter earnings release in May. Apple was another large performance contributor. Despite being one of the fund’s largest holdings, we maintained a significant underweight in the iPhone maker, which served us well as its shares underperformed the broader IT sector with a modest gain. (Please refer to the portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.)
Turning to detractors, health care weighed the most on relative returns owing to unfavorable stock selection and an overweight to the sector, which trailed the benchmark return. Becton Dickinson led detractors in the sector after the medical equipment and device company reported below-consensus quarterly earnings and forecast fiscal 2024 profit well below analysts’ estimates, triggering a sell-off in its shares in November. Energy was the next-largest detractor from relative performance due to negative stock selection. SLB, the Houston-based oil field services provider formerly known as Schlumberger, was a large detractor amid concerns about a potential recession, fears of U.S. overproduction, and falling oil prices. However, we believe that declining shale productivity ushering in multiyear growth in international and offshore spending will drive the company’s growth prospects longer term. Consumer staples was the only other sector to detract from relative returns over the period. However, our sizable underweight to staples—the lowest-returning sector in the benchmark—largely offset the impact of negative stock selection.
How is the fund positioned?
The T. Rowe Price Growth ETF seeks to invest in mostly large-cap U.S. companies with an above-average growth rate of earnings, cash flow, and profitability and whose durability and/or rate of growth appear to have been mispriced by the market. The portfolio management team uses an active investment approach emphasizing bottom-up stock selection based on the fundamental research into each holding performed by T. Rowe Price’s equity
analysts. As such, sector positioning is driven by individual stock selection. Companies that are positioned to benefit from innovation and/or disruption, with business models that can generate high growth and returns, are a key focus for the fund.
At the end of December, financials was the most overweight sector relative to the benchmark due to several large positions in the financial services industry. Visa and Mastercard, the world’s top two payments networks, were our largest positions. We believe that both companies are positioned for strong and sustainable long-term earnings growth, driven by the accelerating adoption of electronic payments and rising consumer spending globally. Fiserv, which provides a range of technology services to banks and merchants, was another key financial services industry holding. Fiserv has recently reduced its debt load and showed solid margin improvement, which we think will result in an increase in
SECTOR DIVERSIFICATION
| | Percent of
Net Assets |
| | 6/30/23 | 12/31/23 |
| Information Technology | 44.2% | 43.7% |
| Consumer Discretionary | 12.7 | 13.5 |
| Health Care | 14.4 | 12.9 |
| Communication Services | 11.1 | 12.7 |
| Financials | 9.8 | 10.1 |
| Industrials and Business Services | 4.2 | 4.1 |
| Consumer Staples | 2.4 | 1.6 |
| Materials | 0.7 | 0.7 |
| Energy | 0.2 | 0.4 |
| Real Estate | 0.0 | 0.0 |
| Utilities | 0.0 | 0.0 |
| Other and Reserves | 0.3 | 0.3 |
| Total | 100.0% | 100.0% |
Historical weightings reflect current industry/sector classifications.
deployable capital and ultimately better-than-expected earnings. In the capital markets industry, we maintained a sizable position in Tradeweb Markets, which builds and operates electronic marketplaces for a range of financial assets. Tradeweb commands a leading position in many asset classes ranging from government and corporate bonds to ETFs, and our research shows that the company is well positioned to capitalize from the continued electronification of fixed income trading.
Health care was the second-largest overweight sector against the benchmark at period-end. Our health care holdings were focused on the health care providers and services industry, anchored by positions in insurers UnitedHealth Group and Cigna. We also maintained exposure to pharmaceuticals through owning Eli Lilly, which has several underappreciated products in late-stage development that we believe will bolster revenue in the coming quarters, in addition to its diabetes drug, Mounjaro, which in November won regulatory approval to treat obesity. In the health care equipment and supplies industry, we owned a large position in Intuitive Surgical, the leading robotic surgical systems manufacturer. Intuitive Surgical pioneered the use of robots in surgery in 2000, and we believe that the company has a long growth runway as minimally invasive surgery grows more widespread and replaces traditional and laparoscopic surgery.
Consumer discretionary accounted for the fund’s second-largest sector in absolute terms but a sizable underweight versus the benchmark at year-end. This was largely due to our underweight in Tesla reflecting concerns about declining margins and macro uncertainty, though we believe that several structural advantages will benefit the automaker longer term. In addition to our core position in e-commerce leader Amazon.com, our top holdings were in the hotels, restaurants, and leisure industry, led by Booking Holdings, the operator of Priceline and other online travel sites, and fast-casual chain Chipotle Mexican Grill. Barring a recession, we believe that consumer spending will grow at a modest pace in the near term and that people will continue to spend on travel and experiences over goods, which would benefit our core holdings.
Consumer staples represented a modest allocation in absolute terms and the most underweight sector given a lack of companies that met our growth criteria. However, we maintained exposure to staples via a large position in California-based energy drink company Monster Beverage. Energy drinks are a fast-growing, high-margin beverage category, and we believe that Monster Beverage is positioned for strong growth as energy drink consumption becomes more mainstream, particularly outside the U.S., where we believe the company has a significant opportunity to take market share.
What is portfolio management’s outlook?
Continued trends in disinflation and benign jobs reports have increased the likelihood of a soft landing. Moreover, expectations that the Fed will substantially cut interest rates in 2024 have encouraged risk-on behavior as recession risk has receded. We expect that equity market returns will be more subdued in the near term and that further gains will depend on companies demonstrating meaningful earnings and free cash flow growth after the past year’s rally, which was largely driven by multiple expansion. While we are mindful of macroeconomic conditions, we continue to focus on analyzing individual companies as we seek to identify high-quality compounders with attractive business models and significant upside potential in the coming years.
Bottom-up stock selection based on rigorous company analysis remains the cornerstone of our investment philosophy and process. We are confident that our fundamentals-based, valuation-sensitive approach to growth investing, combined with the substantial resources of T. Rowe Price’s equity research platform, will allow us to navigate the market’s crosscurrents and generate solid returns for shareholders over the long term.
The views expressed reflect the opinions of T. Rowe Price as of the date of this report and are subject to change based on changes in market, economic, or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
PRINCIPAL RISKS
Growth investing. The fund’s growth approach to investing could cause it to underperform other stock funds that employ a different investment style. Growth stocks tend to be more volatile than certain other types of stocks, and their prices may fluctuate more dramatically than the overall stock market. A stock with growth characteristics can have sharp price declines due to decreases in current or expected earnings and may lack dividends that can help cushion its share price in a declining market.
Market conditions. The value of the fund’s investments may decrease, sometimes rapidly or unexpectedly, due to factors affecting an issuer held by the fund, particular industries, or the overall securities markets. A variety of factors can increase the volatility of the fund’s holdings and markets generally, including political or regulatory developments, recessions, inflation, rapid interest rate changes, war, military conflict, or acts of terrorism, natural disasters, and outbreaks of infectious illnesses or other widespread public health issues such as the coronavirus pandemic and related governmental and public responses (including sanctions). Certain events may cause instability across global markets, including reduced liquidity and disruptions in trading markets, while some events may affect certain geographic regions, countries, sectors, and industries more significantly than others. Government intervention in markets may impact interest rates, market volatility, and security pricing. These adverse developments may cause broad declines in market value due to short-term market movements or for significantly longer periods during more prolonged market downturns.
BENCHMARK INFORMATION
Note: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2024. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.
Note: Portions of the mutual fund information contained in this report was supplied by Lipper, a Refinitiv Company, subject to the following: Copyright 2024 © Refinitiv. All rights reserved. Any copying, republication or redistribution of Lipper content is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.
PORTFOLIO HIGHLIGHTS
TWENTY-FIVE LARGEST HOLDINGS
| | Percent of
Net Assets |
| | 12/31/23 |
| Microsoft | 12.7% |
| Apple | 9.5 |
| Alphabet | 6.6 |
| Amazon.com | 6.4 |
| NVIDIA | 5.7 |
| Meta Platforms | 3.8 |
| Visa | 3.0 |
| UnitedHealth Group | 2.9 |
| Intuit | 2.7 |
| MasterCard | 2.6 |
| Eli Lilly and Co | 2.2 |
| Fiserv | 1.6 |
| Cigna | 1.4 |
| Intuitive Surgical | 1.4 |
| Amphenol | 1.3 |
| ServiceNow | 1.3 |
| Adobe | 1.1 |
| Netflix | 1.1 |
| Stryker | 1.1 |
| Booking Holdings | 1.0 |
| Chipotle Mexican Grill | 1.0 |
| Ingersoll-Rand | 1.0 |
| Ross Stores | 1.0 |
| Tesla | 1.0 |
| Cadence Design Systems | 0.9 |
| Total | 74.3% |
Note: The information shown does not reflect any exchange-traded funds (ETFs), cash reserves, or collateral for securities lending that may be held in the portfolio.
GROWTH OF $10,000
This chart shows the value of a hypothetical $10,000 investment in the fund over the past 10 fiscal year periods or since inception (for funds lacking 10-year records). The result is compared with benchmarks, which include a broad-based market index and may also include a peer group average or index. Market indexes do not include expenses, which are deducted from fund returns as well as mutual fund averages and indexes.
Growth ETF
Note: See the Average Annual Compound Total Return table.
*Since 6/30/23.
AVERAGE ANNUAL COMPOUND TOTAL RETURN
| Period Ended 12/31/23 | Since
Inception
6/14/23 |
| Growth ETF (Based on Net Asset Value) | 14.03%* |
| Growth ETF (At Market Price) | 14.19* |
The fund's performance information represents only past performance and is not necessarily an indication of future results. Current performance may be lower or higher than the performance data cited. Share price, principal value, and return will vary, and you may have a gain or loss when you sell your shares. Market returns are based on the midpoint of the bid/ask spread at market close (typically, 4 p.m. ET) and do not represent returns an investor would have received if shares were traded at other times. For the most recent month-end performance, please visit our website (troweprice.com).
This table shows how the fund would have performed each year if its actual (or cumulative) returns had been earned at a constant rate. Average annual total return figures include changes in principal value, reinvested dividends, and capital gain distributions. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares. When assessing performance, investors should consider both short- and long-term returns.
*Returns for periods of less than one year are not annualized.
PREMIUM/DISCOUNT INFORMATION
The frequency at which the daily market prices were at a discount or premium to the fund’s net asset value is available on the fund’s website (troweprice.com).
EXPENSE RATIO
The expense ratio shown is as of the fund’s most recent prospectus. This number may vary from the expense ratio shown elsewhere in this report because it is based on a different time period and, if applicable, includes acquired fund fees and expenses but does not include fee or expense waivers.
FUND EXPENSE EXAMPLE
As a shareholder, you may incur two types of costs: (1) transaction costs, such as brokerage commissions on purchases and sales, and (2) ongoing costs, including management fees and other fund expenses. The following 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. The example is based on an investment of $1,000 invested at the beginning of the most recent six-month period and held for the entire period.
Actual Expenses
The first line of the following table (Actual) provides information about actual account values and expenses based on the fund’s actual returns. You may use the information on this line, together with your account balance, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number on the first line under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The information on the second line of the table (Hypothetical) is based on hypothetical account values and expenses derived from the fund’s actual expense ratio and an assumed 5% per year rate of return before expenses (not the fund’s actual return). You may compare the ongoing costs of investing in the fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds. 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 should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs, such as brokerage commissions paid on purchases and sales of shares. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. To the extent a fund charges transaction costs, however, the total cost of owning that fund is higher.
Growth ETF
| | Beginning
Account Value
7/1/23 | Ending
Account Value
12/31/23 | Expenses Paid
During Period*
7/1/23 to 12/31/23 |
| Actual | $1,000.00 | $1,117.10 | $2.03 |
| Hypothetical (assumes 5% return before expenses) | 1,000.00 | 1,023.29 | 1.94 |
| * | Expenses are equal to the fund’s annualized expense ratio for the 6-month period (0.38%), multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (184), and divided by the days in the year (365) to reflect the half-year period. |
For a share outstanding throughout the period
| | 6/14/23 (1)
Through |
| | 12/31/23 |
| NET ASSET VALUE | |
| Beginning of period | $ 25.00 |
| Investment activities | |
| Net investment income(2) (3) | 0.03 |
| Net realized and unrealized gain/loss | 3.48 |
| Total from investment activities | 3.51 |
| Distributions | |
| Net investment income | (0.02) |
| NET ASSET VALUE | |
| End of period | $ 28.49 |
| Ratios/Supplemental Data |
| Total return, based on NAV(3) (4) | 14.03% |
Ratios to average net
assets:(3) | |
Gross expenses before
waivers/payments by
Price Associates | 0.38% (5) |
Net expenses after
waivers/payments by
Price Associates | 0.38% (5) |
| Net investment income | 0.22% (5) |
| Portfolio turnover rate(6) | 4.9% |
Net assets, end of period
(in thousands) | $ 61,261 |
| (1) | Inception date |
| (2) | Per share amounts calculated using average shares outstanding method. |
| (3) | See Note 5 for details to expense-related arrangements with Price Associates. |
| (4) | Total return reflects the rate that an investor would have earned on an investment in the fund during the period, assuming reinvestment of all distributions. Total return is not annualized for periods less than one year. |
| (5) | Annualized |
| (6) | Portfolio turnover excludes securities received or delivered through in-kind share transactions. |
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE GROWTH ETF
December 31, 2023
| PORTFOLIO OF INVESTMENTS‡ | Shares | $ Value |
| (Cost and value in $000s) | | |
| | | |
| COMMON STOCKS 99.7% |
| COMMUNICATION SERVICES 12.7% |
| Entertainment 1.5% | | |
| Netflix (1) | 1,342 | 654 |
| Spotify Technology (1) | 1,592 | 299 |
| | | 953 |
| Interactive Media & Services 10.5% | | |
| Alphabet, Class A (1) | 29,157 | 4,073 |
| Meta Platforms, Class A (1) | 6,609 | 2,339 |
| | | 6,412 |
| Media 0.2% | | |
| Trade Desk, Class A (1) | 1,442 | 104 |
| | | 104 |
| Wireless Telecommunication Services 0.5% | | |
| T-Mobile US | 2,055 | 329 |
| | | 329 |
| Total Communication Services | | 7,798 |
| CONSUMER DISCRETIONARY 13.5% |
| Automobiles 1.0% | | |
| Tesla (1) | 2,359 | 586 |
| | | 586 |
| Broadline Retail 7.1% | | |
| Amazon.com (1) | 25,744 | 3,912 |
| Coupang, Class A (1) | 13,352 | 216 |
| MercadoLibre (1) | 124 | 195 |
| | | 4,323 |
| | Shares | $ Value |
| (Cost and value in $000s) | | |
| Hotels Restaurants & Leisure 2.6% | | |
| Booking Holdings (1) | 180 | 638 |
| Chipotle Mexican Grill (1) | 257 | 588 |
| Hilton Worldwide Holdings | 1,583 | 288 |
| Starbucks | 1,165 | 112 |
| | | 1,626 |
| Specialty Retail 2.2% | | |
| Home Depot | 982 | 340 |
| O'Reilly Automotive (1) | 337 | 320 |
| Ross Stores | 4,312 | 597 |
| Ulta Beauty (1) | 215 | 105 |
| | | 1,362 |
| Textiles, Apparel & Luxury Goods 0.6% | | |
| Lululemon Athletica (1) | 415 | 212 |
| NIKE, Class B | 1,619 | 176 |
| | | 388 |
| Total Consumer Discretionary | | 8,285 |
| CONSUMER STAPLES 1.6% |
| Beverages 1.6% | | |
| Constellation Brands, Class A | 850 | 206 |
| Monster Beverage (1) | 7,906 | 455 |
| PepsiCo | 1,819 | 309 |
| Total Consumer Staples | | 970 |
| ENERGY 0.4% |
| Energy Equipment & Services 0.4% | | |
| Schlumberger | 4,262 | 222 |
| Total Energy | | 222 |
| | Shares | $ Value |
| (Cost and value in $000s) | | |
| FINANCIALS 10.1% |
| Capital Markets 1.4% | | |
| Cboe Global Markets | 598 | 107 |
| Charles Schwab | 2,758 | 190 |
| S&P Global | 399 | 176 |
| Tradeweb Markets, Class A | 4,034 | 366 |
| | | 839 |
| Financial Services 8.5% | | |
| Affirm Holdings (1) | 2,711 | 133 |
| Apollo Global Management | 1,629 | 152 |
| Fiserv (1) | 7,472 | 993 |
| FleetCor Technologies (1) | 433 | 122 |
| Global Payments | 3,005 | 382 |
| Mastercard, Class A | 3,698 | 1,577 |
| Visa, Class A | 7,087 | 1,845 |
| | | 5,204 |
| Insurance 0.2% | | |
| Marsh & McLennan | 702 | 133 |
| | | 133 |
| Total Financials | | 6,176 |
| HEALTH CARE 12.9% |
| Biotechnology 1.0% | | |
| Legend Biotech, ADR (1) | 2,024 | 122 |
| Regeneron Pharmaceuticals (1) | 94 | 82 |
| Vertex Pharmaceuticals (1) | 1,041 | 424 |
| | | 628 |
| Health Care Equipment & Supplies 3.3% | | |
| Becton Dickinson | 1,193 | 291 |
| Dexcom (1) | 1,043 | 129 |
| Intuitive Surgical (1) | 2,589 | 873 |
| | Shares | $ Value |
| (Cost and value in $000s) | | |
| Penumbra (1) | 296 | 75 |
| Stryker | 2,189 | 656 |
| | | 2,024 |
| Health Care Providers & Services 5.4% | | |
| Cigna | 2,952 | 884 |
| Elevance Health | 356 | 168 |
| HCA Healthcare | 256 | 69 |
| Humana | 431 | 197 |
| McKesson | 393 | 182 |
| UnitedHealth Group | 3,430 | 1,806 |
| | | 3,306 |
| Life Sciences Tools & Services 0.6% | | |
| Danaher | 952 | 220 |
| Thermo Fisher Scientific | 335 | 178 |
| | | 398 |
| Pharmaceuticals 2.6% | | |
| Eli Lilly | 2,325 | 1,355 |
| Zoetis | 1,077 | 213 |
| | | 1,568 |
| Total Health Care | | 7,924 |
| INDUSTRIALS & BUSINESS SERVICES 4.1% |
| Aerospace & Defense 0.6% | | |
| Northrop Grumman | 261 | 122 |
| TransDigm Group | 248 | 251 |
| | | 373 |
| Commercial Services & Supplies 0.7% | | |
| Cintas | 472 | 285 |
| Waste Connections | 1,187 | 177 |
| | | 462 |
| | Shares | $ Value |
| (Cost and value in $000s) | | |
| Ground Transportation 0.7% | | |
| Old Dominion Freight Line | 216 | 88 |
| Uber Technologies (1) | 5,773 | 355 |
| | | 443 |
| Industrial Conglomerates 0.3% | | |
| Roper Technologies | 297 | 162 |
| | | 162 |
| Machinery 1.0% | | |
| Ingersoll-Rand | 7,814 | 604 |
| | | 604 |
| Professional Services 0.6% | | |
| Broadridge Financial Solutions | 514 | 106 |
| Paylocity Holding (1) | 1,658 | 273 |
| | | 379 |
| Trading Companies & Distributors 0.2% | | |
| Fastenal | 1,631 | 106 |
| | | 106 |
| Total Industrials & Business Services | | 2,529 |
| INFORMATION TECHNOLOGY 43.7% |
| Communications Equipment 0.3% | | |
| Arista Networks (1) | 770 | 182 |
| | | 182 |
| Electronic Equipment, Instruments & Components 1.3% | | |
| Amphenol, Class A | 8,114 | 804 |
| | | 804 |
| IT Services 1.2% | | |
| Accenture, Class A | 951 | 334 |
| MongoDB (1) | 430 | 176 |
| | Shares | $ Value |
| (Cost and value in $000s) | | |
| Shopify, Class A (1) | 2,652 | 206 |
| | | 716 |
| Semiconductors & Semiconductor Equipment 9.2% | | |
| Advanced Micro Devices (1) | 3,682 | 543 |
| Analog Devices | 598 | 119 |
| ASML Holding NV | 589 | 446 |
| Entegris | 1,837 | 220 |
| KLA | 903 | 525 |
| Lam Research | 262 | 205 |
| Monolithic Power Systems | 131 | 82 |
| NVIDIA | 7,003 | 3,468 |
| | | 5,608 |
| Software 22.2% | | |
| Adobe (1) | 1,176 | 702 |
| Atlassian, Class A (1) | 1,455 | 346 |
| Cadence Design Systems (1) | 2,031 | 553 |
| Dynatrace (1) | 6,132 | 335 |
| Fair Isaac (1) | 222 | 258 |
| Fortinet (1) | 1,888 | 111 |
| Intuit | 2,611 | 1,632 |
| Microsoft | 20,667 | 7,772 |
| Palo Alto Networks (1) | 730 | 215 |
| Salesforce.com (1) | 1,540 | 405 |
| ServiceNow (1) | 1,110 | 784 |
| Synopsys (1) | 656 | 338 |
| Workday (1) | 638 | 176 |
| | | 13,627 |
| Technology Hardware, Storage & Peripherals 9.5% | | |
| Apple | 30,229 | 5,820 |
| | | 5,820 |
| Total Information Technology | | 26,757 |
| | Shares | $ Value |
| (Cost and value in $000s) | | |
| MATERIALS 0.7% |
| Chemicals 0.7% | | |
| Linde | 559 | 230 |
| Sherwin-Williams | 598 | 186 |
| Total Materials | | 416 |
| Total Common Stocks (Cost $54,459) | | 61,077 |
| SHORT-TERM INVESTMENTS 0.3% |
| Money Market Funds 0.3% | | |
| State Street Institutional U.S. Government Money Market Fund, 5.32% (2) | 192,123 | 192 |
| Total Short-Term Investments (Cost $192) | | 192 |
Total Investments in Securities
100.0% of Net Assets (Cost $54,651) | | $61,269 |
| | |
| ‡ | Shares are denominated in U.S. dollars unless otherwise noted. |
| (1) | Non-income producing. |
| (2) | Seven-day yield |
| ADR | American Depositary Receipts |
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE GROWTH ETF
December 31, 2023
STATEMENT OF ASSETS AND LIABILITIES
($000s, except shares and per share amounts)
| Assets | |
| Investments in securities, at value (cost $54,651) | $ 61,269 |
| Dividends receivable | 11 |
| Total assets | 61,280 |
| Liabilities | |
| Investment management and administrative fees payable | 19 |
| Total liabilities | 19 |
| NET ASSETS | $ 61,261 |
| Net assets consists of: | |
| Total distributable earnings (loss) | $ 6,534 |
Paid-in capital applicable to 2,150,000 shares of $0.0001 par value
capital stock outstanding; 4,000,000,000 shares authorized | 54,727 |
| NET ASSETS | $61,261 |
| NET ASSET VALUE PER SHARE | $ 28.49 |
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
($000s)
| | 6/14/23
Through |
| | 12/31/23 |
| Investment Income (Loss) | |
| Dividend income | $ 103 |
| Investment management and administrative expense | 66 |
| Net investment income | 37 |
| Realized and Unrealized Gain / Loss | |
| Net realized gain (loss) | |
| Securities | (85) |
| In-kind redemptions | 68 |
| Net realized loss | (17) |
| Change in net unrealized gain / loss on securities | 6,618 |
| Net realized and unrealized gain / loss | 6,601 |
| INCREASE IN NET ASSETS FROM OPERATIONS | $6,638 |
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
($000s)
| | 6/14/23
Through |
| | 12/31/23 |
| Increase (Decrease) in Net Assets | |
| Operations | |
| Net investment income | $ 37 |
| Net realized loss | (17) |
| Change in net unrealized gain / loss | 6,618 |
| Increase in net assets from operations | 6,638 |
| Distributions to shareholders | |
| Net earnings | (37) |
| Capital share transactions* | |
| Shares sold | 55,940 |
| Shares redeemed | (1,280) |
| Increase in net assets from capital share transactions | 54,660 |
| Net Assets | |
| Increase during period | 61,261 |
| Beginning of period | - |
| End of period | $61,261 |
| *Share information | |
| Shares sold | 2,200 |
| Shares redeemed | (50) |
| Increase in shares outstanding | 2,150 |
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
T. Rowe Price Exchange-Traded Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940 (the 1940 Act). The Growth ETF (the fund) is a nondiversified, open-end management investment company established by the corporation. The fund incepted on June 14, 2023. The fund seeks to provide long-term capital growth.
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
The fund is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 (ASC 946). The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), including, but not limited to, ASC 946. GAAP requires the use of estimates made by management. Management believes that estimates and valuations are appropriate; however, actual results may differ from those estimates, and the valuations reflected in the accompanying financial statements may differ from the value ultimately realized upon sale or maturity.
Investment Transactions, Investment Income, and Distributions
Investment transactions are accounted for on the trade date basis. Income and expenses are recorded on the accrual basis. Realized gains and losses are reported on the identified cost basis. Income tax-related interest and penalties, if incurred, are recorded as income tax expense. Dividends received from other investment companies are reflected as dividend income; capital gain distributions are reflected as realized gain/loss. Dividend income and capital gain distributions are recorded on the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the asset received. Proceeds from litigation payments, if any, are included in either net realized gain (loss) or change in net unrealized gain/loss from securities. Distributions to shareholders are recorded on the ex-dividend date. Income distributions, if any, are declared and paid annually. A capital gain distribution, if any, may also be declared and paid by the fund annually. Dividends and distributions cannot be automatically reinvested in additional shares of the fund.
Capital Transactions
The fund issues and redeems shares at its net asset value (NAV) only with Authorized Participants and only in large blocks of 50,000 shares (each, a “Creation Unit”). The fund’s NAV per share is computed at the close of the New York Stock Exchange (NYSE).
However, the NAV per share may be calculated at a time other than the normal close of the NYSE if trading on the NYSE is restricted, if the NYSE closes earlier, or as may be permitted by the SEC. Individual fund shares may not be purchased or redeemed directly with the fund. An Authorized Participant may purchase or redeem a Creation Unit of the fund each business day that the fund is open in exchange for the delivery of a designated portfolio of in-kind securities and/or cash. When purchasing or redeeming Creation Units, Authorized Participants are also required to pay a fixed and/or variable purchase or redemption transaction fee as well as any applicable additional variable charge to defray the transaction cost to a fund.
Individual fund shares may be purchased and sold only on a national securities exchange through brokers. Shares are listed for trading on NYSE Arca, Inc. (NYSE Arca) and because the shares will trade at market prices rather than NAV, shares may trade at prices greater than NAV (at a premium), at NAV, or less than NAV (at a discount). The fund’s shares are ordinarily valued as of the close of regular trading (normally 4:00 p.m. Eastern time) on each day that the NYSE Arca is open.
New Accounting Guidance
In June 2022, the FASB issued Accounting Standards Update (ASU), ASU 2022-03, Fair Value Measurement (Topic 820) – Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments under this ASU are effective for fiscal years beginning after December 15, 2023; however, the fund opted to early adopt, as permitted, effective December 1, 2022. Adoption of the guidance did not have a material impact on the fund’s financial statements.
Indemnification
In the normal course of business, the fund may provide indemnification in connection with its officers and directors, service providers, and/or private company investments. The fund’s maximum exposure under these arrangements is unknown; however, the risk of material loss is currently considered to be remote.
NOTE 2 – VALUATION
Fair Value
The fund’s financial instruments are valued at the close of the NYSE and are reported at fair value, which GAAP defines as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fund’s Board of Directors (the Board) has designated T. Rowe
Price Associates, Inc. as the fund’s valuation designee (Valuation Designee). Subject to oversight by the Board, the Valuation Designee performs the following functions in performing fair value determinations: assesses and manages valuation risks; establishes and applies fair value methodologies; tests fair value methodologies; and evaluates pricing vendors and pricing agents. The duties and responsibilities of the Valuation Designee are performed by its Valuation Committee. The Valuation Designee provides periodic reporting to the Board on valuation matters.
Various valuation techniques and inputs are used to determine the fair value of financial instruments. GAAP establishes the following fair value hierarchy that categorizes the inputs used to measure fair value:
Level 1 – quoted prices (unadjusted) in active markets for identical financial instruments that the fund can access at the reporting date
Level 2 – inputs other than Level 1 quoted prices that are observable, either directly or indirectly (including, but not limited to, quoted prices for similar financial instruments in active markets, quoted prices for identical or similar financial instruments in inactive markets, interest rates and yield curves, implied volatilities, and credit spreads)
Level 3 – unobservable inputs (including the Valuation Designee’s assumptions in determining fair value)
Observable inputs are developed using market data, such as publicly available information about actual events or transactions, and reflect the assumptions that market participants would use to price the financial instrument. Unobservable inputs are those for which market data are not available and are developed using the best information available about the assumptions that market participants would use to price the financial instrument. GAAP requires valuation techniques to maximize the use of relevant observable inputs and minimize the use of unobservable inputs. When multiple inputs are used to derive fair value, the financial instrument is assigned to the level within the fair value hierarchy based on the lowest-level input that is significant to the fair value of the financial instrument. Input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level but rather the degree of judgment used in determining those values.
Valuation Techniques
Equity securities, including exchange-traded funds, listed or regularly traded on a securities exchange or in the over-the-counter (OTC) market are valued at the last quoted sale price or, for certain markets, the official closing price at the time the valuations are made. A security that is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such security. Listed securities not traded on a particular day are valued at the mean of the closing bid and asked prices for domestic securities.
Investments in mutual funds are valued at the mutual fund’s closing NAV per share on the day of valuation. Assets and liabilities other than financial instruments, including short-term receivables and payables, are carried at cost, or estimated realizable value, if less, which approximates fair value.
Investments for which market quotations are not readily available or deemed unreliable are valued at fair value as determined in good faith by the Valuation Designee. The Valuation Designee has adopted methodologies for determining the fair value of investments for which market quotations are not readily available or deemed unreliable, including the use of other pricing sources. Factors used in determining fair value vary by type of investment and may include market or investment specific considerations. The Valuation Designee typically will afford greatest weight to actual prices in arm’s length transactions, to the extent they represent orderly transactions between market participants, transaction information can be reliably obtained, and prices are deemed representative of fair value. However, the Valuation Designee may also consider other valuation methods such as market-based valuation multiples; a discount or premium from market value of a similar, freely traded security of the same issuer; discounted cash flows; yield to maturity; or some combination. Fair value determinations are reviewed on a regular basis. Because any fair value determination involves a significant amount of judgment, there is a degree of subjectivity inherent in such pricing decisions. Fair value prices determined by the Valuation Designee could differ from those of other market participants, and it is possible that the fair value determined for a security may be materially different from the value that could be realized upon the sale of that security.
Valuation Inputs
On December 31, 2023, all of the fund’s financial instruments were classified as Level 1, based on the inputs used to determine their fair values.
NOTE 3 – OTHER INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities excluding in-kind transactions and short-term securities aggregated $14,078,000 and $1,579,000, respectively, for the period ended December 31, 2023. Portfolio securities received and delivered through in-kind transactions aggregated $43,253,000 and $1,276,000, respectively, for the period ended December 31, 2023.
NOTE 4 – FEDERAL INCOME TAXES
Generally, no provision for federal income taxes is required since the fund intends to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and distribute to shareholders all of its taxable income and gains. Distributions determined in accordance with federal income tax regulations may differ in amount or character from net investment income and realized gains for financial reporting purposes.
The fund files U.S. federal, state, and local tax returns as required. The fund’s tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return but which can be extended to six years in certain circumstances.
Capital accounts within the financial reporting records are adjusted for permanent book/tax differences to reflect tax character but are not adjusted for temporary differences. The permanent book/tax adjustments, if any, have no impact on results of operations or net assets. The permanent book/tax adjustments relate primarily to redemptions in kind.
The tax character of distributions paid for the periods presented was as follows:
| ($000s) | |
| | December 31, |
| | 2023 |
| Ordinary income (including short-term capital gains, if any) | $37 |
At December 31, 2023, the tax-basis cost of investments, (including derivatives, if any) and gross unrealized appreciation and depreciation were as follows:
| ($000s) | |
| Cost of investments | $54,653 |
| Unrealized appreciation | $ 6,759 |
| Unrealized depreciation | (143) |
| Net unrealized appreciation (depreciation) | $ 6,616 |
At December 31, 2023, the tax-basis components of accumulated net earnings (loss) were as follows:
| ($000s) | |
| Net unrealized appreciation (depreciation) | $6,616 |
| Loss carryforwards and deferrals | (82) |
| Total distributable earnings (loss) | $6,534 |
Temporary differences between book-basis and tax-basis components of total distributable earnings (loss) arise when certain items of income, gain, or loss are recognized in different periods for financial statement purposes versus for tax purposes; these differences will reverse in a subsequent reporting period. The temporary differences relate primarily to the deferral of losses from wash sales. The loss carryforwards and deferrals primarily relate to capital loss carryforwards. Capital loss carryforwards are available indefinitely to offset future realized capital gains.
NOTE 5 – RELATED PARTY TRANSACTIONS
The fund is managed by T. Rowe Price Associates, Inc. (Price Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. (Price Group). The investment management and administrative agreement between the fund and Price Associates provides for an all-inclusive annual fee equal to 0.38% of the fund’s average daily net assets. The fee is computed daily and paid monthly. The all-inclusive fee covers investment management services and ordinary, recurring operating expenses but does not cover interest and borrowing expenses; taxes; brokerage commissions and other transaction costs; fund proxy expenses; and nonrecurring and extraordinary expenses. All costs related to organization and offering of the fund are borne by Price Associates.
T. Rowe Price Investment Services, Inc. (Investment Services) serves as distributor to the fund. Pursuant to an underwriting agreement, no compensation for any distribution services provided is paid to Investment Services by the fund.
As of December 31, 2023, T. Rowe Price Group, Inc., or its wholly owned subsidiaries, owned 1,925,477 shares of the fund, representing 90% of the fund’s net assets.
The fund may participate in securities purchase and sale transactions with other funds or accounts advised by Price Associates (cross trades), in accordance with procedures adopted by the fund’s Board and Securities and Exchange Commission rules, which require, among other things, that such purchase and sale cross trades be effected at the independent current market price of the security. During the period ended December 31, 2023, the fund had no purchases or sales cross trades with other funds or accounts advised by Price Associates.
NOTE 6 – OTHER MATTERS
Unpredictable events such as environmental or natural disasters, war and conflict, terrorism, geopolitical events, and public health epidemics and similar public health threats may significantly affect the economy and the markets and issuers in which the fund invests. Certain events may cause instability across global markets, including reduced liquidity and disruptions in trading markets, while some events may affect certain geographic regions, countries, sectors, and industries more significantly than others, and exacerbate other pre-existing political, social, and economic risks.
The global outbreak of COVID-19 and related governmental and public responses have led and may continue to lead to increased market volatility and the potential for illiquidity in certain classes of securities and sectors of the market either in specific countries or worldwide.
In February 2022, Russian forces entered Ukraine and commenced an armed conflict, leading to economic sanctions imposed on Russia that target certain of its citizens and issuers and sectors of the Russian economy, creating impacts on Russian-related stocks and debt and greater volatility in global markets.
In March 2023, the banking industry experienced heightened volatility, which sparked concerns of potential broader adverse market conditions. The extent of impact of these events on the US and global markets is highly uncertain.
These are recent examples of global events which may have a negative impact on the values of certain portfolio holdings or the fund’s overall performance. Management is actively monitoring the risks and financial impacts arising from these events.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of T. Rowe Price Exchange-Traded Funds, Inc. and Shareholders of T. Rowe Price Growth ETF
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of T. Rowe Price Growth ETF (one of the funds constituting T. Rowe Price Exchange-Traded Funds, Inc., referred to hereafter as the "Fund") as of December 31, 2023, and the related statements of operations and changes in net assets, including the related notes, and the financial highlights for the period June 14, 2023 (inception) through December 31, 2023 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, and the results of its operations, changes in its net assets, and the financial highlights for the period June 14, 2023 (inception) through December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(CONTINUED)
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2023 by correspondence with the custodian. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
February 16, 2024
We have served as the auditor of one or more investment companies in the T. Rowe Price group of investment companies since 1973.
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/23
We are providing this information as required by the Internal Revenue Code. The amounts shown may differ from those elsewhere in this report because of differences between tax and financial reporting requirements. The fund’s distributions to shareholders included:
For taxable non-corporate shareholders, $100,000 of the fund’s income represents qualified dividend income subject to a long-term capital gains tax rate of not greater than 20%.
For corporate shareholders, $95,000 of the fund’s income qualifies for the dividends-received deduction.
INFORMATION ON PROXY VOTING POLICIES, PROCEDURES, AND RECORDS
A description of the policies and procedures used by T. Rowe Price funds and portfolios to determine how to vote proxies relating to portfolio securities is available in each fund’s Statement of Additional Information. You may request this document by calling 1-800-638-5660 or by accessing the SEC’s website, sec.gov.
The description of our proxy voting policies and procedures is also available on our corporate website. To access it, please visit the following Web page:
https://www.troweprice.com/corporate/en/utility/policies.html
Scroll down to the section near the bottom of the page that says, “Proxy Voting Policies.” Click on the Proxy Voting Policies link in the shaded box.
Each fund’s most recent annual proxy voting record is available on our website and through the SEC’s website. To access it through T. Rowe Price, visit the website location shown above, and scroll down to the section near the bottom of the page that says, “Proxy Voting Records.” Click on the Proxy Voting Records link in the shaded box.
HOW TO OBTAIN QUARTERLY PORTFOLIO HOLDINGS
The fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT is available electronically on the SEC’s website (sec.gov). In addition, most T. Rowe Price funds disclose their first and third fiscal quarter-end holdings on troweprice.com.
TAILORED SHAREHOLDER REPORTS FOR MUTUAL FUNDS AND EXCHANGE TRADED FUNDS
In October 2022, the Securities and Exchange Commission (SEC) adopted rule and form amendments requiring Mutual Funds and Exchange-Traded Funds to transmit concise and visually engaging streamlined annual and semiannual reports that highlight key information to shareholders. Other information, including financial statements, will no longer appear in
the funds’ shareholder reports but will be available online, delivered free of charge upon request, and filed on a semiannual basis on Form N-CSR. The rule and form amendments have a compliance date of July 24, 2024.
Liquidity Risk Management Program
In accordance with Rule 22e-4 (Liquidity Rule) under the Investment Company Act of 1940, as amended, the fund has established a liquidity risk management program (Liquidity Program) reasonably designed to assess and manage the fund’s liquidity risk, which generally represents the risk that the fund would not be able to meet redemption requests without significant dilution of remaining investors’ interests in the fund. The fund’s Board of Directors (Board) has appointed the fund’s investment adviser, T. Rowe Price Associates, Inc. (Adviser), as the administrator of the Liquidity Program. As administrator, the Adviser is responsible for overseeing the day-to-day operations of the Liquidity Program and, among other things, is responsible for assessing, managing, and reviewing with the Board at least annually the liquidity risk of each T. Rowe Price fund. The Adviser has delegated oversight of the Liquidity Program to a Liquidity Risk Committee (LRC), which is a cross-functional committee composed of personnel from multiple departments within the Adviser.
The Liquidity Program’s principal objectives include supporting the T. Rowe Price funds’ compliance with limits on investments in illiquid assets and mitigating the risk that the fund will be unable to timely meet its redemption obligations. The Liquidity Program also includes a number of elements that support the management and assessment of liquidity risk, including an annual assessment of factors that influence the fund’s liquidity and the periodic classification and reclassification of a fund’s investments into categories that reflect the LRC’s assessment of their relative liquidity under current market conditions. Under the Liquidity Program, every investment held by the fund is classified at least monthly into one of four liquidity categories based on estimations of the investment’s ability to be sold during designated time frames in current market conditions without significantly changing the investment’s market value.
As required by the Liquidity Rule, at a meeting held on July 24, 2023, the Board was presented with an annual assessment that was prepared by the LRC on behalf of the Adviser and addressed the operation of the Liquidity Program and assessed its adequacy and effectiveness of implementation, including any material changes to the Liquidity Program and the determination of each fund’s Highly Liquid Investment Minimum (HLIM). The annual assessment included consideration of the following factors, as applicable: the fund’s investment strategy and liquidity of portfolio investments during normal and reasonably foreseeable stressed conditions, including whether the investment strategy is appropriate for an open-end fund, the extent to which the strategy involves a relatively concentrated portfolio or large positions in particular issuers, and the use of borrowings for investment purposes and derivatives; short-term and long-term cash flow projections covering both normal and reasonably foreseeable stressed conditions; and holdings of cash and cash equivalents, as well as available borrowing arrangements.
For the fund and other T. Rowe Price funds, the annual assessment incorporated a report related to a fund’s holdings, shareholder and portfolio concentration, any borrowings during the period, cash flow projections, and other relevant data for the period of April 1, 2022, through March 31, 2023. The report described the methodology for classifying a fund’s investments (including any derivative transactions) into one of four liquidity
categories, as well as the percentage of a fund’s investments assigned to each category. It also explained the methodology for establishing a fund’s HLIM and noted that the LRC reviews the HLIM assigned to each fund no less frequently than annually.
During the period covered by the annual assessment, the LRC has concluded, and reported to the Board, that the Liquidity Program continues to operate adequately and effectively and is reasonably designed to assess and manage the fund’s liquidity risk.
ABOUT THE FUND’S DIRECTORS AND OFFICERS
Your fund is overseen by a Board of Directors (Board) that meets regularly to review a wide variety of matters affecting or potentially affecting the fund, including performance, investment programs, compliance matters, advisory fees and expenses, service providers, and business and regulatory affairs. The Board elects the fund’s officers, who are listed in the final table. The directors who are also employees or officers of T. Rowe Price are considered to be “interested” directors as defined in Section 2(a)(19) of the 1940 Act because of their relationships with T. Rowe Price Associates, Inc. (T. Rowe Price), and its affiliates. The business address of each director and officer is 100 East Pratt Street, Baltimore, Maryland 21202. The Statement of Additional Information includes additional information about the fund directors and is available without charge by calling a T. Rowe Price representative at 1-800-638-5660.
INDEPENDENT DIRECTORS(a)
Name
(Year of Birth)
Year Elected
[Number of T. Rowe Price
Portfolios Overseen] | Principal Occupation(s) and Directorships of Public Companies and
Other Investment Companies During the Past Five Years |
Teresa Bryce Bazemore
(1959)
2020
[209] | President and Chief Executive Officer, Federal Home Loan
Bank of San Francisco (2021 to present); Chief Executive Officer,
Bazemore Consulting LLC (2018 to 2021); Director, Chimera
Investment Corporation (2017 to 2021); Director, First Industrial
Realty Trust (2020 to present); Director, Federal Home Loan Bank of
Pittsburgh (2017 to 2019) |
Melody Bianchetto
(1966)
2023
[209] | Vice President for Finance, University of Virginia (2015 to 2023)
|
Bruce W. Duncan
(1951)
2020
[209] | President, Chief Executive Officer, and Director, CyrusOne, Inc. (2020 to
2021); Chair of the Board (2016 to 2020) and President (2009 to 2016),
First Industrial Realty Trust, owner and operator of industrial properties;
Member, Investment Company Institute Board of Governors (2017 to
2019); Member, Independent Directors Council Governing Board (2017
to 2019); Senior Advisor, KKR (2018 to 2022); Director, Boston
Properties (2016 to present); Director, Marriott International, Inc. (2016 to
2020) |
Robert J. Gerrard, Jr.
(1952)
2020
[209] | Chair of the Board, all funds (July 2018 to present)
|
INDEPENDENT DIRECTORS(a) (continued)
Name
(Year of Birth)
Year Elected
[Number of T. Rowe Price
Portfolios Overseen] | Principal Occupation(s) and Directorships of Public Companies and
Other Investment Companies During the Past Five Years |
Paul F. McBride
(1956)
2020
[209] | Advisory Board Member, Vizzia Technologies (2015 to present); Board
Member, Dunbar Armored (2012 to 2018)
|
Mark J. Parrell
(1966)
2023
[209] | Board of Trustees Member and Chief Executive Officer (2019 to
present), President (2018 to present), Executive Vice President and
Chief Financial Officer (2007 to 2018), and Senior Vice President and
Treasurer (2005 to 2007), EQR; Member, Nareit Dividends Through
Diversity, Equity & Inclusion CEO Council and Chair, Nareit 2021 Audit
and Investment Committee (2021); Advisory Board, Ross Business
School at University of Michigan (2015 to 2016); Member, National
Multifamily Housing Council and served as Chair of the Finance
Committee (2015 to 2016); Member, Economic Club of Chicago;
Director, Brookdale Senior Living, Inc. (2015 to 2017); Director, Aviv
REIT, Inc. (2013 to 2015); Director, Real Estate Roundtable and the
2022 Executive Board Nareit; Board of Directors and Chair of the
Finance Committee, Greater Chicago Food Depository |
Kellye L. Walker
(1966)
2021
[209] | Executive Vice President and Chief Legal Officer, Eastman Chemical
Company (April 2020 to present); Executive Vice President and Chief
Legal Officer, Huntington Ingalls Industries, Inc. (January 2015 to March
2020); Director, Lincoln Electric Company (October 2020 to present) |
(a)All information about the independent directors was current as of December 31, 2022, unless otherwise indicated, except for the number of portfolios overseen, which is current as of the date of this report.
INTERESTED DIRECTORS(a)
Name
(Year of Birth)
Year Elected
[Number of T. Rowe Price
Portfolios Overseen] | Principal Occupation(s) and Directorships of Public Companies and
Other Investment Companies During the Past Five Years |
David Oestreicher
(1967)
2020
[209] | Director, Vice President, and Secretary, T. Rowe Price, T. Rowe Price
Investment Services, Inc., T. Rowe Price Retirement Plan Services,
Inc., and T. Rowe Price Services, Inc.; Director and Secretary,
T. Rowe Price Investment Management, Inc. (Price Investment
Management); Vice President and Secretary, T. Rowe Price
International (Price International); Vice President, T. Rowe Price Hong
Kong (Price Hong Kong), T. Rowe Price Japan (Price Japan), and T.
Rowe Price Singapore (Price Singapore); General Counsel, Vice
President, and Secretary, T. Rowe Price Group, Inc.; Chair of the
Board, Chief Executive Officer, President, and Secretary, T. Rowe
Price Trust Company; Principal Executive Officer and Executive Vice
President, all funds |
Eric L. Veiel, CFA
(1972)
2022
[209] | Director and Vice President, T. Rowe Price; Vice President, T. Rowe
Price Group, Inc., and T. Rowe Price Trust Company; Vice President,
Global Funds |
(a)All information about the interested directors was current as of December 31, 2022, unless otherwise indicated, except for the number of portfolios overseen, which is current as of the date of this report.
OFFICERS
Name (Year of Birth)
Position Held With Exchange-Traded Funds, Inc. | Principal Occupation(s) |
Christopher P. Brown (1977)
Executive Vice President | Vice President, T. Rowe Price and T. Rowe Price Group, Inc. |
Armando (Dino) Capasso (1974)
Chief Compliance Officer and Vice
President | Chief Compliance Officer and Vice President, T. Rowe Price and Price Investment Management; Vice President, T. Rowe Price Group, Inc.; formerly, Chief Compliance Officer, PGIM Investments LLC and AST Investment Services, Inc. (ASTIS) (to 2022); Chief Compliance Officer, PGIM Retail Funds complex and Prudential Insurance Funds (to 2022); Vice President and Deputy Chief Compliance Officer, PGIM Investments LLC and ASTIS (to 2019) |
Timothy Coyne (1967)
Executive Vice President | Vice President, T. Rowe Price and T. Rowe Price Group, Inc. |
Vincent Michael DeAugustino (1983)
Executive Vice President | Vice President, T. Rowe Price and T. Rowe Price Group, Inc. |
OFFICERS (continued)
Name (Year of Birth)
Position Held With Exchange-Traded Funds, Inc. | Principal Occupation(s) |
Anna Alexandra Dreyer, Ph.D., CFA (1981)
Executive Vice President | Vice President, T. Rowe Price and T. Rowe Price Group, Inc. |
Alan S. Dupski, CPA (1982)
Principal Financial Officer, Vice
President, and Treasurer | Vice President, Price Investment Management, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company |
Cheryl Emory (1963)
Assistant Secretary | Assistant Vice President and Assistant Secretary, T. Rowe Price; Assistant Secretary, T. Rowe Price Group, Inc., Price Investment Management, Price International, Price Hong Kong, Price Singapore, T. Rowe Price Investment Services,
Inc., T. Rowe Price Retirement Plan Services, Inc., and T.
Rowe Price Trust Company |
Joseph B. Fath, CPA (1971)
Executive Vice President | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company |
David Giroux (1975)
Executive Vice President | Vice President, Price Investment Management, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company |
Paul Greene II (1978)
Executive Vice President | Vice President, T. Rowe Price and T. Rowe Price Group, Inc., and T. Rowe Price Trust Company |
Cheryl Hampton, CPA (1969)
Vice President | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; formerly, Tax Director, Invesco Ltd. (to 2021); Vice President, Oppenheimer Funds, Inc. (to 2019) |
Ann M. Holcomb, CFA (1972)
Executive Vice President | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company |
Thomas J. Huber, CFA (1966)
Executive Vice President | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company |
Stephon Jackson, CFA (1962)
Co-president | Director and President, Price Investment Management; Vice President, T. Rowe Price Group, Inc. |
Benjamin Kersse, CPA (1989)
Vice President | Vice President, T. Rowe Price and T. Rowe Price Trust
Company |
Paul J. Krug, CPA (1964)
Vice President | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company |
Robert M. Larkins, CFA (1973)
Executive Vice President | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company |
John D. Linehan, CFA (1965)
Executive Vice President | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company |
OFFICERS (continued)
Name (Year of Birth)
Position Held With Exchange-Traded Funds, Inc. | Principal Occupation(s) |
Jodi Love (1977)
Executive Vice President | Vice President, Price Investment Management and T. Rowe Price Group, Inc.; formerly, Managing Director, Jennison Associates LLC (to 2019) |
Paul M. Massaro, CFA (1975)
Executive Vice President | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company |
Robert P. McDavid (1972)
Vice President | Vice President, T. Rowe Price, T. Rowe Price Investment Management, T. Rowe Price Investment Services, Inc., and T. Rowe Price Trust Company |
Colin McQueen (1967)
Executive Vice President | Vice President, Price Investment Management and T. Rowe
Price Group, Inc.; formerly, Senior Investment Manager,
Global Equities, Sanlam FOUR Investments UK Limited (to
2019) |
Joshua Nelson (1977)
Co-president | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., Price International, and T. Rowe Price Trust Company |
Jason Nogueira, CFA (1974)
Executive Vice President | Vice President, T. Rowe Price and T. Rowe Price Group, Inc. |
Alexander S. Obaza (1981)
Executive Vice President | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company |
Donald J. Peters (1959)
Executive Vice President | Vice President, T. Rowe Price and T. Rowe Price Group,
Inc. |
Fran M. Pollack-Matz (1961)
Vice President and Secretary | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T. Rowe Price Trust Company |
Jason Benjamin Polun, CFA (1974)
Executive Vice President | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company |
Sebastian Schrott (1977)
Executive Vice President | Vice President, T. Rowe Price Group, Inc., and Price
International |
Richard Sennett, CPA (1970)
Assistant Treasurer | Vice President, T. Rowe Price, T. Rowe Price Group, Inc.,
and T. Rowe Price Trust Company |
Gabriel Solomon (1977)
Executive Vice President | Vice President, T. Rowe Price and T. Rowe Price Group,
Inc. |
Peter Stournaras (1973)
Executive Vice President | Vice President, T. Rowe Price and T. Rowe Price Group,
Inc.; formerly, Managing Director and Chief Portfolio
Strategist, JP Morgan Private Bank (to 2020) |
OFFICERS (continued)
Name (Year of Birth)
Position Held With Exchange-Traded Funds, Inc. | Principal Occupation(s) |
Taymour R. Tamaddon, CFA (1976)
Executive Vice President | Vice President, T. Rowe Price, T. Rowe Price Group, Inc.,
and T. Rowe Price Trust Company |
Ellen York (1988)
Vice President | Vice President, Price Investment Management and T. Rowe
Price |
Unless otherwise noted, officers have been employees of T. Rowe Price or Price International for at least 5 years.
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100 East Pratt Street
Baltimore, MD 21202
Call 1-800-638-5660 to request a prospectus or summary prospectus; each includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing.
T. Rowe Price Investment Services, Inc.
Item 1. (b) Notice pursuant to Rule 30e-3.
Not applicable.
Item 2. Code of Ethics.
The registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the period covered by this report.
Item 3. Audit Committee Financial Expert.
The registrant’s Board of Directors has determined that Mr. Paul F. McBride qualifies as an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. McBride is considered independent for purposes of Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) – (d) Aggregate fees billed for the last two fiscal years for professional services rendered to, or on behalf of, the registrant by the registrant’s principal accountant were as follows:
| | | | | | | | | | | | | | |
| | | | | 2023 | | | | | | 2022 | |
| | Audit Fees | | | $25,357 | | | | | | | | $ | |
| | Audit-Related Fees | | | - | | | | | | | | | |
| | Tax Fees | | | - | | | | | | | | | |
| | All Other Fees | | | - | | | | | | | | | |
Audit fees include amounts related to the audit of the registrant’s annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. Audit-related fees include amounts reasonably related to the performance of the audit of the registrant’s financial statements and specifically include the issuance of a report on internal controls and, if applicable, agreed-upon procedures related to fund acquisitions. Tax fees include amounts related to services for tax compliance, tax planning, and tax advice. The nature of these services specifically includes the review of distribution calculations and the preparation of Federal, state, and excise tax returns. All other fees include the registrant’s pro-rata share of amounts for agreed-upon procedures in conjunction with service contract approvals by the registrant’s Board of Directors/Trustees.
(e)(1) The registrant’s audit committee has adopted a policy whereby audit and non-audit services performed by the registrant’s principal accountant for the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant require pre-approval in advance at regularly scheduled audit committee meetings. If such a service is required between regularly scheduled audit committee meetings, pre-approval may be authorized by one audit committee member with ratification at the next scheduled audit committee meeting. Waiver of pre-approval for audit or non-audit services requiring fees of a de minimis amount is not permitted.
(2) No services included in (b) – (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Less than 50 percent of the hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.
(g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the registrant’s principal accountant for non-audit services rendered to the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were $1,524,000 and $2,037,000, respectively.
(h) All non-audit services rendered in (g) above were pre-approved by the registrant’s audit committee. Accordingly, these services were considered by the registrant’s audit committee in maintaining the principal accountant’s independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) Not applicable. The complete schedule of investments is included in Item 1 of this Form N-CSR.
(b) Not applicable.
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 Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There has been no change to the procedures by which shareholders may recommend nominees to the registrant’s board of directors.
Item 11. Controls and Procedures.
(a) The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures within 90 days of this filing and have concluded that the registrant’s disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely.
(b) The registrant’s principal executive officer and principal financial officer are aware of no change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
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, thereunto duly authorized.
| | | | |
| T. Rowe Price Exchange-Traded Funds, Inc. |
| By | | /s/ David Oestreicher | | |
| | David Oestreicher | | |
| | Principal Executive Officer | | |
| | |
| Date | | February 16, 2024 | | |
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/ David Oestreicher | | |
| | David Oestreicher | | |
| | Principal Executive Officer | | |
| | |
| Date | | February 16, 2024 | | |
| | |
| By | | /s/ Alan S. Dupski | | |
| | Alan S. Dupski | | |
| | Principal Financial Officer | | |
| | |
| Date | | February 16, 2024 | | |
