Selection Criteria
The Trust’s portfolio is constructed and the securities were selected five business days prior to the initial date of deposit (the “Inception Date”) using the Security Selection Rules outlined below. Security Selection Rules: In constructing the Trust’s portfolio, 50 securities will be selected based on the following rules-based criteria: 1. Initial Universe. Start with an initial global universe of securities which meet the following requirements: - Security must be a common share or depositary receipt.
- Security may not be an exchange-traded fund, investment fund, limited partnership or trust (with the exception of Canadian Royalty Trusts).
- Market capitalization greater than $200 million.
- Minimum 30-day average daily dollar trading volume greater than $0.6 million. U.S.-traded American Depositary Receipts (“ADRs”) do not have to meet this liquidity minimum as long as the underlying foreign local shares do meet the minimum criteria.
- For companies with multiple listings, only one security included. Preference given to a U.S.-traded ADR security, if available, or to the most liquid security if the company is only traded on non-U.S. exchanges.
- Companies must be engaged in the following FactSet global industries/sectors (note the strategy “Sleeve” names, which are used to specify target weights in the selection strategy):
| Sleeve Category | FactSet Sectors / Industries Included | | Agriculture | Industry: Agricultural Chemicals
Industry: Forest Products | | Energy | Industry: Oil & Gas Production
Industry: Integrated Oil
Industry: Coal | | Mining | Industry: Aluminum
Industry: Other Metals/Minerals | | Precious Metals | Industry: Precious Metals, Gold | 2. Rank on Fundamentals: Rank every company identified in the initial universe against other companies in the same industry Sleeve along each of the following reported financial metrics. The ranking uses a scale of 1 through 10 (1 representing the highest scoring 10% in the Sleeve, and 10 representing the lowest scoring 10% in the Sleeve): - Return on assets calculated as operating income divided by total assets.
- Earnings before interest and taxes divided by enterprise value.
- Sales per share growth by trailing year-over-year growth.
3. Define Sub-Universe: Reduce the initial universe of securities to a subuniverse that meets the following requirements: - Exclude the lowest ranked 25% of securities by the average of the three financial ranks described in step 2.
- Exclude the 20% of the initial universe with the lowest trailing six month total return.
- Minimum one year of trading history for the company.
- Exclude securities not listed on major securities exchanges in the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Mexico, Netherlands, New Zealand, Norway, Philippines, Singapore, South Africa, Spain, Sri Lanka, Sweden, Switzerland, United Kingdom, and the United States.
- Exclude securities that have pending cash-only merger and acquisition or other corporate action events which will lead to the delisting of the security from the qualifying exchanges listed above.
4. Selection: Select from the subuniverse the top dividend yielding securities from each Sleeve (with higher rank given to larger market capitalization when yields are equal or zero), with 50 total securities equally weighted as of the selection date. Selections must adhere to following portfolio limits: - Maximum one-third of the strategy in small capitalization companies (less than $1 billion USD) as of the selection date.
- Minimum one-third of the strategy in large capitalization companies (greater than $5 billion USD) as of the selection date.
- Minimum Sleeve weightings: a. Energy 40.00% b. Mining 23.33% c. Agriculture 20.00% d. Precious Metals 16.67%
- If there are not enough subuniverse securities in the Agriculture or Precious Metals Sleeves, then additional securities from the remaining top ranked names in the Energy and Mining Sleeves can be substituted. Please note that due to the fluctuating nature of security prices, the weighting of an individual security or sector in the Trust portfolio may change after the portfolio selection date.
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Risks and Other Considerations
As with all investments, you may lose some or all of your investment in the Trust. No assurance can be given that the Trust’s investment objective will be achieved. The Trust also might not perform as well as you expect. This can happen for reasons such as these: - Securities prices can be volatile. The value of your investment may fall over time. Market value fluctuates in response to various factors. These can include stock market movements, purchases or sales of securities by the Trust, government policies, litigation, and changes in interest rates, inflation, the financial condition of the securities’ issuer or even perceptions of the issuer. Units of the Trust are not deposits of any bank and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
- Due to the current state of the economy, the value of the securities held by the Trust may be subject to steep declines or increased volatility due to changes in performance or perception of the issuers. Starting in December 2007, economic activity declined across all sectors of the economy, and the United States experienced increased unemployment. The economic crisis affected the global economy with European and Asian markets also suffering historic losses. Standard & Poor’s Rating Services recently lowered its long-term sovereign credit rating on the United States to “AA+” from “AAA,” which could lead to increased interest rates and volatility. Extraordinary steps have been taken by the governments of several leading countries to combat the economic crisis; however, the impact of these measures is not yet fully known and cannot be predicted.
- Share prices or dividend rates on the securities in the Trust may decline during the life of the Trust. There is no guarantee that the issuers of the securities will declare dividends in the future and, if declared, whether they will remain at current levels or increase over time.
- The Trust includes securities of companies in the basic materials sector. General risks of companies in the basic materials sector include the general state of the economy, consolidation, domestic and international politics and excess capacity. In addition, basic materials companies may also be significantly affected by volatility of commodity prices, import controls, worldwide competition, liability for environmental damage, depletion of resources and mandated expenditures for safety and pollution control devices.
- The Trust includes securities issued by companies in the energy sector. Companies in the energy sector are subject to volatile fluctuations in price and supply of energy fuels, and can be impacted by international politics and conflicts, including the unrest in Iraq and hostilities in the Middle East, terrorist attacks, the success of exploration projects, reduced demand as a result of increases in energy efficiency and energy conservation, natural disasters, clean-up and litigation costs associated with environmental damage and extensive regulation.
- The Trust includes securities issued by companies involved with the production of certain commodities. Commodity companies include those companies involved in the production of building materials, aluminum, nonferrous metals, precious metals and steel and other commodities, as well as companies that explore for, produce, refine, distribute or sell petroleum, gas products and other commodities. General risks of commodity companies include price and supply fluctuations, excess capacity, economic recession, government regulations and overall capital spending rates. Exposure to commodities markets may subject the Trust to greater volatility than other investments. Certain commodities may be produced in a limited number of countries and may be controlled by a small number of producers.
- The Trust invests in securities of companies in the agribusiness industry. Companies involved in the agribusiness industry are subject to numerous risks, including cyclicality of revenues and earnings, economic recession, currency fluctuations, changing consumer tastes, extensive competition, weather conditions, quotas, product liability litigation and governmental regulation and subsidies. Generally, the agribusiness industry is affected by the economic health of consumers. A weak economy and its effect on consumer spending would adversely affect agribusiness companies.
- The Trust includes securities issued by companies involved in the precious metals business. Precious metals companies are subject to risks associated with the exploration, development and production of precious metals including competition for land and difficulties in obtaining required governmental approval to mine land. In addition, the price of gold and other precious metals is subject to wide fluctuations and may be influenced by limited markets, expected inflation, central bank demand and availability of substitutes. The Trust includes securities issued by companies involved in the metals and mining business. Risks of investing in metals and mining company stocks include inaccurate estimates of mineral reserves and future production levels, varying expectations of mine production costs, technological and operational hazards in mining and mine development activities and mandated expenditures for safety and pollution control devices.
- The Trust invests in foreign securities, ADRs and Global Depositary Receipts, (“GDRs”). The Trust’s investment in foreign securities, ADRs and GDRs presents additional risk. ADRs and GDRs are issued by a bank or trust company to evidence ownership of underlying securities issued by foreign corporations. Securities of foreign issuers present risks beyond those of domestic securities. More specifically, foreign risk is the risk that foreign securities will be more volatile than U.S. securities due to such factors as adverse economic, currency, political, social or regulatory developments in a country, including government seizure of assets, excessive taxation, limitations on the use or transfer of assets, the lack of liquidity or regulatory controls with respect to certain industries or differing legal and/or accounting standards.
- Because some of the securities in the Trust are issued by companies headquartered, or with a significant presence, in Canada, the Trust is subject to Canadian country risk. Canada is a major producer of forest products, metals, agricultural products and energy-related products, such as oil, gas and hydroelectricity. The Canadian economy is dependent on the demand for, and supply and price of, natural resources, and the Canadian market is relatively concentrated in issuers involved in the production and distribution of natural resources. A small number of sectors, including the materials sector, represent a large portion of the Canadian market.
- The Trust includes securities issued by companies headquartered or incorporated in countries considered to be emerging markets. Emerging markets are generally defined as countries with low per capita income in the initial stages of their industrialization cycles. Risks of investing in developing or emerging countries include the possibility of investment and trading limitations, liquidity concerns, delays and disruptions in settlement transactions, political uncertainties and dependence on international trade and development assistance. Companies headquartered in emerging market countries may be exposed to greater volatility and market risk.
- The Trust includes securities whose value may be dependent on currency exchange rates. The U.S. dollar value of these securities may vary with fluctuations in foreign exchange rates. Most foreign currencies have fluctuated widely in value against the U.S. dollar for various economic and political reasons such as the activity level of large international commercial banks, various central banks, speculators, hedge funds and other buyers and sellers of foreign currencies.
- The Trust invests in securities issued by small-capitalization and midcapitalization companies. These securities customarily involve more investment risk than securities of larger capitalization companies. Smallcapitalization and mid-capitalization companies may have limited product lines, markets or financial resources and may be more vulnerable to adverse general market or economic developments.
- Inflation may lead to a decrease in the value of assets or income from investments.
- The Sponsor does not actively manage the portfolio. The Trust will generally hold, and may, when creating additional units, continue to buy, the same securities even though a security’s outlook, market value or yield may have changed.
See “Investment Risks” in Part A of the prospectus and “Risk Factors” in Part B of the prospectus for additional information.
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