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 811-23883
The 2023 ETF Series Trust
(Exact name of registrant as specified in charter)
The 2023 ETF Series Trust
c/o Foreside Management Series, LLC
Three Canal Plaza, Suite 100
Portland, ME 04101
(Address of principal executive offices) (Zip code)
The Corporation Trust Company
1209 Orange Street
Wilmington, DE 19801
(Name and address of agent for service)
Registrant’s telephone number, including area code: 1-614-416-9058
Date of fiscal year end: June 30
Date of reporting period: December 31, 2023
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
| (a) | The Report to Shareholders is attached herewith. |
2023
SEMI-ANNUAL REPORT
BRANDES INVESTMENT PARTNERS L.P.
EXCHANGE TRADED FUNDS
BRANDES INTERNATIONAL ETF (BINV)
BRANDES U.S. SMALL-MID CAP VALUE ETF (BSMC)
BRANDES U.S. VALUE ETF (BUSA)
For the period ended December 31, 2023 (Unaudited)
(This page intentionally left blank)
Table of Contents
| Fees and Expenses | 1 |
| Schedule of Investments: | |
| Brandes International ETF | 2 |
| Brandes U.S. Small-Mid Cap Value ETF | 5 |
| Brandes U.S. Value ETF | 8 |
| Statements of Assets and Liabilities | 11 |
| Statements of Operations | 12 |
| Statements of Changes in Net Assets | 13 |
| Financial Highlights | 14 |
| Notes to Financial Statements | 16 |
| Board Review of Investment Management Agreements | 21 |
| Additional Information | 23 |
This report is provided for the general information of shareholders and is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus.
Fees and Expenses (Unaudited)
As a shareholder of a Fund, you incur ongoing costs, including investment advisory and administrative fees and other fund expenses. The examples below are intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with ongoing costs of investing in other funds.
The examples in the tables are based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2023 except otherwise noted below, to December 31, 2023).
Actual expenses
This section provides information about actual account values and actual expenses. The “Ending Account Value” shown is derived from each Fund’s actual return. You may use the information in this section, together with the amount you invested, 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 given for the Fund under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this Period.
Hypothetical example for comparison purposes
This section provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratios and an assumed rate of return of 5% per year before expenses, which are not the Funds’ actual returns. 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 this information to compare the ongoing costs of investing in the Funds and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other mutual funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as brokerage commissions on purchase and sales of Fund shares. Therefore, the last column of 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 transactional costs were included, your costs would have been higher.
| Beginning Account Value July 1, 2023 | Ending Account Value December 31, 2023 | Annualized Expense Ratio | Expenses Paid During the Period Per $1,000 (1) | |
| Brandes International ETF | ||||
| Actual | $1,000.00 | $1,137.00 | 0.70% | $1.82 (2) |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,021.62 | 0.70% | $3.56 |
| Brandes U.S. Small-Mid Cap Value ETF | ||||
| Actual | $1,000.00 | $1,114.20 | 0.70% | $1.80 (2) |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,021.62 | 0.70% | $3.56 |
| Brandes U.S. Value ETF | ||||
| Actual | $1,000.00 | $1,108.10 | 0.60% | $1.54 (2) |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,022.12 | 0.60% | $3.05 |
| (1) | Expenses are equal to each Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184 (the number of days in the most recent six-month period), then divided by 366. |
| (2) | Expenses are equal to each Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 89 (the number of days in the period October 4, 2023 (commencement of operations) to December 31, 2023), then divided by 366. |
1
Brandes International ETF
Schedule of Investments
December 31, 2023 (Unaudited)
| Shares | Value | |||||||
| Common Stocks – 97.6% | ||||||||
| Austria – 1.8% | ||||||||
| Erste Group Bank AG | 13,440 | $ | 545,314 | |||||
| Belgium – 1.3% | ||||||||
| Anheuser-Busch InBev SA, ADR | 6,132 | 396,250 | ||||||
| Brazil – 6.0% | ||||||||
| Ambev SA, ADR | 128,638 | 360,186 | ||||||
| Embraer SA, ADR* | 34,017 | 627,614 | ||||||
| Petroleo Brasileiro SA, ADR | 36,470 | 557,261 | ||||||
| Telefonica Brasil SA, ADR | 22,887 | 250,384 | ||||||
| 1,795,445 | ||||||||
| Chile – 1.0% | ||||||||
| Enel Chile SA, ADR | 89,882 | 291,218 | ||||||
| China – 2.6% | ||||||||
| Alibaba Group Holding Ltd., ADR | 9,847 | 763,241 | ||||||
| France – 14.5% | ||||||||
| BNP Paribas SA, ADR | 15,941 | 553,790 | ||||||
| Carrefour SA | 32,917 | 602,335 | ||||||
| Danone SA, ADR | 22,992 | 297,747 | ||||||
| Engie SA | 24,849 | 436,942 | ||||||
| Kering SA, ADR | 11,775 | 520,926 | ||||||
| Orange SA | 40,212 | 457,708 | ||||||
| Publicis Groupe SA | 5,597 | 519,351 | ||||||
| Renault SA | 3,276 | 133,554 | ||||||
| Societe BIC SA | 5,040 | 349,915 | ||||||
| TotalEnergies SE | 6,368 | 433,322 | ||||||
| 4,305,590 | ||||||||
| Germany – 8.2% | ||||||||
| Fresenius SE & Co. KGaA | 12,726 | 394,604 | ||||||
| Heidelberg Materials AG | 8,063 | 720,919 | ||||||
| Henkel AG & Co. KGaA | 8,379 | 601,449 | ||||||
| SAP SE, ADR | 4,599 | 710,959 | ||||||
| 2,427,931 | ||||||||
| Indonesia – 0.4% | ||||||||
| First Pacific Co. Ltd. | 332,000 | 132,229 | ||||||
| Italy – 4.5% | ||||||||
| Buzzi SpA | 11,949 | 363,515 | ||||||
| Eni SpA | 26,208 | 444,337 | ||||||
| Intesa Sanpaolo SpA | 181,736 | 530,697 | ||||||
| 1,338,549 | ||||||||
| Japan – 13.0% | ||||||||
| Astellas Pharma, Inc. | 44,200 | 528,594 | ||||||
| Honda Motor Co. Ltd. | 29,400 | 305,720 | ||||||
| Makita Corp. | 10,500 | 289,722 | ||||||
| Mitsubishi UFJ Financial Group, Inc. | 46,200 | 397,016 | ||||||
| MS&AD Insurance Group Holdings, Inc. | 8,400 | 330,447 | ||||||
| Nissan Motor Co. Ltd. | 81,900 | 321,953 | ||||||
| SoftBank Group Corp., ADR | 12,663 | 278,839 | ||||||
| Sumitomo Mitsui Trust Holdings, Inc. | 21,000 | 403,079 | ||||||
| Takeda Pharmaceutical Co. Ltd. | 35,700 | 1,026,584 | ||||||
| 3,881,954 | ||||||||
| See Notes to Financial Statements. | 2 |
Brandes International ETF
Schedule of Investments (Continued)
December 31, 2023 (Unaudited)
| Shares | Value | |||||||
| Common Stocks (continued) | ||||||||
| Mexico – 2.9% | ||||||||
| Cemex SAB de CV, ADR* | 55,530 | $ | 430,357 | |||||
| Fibra Uno Administracion SA de CV REIT | 243,502 | 438,561 | ||||||
| 868,918 | ||||||||
| Netherlands – 6.9% | ||||||||
| Aegon Ltd. | 41,136 | 238,475 | ||||||
| Heineken Holding NV | 9,241 | 781,942 | ||||||
| Koninklijke Philips NV* | 25,323 | 590,785 | ||||||
| Shell PLC, ADR | 6,546 | 430,727 | ||||||
| 2,041,929 | ||||||||
| South Korea – 1.0% | ||||||||
| Shinhan Financial Group Co. Ltd., ADR | 10,080 | 310,262 | ||||||
| Spain – 2.3% | ||||||||
| Grifols SA, ADR* | 58,427 | 675,416 | ||||||
| Switzerland – 7.1% | ||||||||
| Cie Financiere Richemont SA, Class A | 3,255 | 447,652 | ||||||
| Novartis AG, ADR | 3,885 | 392,268 | ||||||
| Swatch Group AG (The) | 9,905 | 518,405 | ||||||
| UBS Group AG | 24,252 | 749,387 | ||||||
| 2,107,712 | ||||||||
| Taiwan – 2.1% | ||||||||
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | 5,985 | 622,440 | ||||||
| United Kingdom – 16.1% | ||||||||
| Barclays PLC. | 203,868 | 399,659 | ||||||
| Imperial Brands PLC. | 19,905 | 458,396 | ||||||
| J Sainsbury PLC. | 131,389 | 506,837 | ||||||
| Kingfisher PLC. | 125,329 | 388,717 | ||||||
| Marks & Spencer Group PLC. | 71,759 | 249,186 | ||||||
| Rolls-Royce Holdings PLC* | 237,083 | 905,790 | ||||||
| Smith & Nephew PLC, ADR | 14,280 | 389,558 | ||||||
| Tesco PLC. | 145,102 | 537,353 | ||||||
| Unilever PLC, ADR | 7,504 | 363,794 | ||||||
| WPP PLC. | 61,136 | 586,857 | ||||||
| 4,786,147 | ||||||||
| United States – 5.9% | ||||||||
| GSK PLC. | 35,594 | 658,029 | ||||||
| Sanofi SA | 7,642 | 757,734 | ||||||
| Willis Towers Watson PLC. | 1,445 | 348,534 | ||||||
| 1,764,297 | ||||||||
| Total Common Stocks (Cost $26,949,952) | 29,054,842 | |||||||
| Money Market Funds – 2.5% | ||||||||
| JPMorgan US Treasury Plus Money Market Fund, 5.23%(a) | ||||||||
| (Cost $747,729) | 747,729 | 747,729 | ||||||
| Total Investments – 100.1% | ||||||||
| (Cost $27,697,681) | $ | 29,802,571 | ||||||
| Liabilities in Excess of Other Assets – (0.1)% | (39,889 | ) | ||||||
| Net Assets – 100.0% | $ | 29,762,682 | ||||||
| See Notes to Financial Statements. | 3 |
Brandes International ETF
Schedule of Investments (Continued)
December 31, 2023 (Unaudited)
| * | Non Income Producing |
| (a) | Rate shown reflects the 7-day yield as of December 31, 2023. |
ADR : American Depositary Receipt
PLC : Public Limited Company
REIT : Real Estate Investment Trust
Summary of Investment Type
| Sector | % of Net Assets |
| Health Care | 18.2% |
| Consumer Staples | 17.8% |
| Financials | 16.1% |
| Consumer Discretionary | 11.4% |
| Industrials | 7.3% |
| Communication Services | 7.0% |
| Energy | 6.3% |
| Materials | 5.1% |
| Information Technology | 4.5% |
| Utilities | 2.4% |
| Real Estate | 1.5% |
| Money Market Funds | 2.5% |
| Total Investments | 100.1% |
| Liabilities in Excess of Other Assets | (0.1)% |
| Net Assets | 100.0% |
| See Notes to Financial Statements. | 4 |
Brandes U.S. Small-Mid Cap Value ETF
Schedule of Investments
December 31, 2023 (Unaudited)
| Shares | Value | |||||||
| Common Stocks – 97.4% | ||||||||
| Communication Services – 2.5% | ||||||||
| Interpublic Group of Cos., Inc. (The) | 13,611 | $ | 444,263 | |||||
| Scholastic Corp. | 2,574 | 97,040 | ||||||
| 541,303 | ||||||||
| Consumer Discretionary – 5.3% | ||||||||
| Levi Strauss & Co., Class A | 21,606 | 357,363 | ||||||
| Mohawk Industries, Inc.* | 2,301 | 238,154 | ||||||
| Skechers USA, Inc., Class A* | 5,967 | 371,983 | ||||||
| Whirlpool Corp. | 1,482 | 180,463 | ||||||
| 1,147,963 | ||||||||
| Consumer Staples – 10.6% | ||||||||
| Cal-Maine Foods, Inc. | 4,095 | 235,012 | ||||||
| Campbell Soup Co. | 4,953 | 214,118 | ||||||
| Edgewell Personal Care Co. | 13,377 | 489,999 | ||||||
| Ingredion, Inc. | 2,028 | 220,099 | ||||||
| Lancaster Colony Corp. | 1,209 | 201,166 | ||||||
| Molson Coors Beverage Co., Class B | 6,240 | 381,950 | ||||||
| Seaboard Corp. | 39 | 139,234 | ||||||
| Sprouts Farmers Market, Inc.* | 4,641 | 223,279 | ||||||
| Weis Markets, Inc. | 3,120 | 199,555 | ||||||
| 2,304,412 | ||||||||
| Energy – 4.2% | ||||||||
| Chesapeake Energy Corp. | 4,680 | 360,079 | ||||||
| Dril-Quip, Inc.* | 14,625 | 340,324 | ||||||
| World Kinect Corp. | 8,853 | 201,671 | ||||||
| 902,074 | ||||||||
| Financials – 14.4% | ||||||||
| Citizens Financial Group, Inc. | 11,271 | 373,521 | ||||||
| CNA Financial Corp. | 4,992 | 211,212 | ||||||
| FirstCash Holdings, Inc. | 2,925 | 317,041 | ||||||
| Mercury General Corp. | 7,020 | 261,916 | ||||||
| National Western Life Group, Inc., Class A | 897 | 433,269 | ||||||
| Old Republic International Corp. | 7,410 | 217,854 | ||||||
| OneMain Holdings, Inc. | 7,449 | 366,491 | ||||||
| SEI Investments Co. | 4,953 | 314,763 | ||||||
| State Street Corp. | 2,964 | 229,591 | ||||||
| White Mountains Insurance Group Ltd. | 117 | 176,086 | ||||||
| Willis Towers Watson PLC. | 936 | 225,763 | ||||||
| 3,127,507 | ||||||||
| Health Care – 19.8% | ||||||||
| DENTSPLY SIRONA, Inc. | 8,658 | 308,138 | ||||||
| Elanco Animal Health, Inc.* | 26,676 | 397,472 | ||||||
| Fortrea Holdings, Inc.* | 7,020 | 244,998 | ||||||
| Grifols SA, ADR, (Spain)* | 21,645 | 250,216 | ||||||
| Henry Schein, Inc.* | 2,652 | 200,783 | ||||||
| Koninklijke Philips NV, (Netherlands)* | 9,906 | 231,107 | ||||||
| Organon & Co. | 17,149 | 247,289 | ||||||
| Pediatrix Medical Group, Inc.* | 22,815 | 212,179 | ||||||
| Phibro Animal Health Corp., Class A | 15,288 | 177,035 | ||||||
| Premier, Inc., Class A | 18,408 | 411,603 | ||||||
| See Notes to Financial Statements. | 5 |
Brandes U.S. Small-Mid Cap Value ETF
Schedule of Investments (Continued)
December 31, 2023 (Unaudited)
| Shares | Value | |||||||
| Common Stocks (continued) | ||||||||
| Health Care (continued) | ||||||||
| Prestige Consumer Healthcare, Inc.* | 3,393 | $ | 207,719 | |||||
| Quest Diagnostics, Inc. | 3,237 | 446,318 | ||||||
| Sotera Health Co.* | 6,630 | 111,716 | ||||||
| Taro Pharmaceutical Industries Ltd.* | 10,452 | 436,685 | ||||||
| United Therapeutics Corp.* | 897 | 197,241 | ||||||
| Zimmer Biomet Holdings, Inc. | 1,755 | 213,584 | ||||||
| 4,294,083 | ||||||||
| Industrials – 16.4% | ||||||||
| Balfour Beatty PLC, (United Kingdom) | 51,675 | 218,178 | ||||||
| Embraer SA, ADR, (Brazil)* | 21,684 | 400,070 | ||||||
| Healthcare Services Group, Inc.* | 28,392 | 294,425 | ||||||
| Heartland Express, Inc. | 6,708 | 95,656 | ||||||
| Kelly Services, Inc., Class A | 10,569 | 228,502 | ||||||
| Kennametal, Inc. | 7,878 | 203,173 | ||||||
| Landstar System, Inc. | 546 | 105,733 | ||||||
| Moog, Inc., Class A | 1,755 | 254,089 | ||||||
| MSC Industrial Direct Co., Inc., Class A | 1,989 | 201,406 | ||||||
| National Presto Industries, Inc. | 5,304 | 425,805 | ||||||
| Science Applications International Corp. | 897 | 111,515 | ||||||
| Textron, Inc. | 5,031 | 404,593 | ||||||
| TransUnion | 2,769 | 190,258 | ||||||
| UniFirst Corp. | 2,379 | 435,143 | ||||||
| 3,568,546 | ||||||||
| Information Technology – 13.2% | ||||||||
| Amdocs Ltd. | 5,811 | 510,729 | ||||||
| Arlo Technologies, Inc.* | 18,876 | 179,700 | ||||||
| Arrow Electronics, Inc.* | 1,560 | 190,710 | ||||||
| Avnet, Inc. | 4,017 | 202,457 | ||||||
| F5, Inc.* | 2,418 | 432,774 | ||||||
| IPG Photonics Corp.* | 2,886 | 313,246 | ||||||
| NETGEAR, Inc.* | 31,317 | 456,602 | ||||||
| Qorvo, Inc.* | 3,081 | 346,951 | ||||||
| Verint Systems, Inc.* | 8,580 | 231,917 | ||||||
| 2,865,086 | ||||||||
| Materials – 9.1% | ||||||||
| Buzzi SpA, (Italy) | 3,549 | 107,968 | ||||||
| Cemex SAB de CV, ADR, (Mexico)* | 15,132 | 117,273 | ||||||
| International Flavors & Fragrances, Inc. | 5,928 | 479,990 | ||||||
| Scotts Miracle-Gro Co. (The) | 4,095 | 261,056 | ||||||
| Sealed Air Corp. | 5,928 | 216,491 | ||||||
| Sensient Technologies Corp. | 5,187 | 342,342 | ||||||
| Sonoco Products Co. | 3,627 | 202,641 | ||||||
| Winpak Ltd., (Canada) | 7,712 | 239,209 | ||||||
| 1,966,970 | ||||||||
| Real Estate – 1.9% | ||||||||
| Equity Commonwealth REIT | 21,372 | 410,342 | ||||||
| Total Common Stocks (Cost $19,652,658) | 21,128,286 | |||||||
| See Notes to Financial Statements. | 6 |
Brandes U.S. Small-Mid Cap Value ETF
Schedule of Investments (Continued)
December 31, 2023 (Unaudited)
| Shares | Value | |||||||
| Money Market Funds – 2.6% | ||||||||
| JP Morgan US Treasury Plus Money Market Fund, 5.23%(a) | ||||||||
| (Cost $571,376) | 571,376 | $ | 571,376 | |||||
| Total Investments – 100.0% | ||||||||
| (Cost $20,224,034) | $ | 21,699,662 | ||||||
| Liabilities in Excess of Other Assets – (0.0)%† | (6,598 | ) | ||||||
| Net Assets – 100.0% | $ | 21,693,064 | ||||||
| * | Non Income Producing |
| † | Less than 0.05% |
| (a) | Rate shown reflects the 7-day yield as of December 31, 2023. |
ADR : American Depositary Receipt
PLC : Public Limited Company
REIT : Real Estate Investment Trust
Summary of Investment Type
| Sector | % of Net Assets |
| Health Care | 19.8% |
| Industrials | 16.4% |
| Financials | 14.4% |
| Information Technology | 13.2% |
| Consumer Staples | 10.6% |
| Materials | 9.1% |
| Consumer Discretionary | 5.3% |
| Energy | 4.2% |
| Communication Services | 2.5% |
| Real Estate | 1.9% |
| Money Market Funds | 2.6% |
| Total Investments | 100.0% |
| Liabilities in Excess of Other Assets | (0.0)%† |
| Net Assets | 100.0% |
| See Notes to Financial Statements. | 7 |
Brandes U.S. Value ETF
Schedule of Investments
December 31, 2023 (Unaudited)
| Shares | Value | |||||||
| Common Stocks – 97.5% | ||||||||
| Communication Services – 8.8% | ||||||||
| Alphabet, Inc., Class C* | 7,954 | $ | 1,120,957 | |||||
| Comcast Corp., Class A | 30,094 | 1,319,622 | ||||||
| Fox Corp., Class B | 20,992 | 580,429 | ||||||
| Omnicom Group, Inc. | 11,152 | 964,759 | ||||||
| 3,985,767 | ||||||||
| Consumer Discretionary – 3.2% | ||||||||
| AutoZone, Inc.* | 247 | 638,646 | ||||||
| Mohawk Industries, Inc.* | 7,709 | 797,881 | ||||||
| 1,436,527 | ||||||||
| Consumer Staples – 1.7% | ||||||||
| Ingredion, Inc. | 7,298 | 792,052 | ||||||
| Energy – 6.8% | ||||||||
| Chevron Corp. | 9,184 | 1,369,886 | ||||||
| Halliburton Co. | 30,914 | 1,117,541 | ||||||
| World Kinect Corp. | 26,404 | 601,483 | ||||||
| 3,088,910 | ||||||||
| Financials – 29.3% | ||||||||
| American International Group, Inc. | 14,022 | 949,991 | ||||||
| Bank of America Corp. | 37,966 | 1,278,315 | ||||||
| Bank of New York Mellon Corp. (The) | 13,448 | 699,968 | ||||||
| Berkshire Hathaway, Inc., Class B* | 1,640 | 584,922 | ||||||
| Citigroup, Inc. | 18,614 | 957,504 | ||||||
| Fiserv, Inc.* | 9,266 | 1,230,896 | ||||||
| JPMorgan Chase & Co. | 6,068 | 1,032,167 | ||||||
| Old Republic International Corp. | 20,254 | 595,468 | ||||||
| OneMain Holdings, Inc. | 16,236 | 798,811 | ||||||
| PNC Financial Services Group, Inc. (The) | 6,724 | 1,041,211 | ||||||
| State Street Corp. | 7,216 | 558,951 | ||||||
| Truist Financial Corp. | 12,464 | 460,171 | ||||||
| W R Berkley Corp. | 11,316 | 800,268 | ||||||
| Wells Fargo & Co. | 26,322 | 1,295,569 | ||||||
| Willis Towers Watson PLC. | 4,182 | 1,008,698 | ||||||
| 13,292,910 | ||||||||
| Health Care – 21.6% | ||||||||
| Cardinal Health, Inc. | 10,081 | 1,016,165 | ||||||
| Cigna Group (The) | 3,443 | 1,031,006 | ||||||
| CVS Health Corp. | 11,398 | 899,986 | ||||||
| Fortrea Holdings, Inc.* | 13,859 | 483,679 | ||||||
| HCA Healthcare, Inc. | 3,198 | 865,634 | ||||||
| Johnson & Johnson | 4,674 | 732,603 | ||||||
| Laboratory Corp. of America Holdings | 2,952 | 670,960 | ||||||
| McKesson Corp. | 2,461 | 1,139,394 | ||||||
| Merck & Co., Inc. | 10,660 | 1,162,153 | ||||||
| Pfizer, Inc. | 33,287 | 958,333 | ||||||
| Sanofi SA, ADR | 16,319 | 811,544 | ||||||
| 9,771,457 | ||||||||
| See Notes to Financial Statements. | 8 |
Brandes U.S. Value ETF
Schedule of Investments (Continued)
December 31, 2023 (Unaudited)
| Shares | Value | |||||||
| Common Stocks (continued) | ||||||||
| Industrials – 11.3% | ||||||||
| Emerson Electric Co. | 8,692 | $ | 845,992 | |||||
| FedEx Corp. | 4,100 | 1,037,177 | ||||||
| Gates Industrial Corp. PLC* | 33,691 | 452,133 | ||||||
| General Dynamics Corp. | 2,706 | 702,667 | ||||||
| Johnson Controls International PLC. | 8,609 | 496,223 | ||||||
| SS&C Technologies Holdings, Inc. | 9,430 | 576,267 | ||||||
| Textron, Inc. | 12,792 | 1,028,733 | ||||||
| 5,139,192 | ||||||||
| Information Technology – 13.0% | ||||||||
| Amdocs Ltd. | 12,958 | 1,138,879 | ||||||
| Applied Materials, Inc. | 2,777 | 450,068 | ||||||
| Cisco Systems, Inc. | 8,858 | 447,506 | ||||||
| Cognizant Technology Solutions Corp., Class A | 12,382 | 935,213 | ||||||
| Flex Ltd.* | 36,982 | 1,126,472 | ||||||
| Micron Technology, Inc. | 10,994 | 938,228 | ||||||
| Open Text Corp., (Canada) | 10,168 | 427,259 | ||||||
| Qorvo, Inc.* | 4,018 | 452,467 | ||||||
| 5,916,092 | ||||||||
| Materials – 1.8% | ||||||||
| Corteva, Inc. | 16,781 | 804,146 | ||||||
| Total Common Stocks (Cost $41,411,512) | 44,227,053 | |||||||
| Money Market Funds – 2.4% | ||||||||
| JP Morgan US Treasury Plus Money Market Fund, 5.23%(a) | ||||||||
| (Cost $1,069,201) | 1,069,201 | 1,069,201 | ||||||
| Total Investments – 99.9% | ||||||||
| (Cost $42,480,713) | $ | 45,296,254 | ||||||
| Other Assets in Excess of Liabilities – 0.1% | 36,325 | |||||||
| Net Assets – 100.0% | $ | 45,332,579 | ||||||
| * | Non Income Producing |
| (a) | Rate shown reflects the 7-day yield as of December 31, 2023. |
ADR : American Depositary Receipt
PLC : Public Limited Company
| See Notes to Financial Statements. | 9 |
Brandes U.S. Value ETF
Schedule of Investments (Continued)
December 31, 2023 (Unaudited)
Summary of Investment Type
| Sector | % of Net Assets |
| Financials | 29.3% |
| Health Care | 21.6% |
| Information Technology | 13.0% |
| Industrials | 11.3% |
| Communication Services | 8.8% |
| Energy | 6.8% |
| Consumer Discretionary | 3.2% |
| Materials | 1.8% |
| Consumer Staples | 1.7% |
| Money Market Funds | 2.4% |
| Total Investments | 99.9% |
| Other Assets in Excess of Liabilities | 0.1% |
| Net Assets | 100.0% |
| See Notes to Financial Statements. | 10 |
Statements of Assets and Liabilities
December 31, 2023 (Unaudited)
Brandes International ETF | Brandes U.S. Small-Mid Cap Value ETF | Brandes U.S. Value ETF | ||||||||||
| Assets | ||||||||||||
| Investments, at fair value | $ | 29,802,571 | $ | 21,699,662 | $ | 45,296,254 | ||||||
| Cash | 228 | 426 | — | |||||||||
| Foreign currency at value (cost $8,189, $12,175 and $–) | 8,190 | 12,175 | — | |||||||||
| Receivables: | ||||||||||||
| Securities sold | 91,533 | 17,139 | — | |||||||||
| Dividends | 49,987 | 20,648 | 55,661 | |||||||||
| Foreign tax reclaim | 1,015 | — | — | |||||||||
| Total assets | 29,953,524 | 21,750,050 | 45,351,915 | |||||||||
| Liabilities | ||||||||||||
| Due to custodian | — | — | 200 | |||||||||
| Payables: | ||||||||||||
| Securities purchased | 175,044 | 46,552 | — | |||||||||
| Investment advisory fees | 15,798 | 10,434 | 19,136 | |||||||||
| Total liabilities | 190,842 | 56,986 | 19,336 | |||||||||
| Net Assets | $ | 29,762,682 | $ | 21,693,064 | $ | 45,332,579 | ||||||
| Net Assets Consist of | ||||||||||||
| Paid-in capital | $ | 27,549,905 | $ | 20,218,053 | $ | 42,517,263 | ||||||
| Distributable earnings (loss) | 2,212,777 | 1,475,011 | 2,815,316 | |||||||||
| Net Assets | $ | 29,762,682 | $ | 21,693,064 | $ | 45,332,579 | ||||||
| Number of Common Shares outstanding | 1,050,000 | 780,000 | 1,640,000 | |||||||||
| Net Asset Value, offering and redemption price per share | $ | 28.35 | $ | 27.81 | $ | 27.64 | ||||||
| Investments, at cost | $ | 27,697,681 | $ | 20,224,034 | $ | 42,480,713 | ||||||
| See Notes to Financial Statements. | 11 |
Statements of Operations
Period Ended December 31, 2023 (Unaudited)
| Brandes International ETF(1) | Brandes U.S. Small-Mid Cap Value ETF(1) | Brandes U.S. Value ETF(1) | ||||||||||
| Investment Income | ||||||||||||
| Dividend income* | $ | 94,327 | $ | 49,389 | $ | 121,759 | ||||||
| Expenses | ||||||||||||
| Investment advisory fees | 25,388 | 16,680 | 29,930 | |||||||||
| Total expenses | 25,388 | 16,680 | 29,930 | |||||||||
| Net investment income (loss) | 68,939 | 32,709 | 91,829 | |||||||||
| Realized and Unrealized Gain (Loss) | ||||||||||||
| Net realized gain (loss) from: | ||||||||||||
| Investments | 125,278 | 1 | 4,952 | |||||||||
| Foreign currency transactions | (1,876 | ) | (77 | ) | — | |||||||
| Net realized gain (loss) | 123,402 | (76 | ) | 4,952 | ||||||||
| Net change in unrealized appreciation (depreciation) on: | ||||||||||||
| Investments | 2,104,890 | 1,475,628 | 2,815,541 | |||||||||
| Foreign currency translations | 46 | (50 | ) | — | ||||||||
| Net unrealized gain (loss) | 2,104,936 | 1,475,578 | 2,815,541 | |||||||||
| Net realized and unrealized gain (loss) | 2,228,338 | 1,475,502 | 2,820,493 | |||||||||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 2,297,277 | $ | 1,508,211 | $ | 2,912,322 | ||||||
| * Withholding tax | $ | 8,320 | $ | — | $ | 411 | ||||||
| (1) | For the period October 4, 2023 (commencement of operations) through December 31, 2023. |
| See Notes to Financial Statements. | 12 |
Statements of Changes in Net Assets
| Brandes International ETF | Brandes U.S. Small-Mid Cap Value ETF | Brandes U.S. Value ETF | ||||||||||
| For the period October 4, 2023(1) to December 31, 2023 (Unaudited) | For the period October 4, 2023(1) to December 31, 2023 (Unaudited) | For the period October 4, 2023(1) to December 31, 2023 (Unaudited) | ||||||||||
| Increase (Decrease) in Net Assets from Operations | ||||||||||||
| Net investment income (loss) | $ | 68,939 | $ | 32,709 | $ | 91,829 | ||||||
| Net realized gain (loss) | 123,402 | (76 | ) | 4,952 | ||||||||
| Net change in net unrealized appreciation (depreciation) | 2,104,936 | 1,475,578 | 2,815,541 | |||||||||
| Net increase (decrease) in net assets resulting from operations | 2,297,277 | 1,508,211 | 2,912,322 | |||||||||
| Distributions | (84,500 | ) | (33,200 | ) | (97,006 | ) | ||||||
| Fund Shares Transactions | ||||||||||||
| Proceeds from shares sold | 27,549,905 | 20,218,053 | 42,517,263 | |||||||||
| Value of shares redeemed | — | — | — | |||||||||
| Net increase (decrease) in net assets resulting from fund share transactions | 27,549,905 | 20,218,053 | 42,517,263 | |||||||||
| Total net increase (decrease) in net assets | 29,762,682 | 21,693,064 | 45,332,579 | |||||||||
| Net Assets | ||||||||||||
| Beginning of period | — | — | — | |||||||||
| End of period | $ | 29,762,682 | $ | 21,693,064 | $ | 45,332,579 | ||||||
| Changes in Shares Outstanding | ||||||||||||
| Shares outstanding, beginning of period | — | — | — | |||||||||
| Shares sold | 1,050,000 | 780,000 | 1,640,000 | |||||||||
| Shares redeemed | — | — | — | |||||||||
| Shares outstanding, end of period | 1,050,000 | 780,000 | 1,640,000 | |||||||||
| (1) | Commencement of operations. |
| See Notes to Financial Statements. | 13 |
Financial Highlights
Brandes International ETF Selected Per Share Data | Period Ended December 31, 2023(a) (Unaudited) | |||
| Net Asset Value, beginning of period | $ | 25.00 | ||
| Income (loss) from investment operations: | ||||
| Net investment income (loss)(b) | 0.13 | |||
| Net realized and unrealized gain (loss) | 3.30 | |||
| Total from investment operations | 3.43 | |||
| Less distributions from: | ||||
| Net investment income | (0.08 | ) | ||
| Total distributions | (0.08 | ) | ||
| Net Asset Value, end of period | $ | 28.35 | ||
| Total Return (%) | 13.70 | (c) | ||
| Ratios to Average Net Assets and Supplemental Data | ||||
| Net Assets, end of period ($ millions) | $ | 30 | ||
| Ratio of expenses (%) | 0.70 | (d) | ||
| Ratio of net investment income (loss) (%) | 1.90 | (d) | ||
| Portfolio turnover rate (%)(e) | 5 | (c) | ||
Brandes U.S. Small-Mid Cap Value ETF Selected Per Share Data | Period Ended December 31, 2023(a) | |||
| Net Asset Value, beginning of period | $ | 25.00 | ||
| Income (loss) from investment operations: | ||||
| Net investment income (loss)(b) | 0.09 | |||
| Net realized and unrealized gain (loss) | 2.76 | |||
| Total from investment operations | 2.85 | |||
| Less distributions from: | ||||
| Net investment income | (0.04 | ) | ||
| Total distributions | (0.04 | ) | ||
| Net Asset Value, end of period | $ | 27.81 | ||
| Total Return (%) | 11.42 | (c) | ||
| Ratios to Average Net Assets and Supplemental Data | ||||
| Net Assets, end of period ($ millions) | $ | 22 | ||
| Ratio of expenses (%) | 0.70 | (d) | ||
| Ratio of net investment income (loss) (%) | 1.37 | (d) | ||
| Portfolio turnover rate (%)(e) | 0 | (c) | ||
| (a) | For the period October 4, 2023 (commencement of operations) through December 31, 2023. |
| (b) | Per share numbers have been calculated using the average shares method. |
| (c) | Not annualized. |
| (d) | Annualized. |
| (e) | Excludes the impact of in-kind transactions related to the processing of capital share transactions in Creation Units. |
| See Notes to Financial Statements. | 14 |
Financial Highlights (Continued)
Brandes U.S. Value ETF Selected Per Share Data | Period Ended December 31, 2023(a) (Unaudited) | |||
| Net Asset Value, beginning of period | $ | 25.00 | ||
| Income (loss) from investment operations: | ||||
| Net investment income (loss)(b) | 0.12 | |||
| Net realized and unrealized gain (loss) | 2.58 | |||
| Total from investment operations | 2.70 | |||
| Less distributions from: | ||||
| Net investment income | (0.06 | ) | ||
| Total distributions | (0.06 | ) | ||
| Net Asset Value, end of period | $ | 27.64 | ||
| Total Return (%) | 10.81 | (c) | ||
| Ratios to Average Net Assets and Supplemental Data | ||||
| Net Assets, end of period ($ millions) | $ | 45 | ||
| Ratio of expenses (%) | 0.60 | (d) | ||
| Ratio of net investment income (loss) (%) | 1.84 | (d) | ||
| Portfolio turnover rate (%)(e) | 1 | (c) | ||
| (a) | For the period October 4, 2023 (commencement of operations) through December 31, 2023. |
| (b) | Per share numbers have been calculated using the average shares method. |
| (c) | Not annualized. |
| (d) | Annualized. |
| (e) | Excludes the impact of in-kind transactions related to the processing of capital share transactions in Creation Units. |
| See Notes to Financial Statements. | 15 |
Notes to Financial Statements
December 31, 2023 (Unaudited)
1. Organization
Brandes International ETF, Brandes U.S. Small-Mid Cap Value ETF and Brandes U.S. Value ETF (each a "Fund" and collectively the “Funds”) are newly organized, diversified, separate operating series of exchange-traded funds (ETFs) of The 2023 ETF Series Trust (the “Trust”), a Delaware statutory trust since January 23, 2023 that is registered with the Securities and Exchange Commission as open end management investment company.
The Funds are managed by Brandes Investment Partners, L.P. an investment adviser registered under the Investment Advisers Act of 1940, as amended, and serves as the Funds' investment advisor (the “Advisor”).
The Brandes International ETF, Brandes U.S. Small-Mid Cap Value ETF and Brandes U.S. Value ETF began operations on October 4, 2023. Each Fund is an actively managed ETF and uses an active investment strategy in seeking to meet its investment objective. The investment objective of each Fund is long-term capital appreciation.
Each Fund offers shares that are listed and traded on the CBOE BZX Exchange, Inc.
2. Significant Accounting Policies
Each Fund is an investment company that applies the accounting and reporting guidance issued in Topic 946, “Financial Services-Investment Companies”, by the Financial Accounting Standards Board (“FASB”). The following is a summary of significant accounting policies consistently followed by the Funds. These policies are in conformity with generally accepted accounting principles (“GAAP”) in the United States of America.
(a) Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates and assumptions.
(b) Investment Valuation
The Trust has adopted GAAP accounting principles related to fair value accounting standards which establish a definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion of changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below:
| • | Level 1 – Quoted prices in active markets for identical assets that the funds have the ability to access. |
| • | Level 2 – Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). |
| • | Level 3 – Significant unobservable inputs (including each Fund’s own assumptions in determining the fair value of investments). |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the valuations as of December 31, 2023 for each Fund based upon the three levels defined above:
Brandes International ETF
| Assets | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Common Stocks | $ | 29,054,842 | $ | — | $ | — | $ | 29,054,842 | ||||||||
| Money Market Funds | 747,729 | — | — | 747,729 | ||||||||||||
| TOTAL | $ | 29,802,571 | $ | — | $ | — | $ | 29,802,571 | ||||||||
Brandes U.S. Small-Mid Cap Value ETF
| Assets | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Common Stocks | $ | 21,128,286 | $ | — | $ | — | $ | 21,128,286 | ||||||||
| Money Market Funds | 571,376 | — | — | 571,376 | ||||||||||||
| TOTAL | $ | 21,699,662 | $ | — | $ | — | $ | 21,699,662 | ||||||||
16
Notes to Financial Statements (Continued)
December 31, 2023 (Unaudited)
Brandes U.S. Value ETF
| Assets | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Common Stocks | $ | 44,227,053 | $ | — | $ | — | $ | 44,227,053 | ||||||||
| Money Market Funds | 1,069,201 | — | — | 1,069,201 | ||||||||||||
| TOTAL | $ | 45,296,254 | $ | — | $ | — | $ | 45,296,254 | ||||||||
(c) Investment Transactions and Related Income
For financial reporting purposes, investment transactions are reported on the trade date. However, for daily NAV determination, portfolio securities transactions are reflected no later than in the first calculation on the first business day following trade date. Dividend income is recorded on the ex-dividend date. Interest income is recognized on an accrual basis and includes, where applicable, the amortization of premium or accretion of discount based on effective yield. Gains or losses realized on sales of securities are determined using the specific identification method by comparing the identified cost of the security lot sold with the net sales proceeds. Dividend Income on the Statements of Operations is shown net of any foreign taxes withheld on income from foreign securities, which are provided for in accordance with each Fund’s understanding of the applicable tax rules and regulations.
(d) Foreign Currency Translation and Transactions
The accounting records of each Fund are maintained in U.S. dollars. Financial instruments and other assets and liabilities of each Fund denominated in a foreign currency, if any, are translated into U.S. dollars at current exchange rates. Purchases and sales of financial instruments, income receipts and expense payments are translated into U.S. dollars at the exchange rate on the date of the transaction. Each Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates from those resulting from changes in values to financial instruments. Such fluctuations are included with the net realized and unrealized gains or losses from investments. Realized foreign exchange gains or losses arise from transactions in financial instruments and foreign currencies, currency exchange fluctuations between the trade and settlement date of such transactions, and the difference between the amount of assets and liabilities recorded and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, including financial instruments, resulting from changes in currency exchange rates. Each Fund may be subject to foreign taxes related to foreign income received, capital gains on the sale of securities and certain foreign currency transactions (a portion of which may be reclaimable). All foreign taxes are recorded in accordance with the applicable regulations and rates that exist in the foreign jurisdictions in which each Fund invests.
(e) Federal Income Tax
It is the policy of each Fund to continue to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986 (the “Code”) and to distribute substantially all of its net investment income and capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required as long as each Fund qualifies as a regulated investment company.
Management of each Fund has evaluated tax positions taken or expected to be taken in the course of preparing each Fund’s tax returns to determine whether it is more-likely-than-not (i.e., greater than 50%) that each tax position will be sustained upon examination by a taxing authority based on the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in an increase in a liability for taxes payable (or a reduction of a tax refund receivable), including the recognition of any related interest and penalties as an operating expense. In general, tax positions taken in previous tax years remain subject to examination by tax authorities (generally three years for federal income tax purposes). The determination has been made that there are not any uncertain tax positions that would require each Fund to record a tax liability and, therefore, there is no impact to the Fund’s financial statements. Each Fund’s policy is to classify interest and penalties associated with underpayment of federal and state income taxes, if any, as income tax expense on its Statements of Operations. As of December 31, 2023, the Funds did not have any interest or penalties associated with the underpayment of any income taxes.
(f) Distributions to Shareholders
Each Fund pays out dividends from its net investment income at least quarterly and distributes its net capital gains, if any, to investors at least annually. Each Fund may make distributions on a more frequent basis to comply with the distributions requirement of the Code, in all events in a manner consistent with the provisions of the 1940 Act.
The amount of distributions from net investment income and net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital and distribution reclassifications), such amounts are reclassified within the composition of net assets based on their federal tax basis treatment; temporary differences (e.g., wash sales and straddles) do not require a reclassification.
17
Notes to Financial Statements (Continued)
December 31, 2023 (Unaudited)
(g) Illiquid Investments
Pursuant to Rule 22e-4 under the 1940 Act, a portfolio may not acquire any “illiquid investment” if, immediately after the acquisition, the portfolio would have invested more than 15% of its net assets in illiquid investments that are assets. An “illiquid investment” is any investment that a portfolio reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investment. The Trust has implemented a liquidity risk management program and related procedures to identify illiquid investments pursuant to Rule 22e-4, and the Board has approved the designation of the Advisor to administer the Trust’s liquidity risk management program and related procedures. Illiquid investments include securities subject to contractual or legal restrictions on resale (e.g., because they have not been registered under the Securities Act of 1933) and securities that are otherwise not readily marketable (e.g., because trading in the security is suspended or because market makers do not exist or will not entertain bids or offers). These investments will be valued at their fair value, as outlined within these Notes to Financial Statements.
(h) Indemnification
Under the Funds' organizational documents, its officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Funds. The Funds may enter into contracts that contain representations and that provide general indemnifications. The Funds' maximum liability exposure under these arrangements is unknown, as future claims that have not yet occurred may be made against the Funds.
3. Investment Advisory Fee and Other Transactions with Affiliates
(a) Investment Advisory and Administrative Services
Brandes Investment Partners, L.P., (the “Advisor”) serves as the investment advisor to each Fund pursuant to an investment advisory agreement with the Trust (the “Advisory Agreement”). Under the Advisory Agreement, the Adviser provides investment advisory services to each Fund and is responsible for the day-to-day management of each Fund, including, among other things, ensuring each Fund has a continuous investment program, trading portfolio securities on behalf of each Fund, and selecting broker-dealers to execute purchase and sale transactions, subject to the oversight of the Board. For the services the Advisor provides to the Funds, each Fund pays the Advisor a fee, calculated daily and paid monthly, at an annual rate of the average daily net assets of each Fund as follows.
| Fund | Management Fee |
| Brandes International ETF | 0.70% |
| Brandes U.S. Small-Mid Cap Value ETF | 0.70% |
| Brandes U.S. Value ETF | 0.60% |
Under the investment advisory agreement, the Advisor has agreed to pay all expenses incurred by the Funds except for the advisory fee; interest charges on any borrowings; taxes; brokerage commissions and other expenses incurred in placing orders for the purchase and sale of securities and other investment instruments; proxy and shareholder meeting expenses (unless the need for a shareholder meeting is caused by the Advisor, such as a change of control of the Advisor); fees and expense related to the provision of securities lending services; acquired fund fees and expenses; taxes, including accrued deferred tax liability; legal fees or expenses in connection with any arbitration, litigation, or pending or threatened arbitration or litigation, including any settlements in connection therewith; extraordinary expenses (as mutually determined by the Board and the Advisor); and distribution fees and expenses paid by the Fund under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act.
(b) Distribution Arrangement
Foreside Fund Services, LLC (the “Distributor”), a Delaware limited liability company, is the principal underwriter and distributor of each Fund’s Shares. The Distributor does not maintain any secondary market in any Fund’s Shares.
The Trust has adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with its Rule 12b-1 plan, each Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to finance activities primarily intended to result in the sale of Creation Units of the Fund or the provision of investor services. No Rule 12b-1 fees are currently paid by the Funds and there are no plans to impose these fees. However, in the event Rule 12b-1 fees are charged in the future, they will be paid out of the Fund’s assets, and directly impact the NAV per share of each Fund.
(c) Other Servicing Agreements
The Bank of New York Mellon, a wholly-owned subsidiary of The Bank of New York Mellon Corporation, serves as Administrator, Custodian, Accounting Agent and Transfer Agent for each Fund.
Certain officers and trustees of the Trust are also officers of the Adviser and receive no compensation directly from the Funds for serving in their role.
18
Notes to Financial Statements (Continued)
December 31, 2023 (Unaudited)
4. Investment Transactions
Purchases and sales of investments, excluding in-kind transactions and short-term investments, for the period ended December 31, 2023 were as follows:
| Fund | Purchases | Sales | ||||||
| Brandes International ETF | $ | 632,407 | $ | 744,197 | ||||
| Brandes U.S. Small-Mid Cap Value ETF | 185,505 | — | ||||||
| Brandes U.S. Value ETF | 393,576 | 161,534 | ||||||
Purchases and sales of in-kind transactions for the period ended December 31, 2023 were as follows:
| Fund | Purchases | Sales | ||||||
| Brandes International ETF | $ | 26,936,512 | $ | — | ||||
| Brandes U.S. Small-Mid Cap Value ETF | 19,467,153 | — | ||||||
| Brandes U.S. Value ETF | 41,174,518 | — | ||||||
5. Capital Share Transactions
Fund Shares are listed and traded on the Exchange each day that the Exchange is open for business (“Business Day”). Each Fund’s Shares may only be purchased and sold on the Exchange through a broker-dealer. Because each Fund’s Shares trade at market prices rather than at their NAV, Shares may trade at a price equal to NAV, greater than NAV (premium) or less than NAV (discount).
Each Fund offers and redeems Shares on a continuous basis at NAV only in Creation Units. Except when aggregated in Creation Units, Shares are not redeemable securities of a Fund. Fund Shares may only be purchased from or redeemed directly from each Fund by certain financial institutions (“Authorized Participants”). An Authorized Participant is either (i) a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a Depository Trust Company (“DTC”) participant and, in each case, must have executed a Participant Agreement with the Distributor. Creation Units are available for purchase and redemption on each Business Day and are offered and redeemed on an in-kind basis, together with the specified cash amount, or for an all cash amount.
To the extent contemplated by a Participant Agreement, in the event an Authorized Participant has submitted a redemption request in proper form but is unable to transfer all or part of the shares comprising a Creation Unit to be redeemed by the Distributor, on behalf of each Fund, by the time as set forth in a Participant Agreement, the Distributor may nonetheless accept the redemption request in reliance on the undertaking by the Authorized Participant to deliver the missing shares as soon as possible, which undertaking shall be secured by the Authorized Participant’s delivery and maintenance of collateral equal to a percentage of the market value as set forth in the Participant Agreement. A Participant Agreement may permit each Fund to use such collateral to purchase the missing shares, and could subject an Authorized Participant to liability for any shortfall between the cost of each Fund acquiring such shares and the value of the collateral.
Most retail investors will not qualify as Authorized Participants or have the resources to buy and sell whole Creation Units. Therefore, they will be unable to purchase or redeem the Shares directly from each Fund. Rather, most retail investors will purchase Shares in the secondary market with the assistance of a broker, which will be subject to customary brokerage commissions or fees.
A purchase (i.e., creation) transaction fee may be imposed for the transfer and other transaction costs associated with the purchase of Creation Units, and investors will be required to pay a creation transaction fee regardless of the number of Creation Units created in the transaction. Each Fund may adjust the creation transaction fee from time to time based upon actual experience. In addition, a variable fee may be imposed for cash purchases, non-standard orders, or partial cash purchases of Creation Units. The variable fee is primarily designed to cover non-standard charges, e.g., brokerage, taxes, foreign exchange, execution, market impact, and other costs and expenses, related to the execution of trades resulting from such transaction. Each Fund may adjust the non-standard charge from time to time based upon actual experience. Investors who use the services of an Authorized Participant, broker or other such intermediary may be charged a fee for such services which may include an amount for the creation transaction fee and non-standard charges. Investors are responsible for the costs of transferring the securities constituting the deposit securities to the account of the Trust. The Advisor may retain all or a portion of the transaction fee to the extent the Advisor bears the expenses that otherwise would be borne by the Trust in connection with the issuance of a Creation Unit, which the transaction fee is designed to cover. The standard Creation Unit transaction fees for Brandes International ETF, Brandes U.S. Small-Mid Cap Value ETF, and Brandes U.S. Value are $650, $300 and $300, respectively, regardless of the number of Creation Units created in the transaction.
A redemption transaction fee may be imposed for the transfer and other transaction costs associated with the redemption of Creation Units, and Authorized Participants will be required to pay a redemption transaction fee regardless of the number of Creation Units created in the transaction. The redemption transaction fee is the same no matter how many Creation Units are being redeemed pursuant to any one redemption request. Each Fund may adjust the redemption transaction fee from time to time based upon actual experience. In addition, a variable fee, payable to each Fund, may be imposed for cash redemptions, non-standard orders, or partial cash redemptions for each Fund. The variable fee is primarily designed to cover non-standard charges, e.g., brokerage, taxes, foreign exchange, execution, market impact, and other costs and expenses, related to the execution of trades resulting from such transaction. Investors who use the services of an Authorized Participant, broker or other such intermediary may be charged a fee for such services which may include an amount for the redemption transaction fees and non-standard charges. Investors are responsible for the costs of transferring the securities constituting each Fund’s securities to the account of the Trust. The non-standard charges are payable to each Fund as it incurs costs in connection with the redemption of Creation Units, the receipt of each Fund’s securities and the cash redemption amount and other transactions costs. The standard redemption transaction fees for Brandes International ETF, Brandes U.S. Small-Mid Cap Value ETF, and Brandes U.S. Value are $650, $300 and $300, respectively, regardless of the number of Creation Units redeemed in the transaction.
19
Notes to Financial Statements (Continued)
December 31, 2023 (Unaudited)
6. Federal Income Taxes
At December 31, 2023, gross unrealized appreciation and depreciation of investments owned by each Fund, based on cost for federal income tax purposes were as follows:
| Fund | Tax Cost | Gross Unrealized | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | ||||||||||||
| Brandes International ETF | $ | 27,697,681 | $ | 2,148,782 | $ | (43,892 | ) | $ | 2,104,890 | |||||||
| Brandes U.S. Small-Mid Cap Value ETF | 20,224,034 | 1,518,033 | (42,405 | ) | 1,475,628 | |||||||||||
| Brandes U.S. Value ETF | 42,480,713 | 2,915,649 | (100,108 | ) | 2,815,541 | |||||||||||
The tax character of current year distributions will be determined at the end of the current fiscal year.
7. Risk Factors
Significant market disruptions, such as those caused by pandemics (e.g. Covid-19 pandemic), war (e.g. Russia’s invasion of Ukraine or war in the Middle East), natural disasters, acts of terrorism, or other events, may adversely impact global economic and market activity, and contribute to significant volatility in financial markets. Any such disruptions could have an adverse impact on the prices and liquidity of the Funds’ investments.
8. Subsequent Events
In preparing these financial statements, the Trust has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were available to be issued. The Trust has concluded that there are no subsequent events to note.
20
Board Review of Investment Management Agreements (Unaudited)
At a meeting held on July 21, 2023 (the “Meeting”), the Board of Trustees (the “Board”) of The 2023 ETF Series Trust (“Trust”) considered and approved, for an initial two year term, the Investment Advisory Agreement (the “Agreement”) between the Trust and Brandes Investment Partners, L.P. (“Brandes”) with respect to the Brandes International ETF, Brandes U.S. Value ETF, and Brandes U.S. Small-Mid Cap Value ETF (each, a “Fund,” and collectively, the “Funds”) pursuant to which Brandes will provide advisory services to the Funds, each of which is a new series of the Trust. The Board, which is comprised solely of Trustees who are not “interested persons” of the Trust within the meaning of the Investment Company Act of 1940 (the “Independent Trustees”), were advised by legal counsel throughout the process.
To evaluate the Agreement, the Board requested, and Brandes, each Fund’s investment adviser, provided such materials as the Board, with the advice of counsel, deemed reasonably necessary. The Board also met with representatives of Brandes at the Meeting, during which the Independent Trustees and the Brandes representatives discussed the materials that had been provided as well as other related matters concerning the new Funds. In determining whether to approve the Agreement, the Board considered various factors, including (i) the nature, extent and quality of services to be provided by Brandes to the Funds; (ii) the investment objective and strategy for each Fund and, because the Funds are new and therefore have no performance record, how each Fund’s strategy might be expected to perform in the future; (iii) the profits anticipated to be realized by Brandes from providing advisory services to the Funds; (iv) fees charged to comparable funds; (v) the extent to which economies of scale would be shared as the Funds grow; and (vi) other factors the Board deemed to be relevant.
Nature, Extent and Quality of Services
The Board considered the nature, extent and quality of services to be provided by Brandes. The Board reviewed the Agreement and Brandes’s anticipated responsibilities with respect to providing investment advisory services to the Funds, including developing, implementing, and maintaining each Fund’s investment program; portfolio management, including evaluating and selecting investments for the Funds; trading portfolio securities and other investment instruments on behalf of the Funds; selecting broker-dealers to execute purchase and sale transactions; overseeing general portfolio compliance with relevant law; monitoring compliance with various policies and procedures and applicable securities regulations; periodic reporting to the Board; and implementing Board directives as they relate to the Funds.
The Board considered the background, sophistication and experience of Brandes’s senior management, including those individuals responsible for portfolio management and regulatory compliance of the Funds. The Board also considered Brandes’s extensive administrative and compliance infrastructures. The Board appreciated the fact that Brandes has deep experience and expertise serving as the investment adviser to other registered investment companies.
The Board considered Brandes’s portfolio management resources, structures and practices, including those associated with monitoring and seeking to ensure each Fund’s compliance with its investment objective and policies and with applicable laws and regulations. The Board also considered information about Brandes’s overall investment management business, including the financial resources available to it needed to deliver high quality advisory services to the Funds.
Investment Performance
Because the Funds are new and had not yet commenced operations, the Board noted that there were no historical performance records to consider. The Board discussed with representatives of Brandes the proposed portfolio management team and the investment strategy to be employed in the management of each Fund’s assets. The Board considered Brandes’s reputation and experience, including its experience managing other registered investment companies.
Fees Charged to Comparable Funds
The Board reviewed the advisory fee to be paid by each Fund to Brandes under the Agreement. The Board reviewed a report prepared by Broadridge, an independent third-party, comparing each Fund’s advisory fee to those paid by a group of peer funds. The Board took into consideration that the advisory fee for each Fund’s is a “unitary fee,” meaning that the Funds pay no expenses other than the advisory fee and certain expenses customarily excluded from unitary fee arrangements, such as brokerage commissions, taxes, and interest. The Board noted that, under the Agreement, Brandes is responsible for compensating the Funds’ other service providers and paying the Funds’ other expenses out of its own fee and resources.
Profitability and Economies of Scale
The Board considered information concerning the anticipated profitability of Brandes from managing the Funds. The Board appreciated that, because the Funds are new, information concerning Brandes’s profitability from the Funds was based on estimates and therefore, to a large degree, speculative. The Board noted that it will have opportunities in the future to consider and evaluate Brandes’s profitability from managing the Funds after the Funds commence operations and Brandes begins receiving advisory fees. The Board also considered whether economies of scale or other efficiencies might result as each Fund’s assets grow. As the Funds had not yet commenced operations, the Board observed that it is difficult to draw any meaningful conclusions. However, the Board noted the commitment being made by Brandes by structuring its advisory fee as a unitary fee, which effectively acts as a cap on each Fund’s total expense ratio. The Board noted that it intends to monitor for the existence of economies of scale with respect to the management of the Funds.
21
Board Review of Investment Management Agreements (Unaudited) (Continued)
Other Benefits
The Board considered other benefits that might be derived by Brandes from its relationship with the Fund. The Board noted that Brandes has the ability to realize soft dollar benefits from its relationship with the Funds. The Board also considered the potential benefits flowing to Brandes from sponsoring a family of exchange-traded funds.
Conclusion
After reviewing these and other factors, the Board concluded, in the context of its overall review of the Agreement, that the nature, extent and quality of services to be provided supported its approval of the Fund’s management agreement and that the fee to be charged under that Agreement was reasonable. In the Independent Trustees’ deliberations, each Trustee gave specific factors the weight that Trustee thought appropriate. No single factor was determinative of the Board’s decision to approve the Agreement on behalf of the Fund; rather, the Board based its determination on the total mix of information available to it.
22
Additional Information (Unaudited)
Proxy Voting Policies and Procedures
The Advisor votes proxies relating to the Funds’ portfolio securities in accordance with procedures adopted by the Advisor. You may obtain a description of these procedures, free of charge, by calling toll-free 1-866-307-0477. This information is also available through the Commission’s website at http://www.sec.gov.
Information regarding how the Trust voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling 1-866-307-0477. This information is also available through the Commission’s website at http://www.sec.gov.
Portfolio Holdings Information
The Trust files the Funds’ complete schedules of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-PORT. The Trust’s Form N-PORT filings are available on the Commission’s website at http://www.sec.gov. Information regarding the Trust’s Form N-PORT filings is also available, without charge, by calling toll-free, 1-866-307-0477.
Discount & Premium Information
Information regarding how often shares of each Fund traded on Exchange at a price above (i.e., at a premium) or below (i.e., at a discount) the NAV of the Fund can be found at www.brandes.com/etfs.
23
(This page intentionally left blank)
| (b) | Not applicable |
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
| (a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. |
| (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 have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
Item 11. Controls and Procedures.
| (a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, 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”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
| (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 (17 CFR 270.30a-3(d))) 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.
| (a)(1) | Not applicable. |
| (a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
(a)(2)(1) Not applicable.
(a)(2)(2) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
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.
| (Registrant) | The 2023 ETF Series Trust | |
| By (Signature and Title) | /s/ Trent Statczar | |
| Trent Statczar, President | ||
| (Principal Executive Officer) | ||
| Date | March 6, 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 (Signature and Title) | /s/ Trent Statczar | |
| Trent Statczar, President | ||
| (Principal Executive Officer) | ||
| Date | March 6, 2024 | |
| By (Signature and Title) | /s/ Michael Minella | |
| Michael Minella | ||
| (Principal Financial Officer and Treasurer) | ||
| Date | March 6, 2024 |