SEC Company Response from BNY Mellon ETF Trust (CIK 0001493580) — Feb 8, 2022
BNY Mellon ETF Trust (CIK 0001493580)
Date: Feb. 8, 2022 · CIK: 0001493580 · Accession: 0001493580-22-000003
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File numbers found in text: 333-234030, 811-23477
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Morgan
Lewis
Beau Yanoshik
Partner
+1.202.373.6133
beau.yanoshik@morganlewis.com
Via
EDGAR Correspondence
February
8, 2022
Elisabeth
M. Bentzinger
U.S.
Securities and Exchange Commission
Division
of Investment Management
100
F Street NE
Washington,
DC 20549
Re:
BNY Mellon ETF Trust (the “Registrant”)
File
Nos. 333-234030 and 811-23477
Dear
Ms. Bentzinger:
This
letter responds to comments you provided on July 9, 2021, with respect to Post-Effective Amendment No. 5 to the Registrant’s Registration
Statement on Form N-1A. Post-Effective Amendment No. 5 was filed on May 24, 2021, and included disclosure with respect to the BNY Mellon
Responsible Horizons Corporate Bond ETF, a separate series of the Registrant. Summaries of the comments and responses thereto on behalf
of the Registrant are provided below.
Prospectus
Fund
Summary
1. Comment: In accordance with Item 3 of Form N-1A, please present the second sentence of the introductory
paragraph before the fee table in bold format.
Response: The
Registrant has made the requested change.
2. Comment: With respect to the following sentence included in the Principal Investment Strategy
section, please clarify that the fund will not concentrate (invest more than 25%) in any particular industry.
Morgan, Lewis & Bockius
llp
1111 Pennsylvania Avenue,
NW
Washington, DC 20004 +1.202.739.3000
United States
+1.202.739.3001
The fund may, from time to
time, invest a significant portion (more than 20%) of its total assets in securities of companies in certain sectors or located in particular
countries or regions.
Response: The
Registrant confirms that the fund will not invest more than 25% of its total assets in securities of companies in any industry, as stated
in the fund’s concentration policy in the SAI. The Registrant believes the current disclosure is appropriate and consistent with
Item 4(a) of Form N-1A which requires a statement of any policy to concentrate.
3. Comment: The third paragraph of the Principal Investment Strategy section indicates that
the fund may invest up to 20% of its net assets in fixed-income securities rated, at the time of purchase, below investment grade. Please
clarify the lowest rating of a fixed-income security in which the fund may invest. Please also clarify whether the fund may invest in
fixed-income securities that are in default.
Response: The
Registrant has revised the paragraph as noted below to clarify that the fund’s investments, at the time of purchase, will have a
minimum rating of B-, using the middle rating from Moody's, S&P or Fitch (or the lower rating if two of the ratings agencies provide
the same rating), or the unrated equivalent as determined by Insight.
The fund normally invests
primarily in fixed-income securities rated, at the time of purchase, investment grade (i.e., Baa3/BBB- or higher) or the unrated equivalent
as determined by the fund’s sub-adviser, Insight North America LLC (Insight), an affiliate of the Adviser. The fund, however, may
invest up to 20% of its net assets in fixed-income securities rated, at the time of purchase, below investment grade ("high yield"
or "junk" bonds) or the unrated equivalent as determined by Insight. The fund’s investments, at the time of purchase,
will have a minimum rating of B-, using ratings from Moody's Investors Service Inc. (Moody's), Standard & Poor's Corporation (S&P),
or Fitch Ratings (Fitch), or the unrated equivalent as determined by Insight. If all three rating agencies rate an investment and the
ratings are not the same, the fund will use the middle rating (e.g., if the ratings are A, A and B, the rating will be A). If only two
of the rating agencies rate an investment and the ratings are not the same, the fund will use the lower of the two ratings (e.g., if the
ratings are A and B, the rating will be B).
The fund will not invest in
fixed-income securities that are in default at the time of purchase. The Registrant has not added disclosure to this effect, noting that
Instruction 3 to Item 9(b) of Form N-1A states that a negative strategy is not a principal investment strategy.
4. Comment: Please revise the ESG-related disclosure in the Principal Investment Strategy
section to clarify how the sub-adviser’s ESG score is determined and how it is applied when selecting securities for inclusion in
the fund’s portfolio. For example, potential clarifications may include: what ESG score is required for a security to be selected
for investment; how do each
of the “E,” “S,” and “G” components factor into the score; what happens if the ESG score of a portfolio
holding deteriorates; do all investments receive an ESG score; can an investment have a low score and still be selected based on other
analysis.
Response: The
Registrant has revised the sixth paragraph of the Principal Investment Strategy section as noted below to clarify what ESG score
is required for a security to be selected for investment and how each of the “E,” “S,” and “G” components
factor into the score.
Insight seeks to
obtain exposure to issuers with strong ESG scores. An issuer’s Insight assigns an ESG score is
to an issuer based on Insight’s evaluation of (1) ESG-related proprietary data and/or data provided by third-party
providers and/or (2) the issuer’s vulnerability to ESG risk, in each case, generally based on the ESG criteria below.:
Insight considers environmental, social and governance data and risk when determining an issuer’s ESG score; however, Insight
places the greatest emphasis on the environmental, social and/or governance-related data and risk it considers most relevant to the issuer’s
industry. ESG scores range from 1 (best) to 5 (worst), and securities of issuers with scores of 5 at the time of purchase will be ineligible
for inclusion in the fund’s portfolio.
With respect to what will
happen if the ESG score of a portfolio holding deteriorates, the Registrant notes this is currently addressed in the second to last paragraph
of the Principal Investment Strategy section. With respect to whether all investments receive an ESG score, the Registrant refers
to the response to Comment 21 with respect to the application of ESG scores to derivatives investments by the fund. Finally, with respect
to whether an investment may have a low score and still be selected based on other analysis, the Registrant notes that, as reflected in
the revised disclosure above, securities of issuers with the lowest ESG score are not eligible for inclusion in the fund’s portfolio.
5. Comment: For third party data used as part of the fund’s principal investment strategies,
please identify each third party data provider (or if there are numerous third party data providers, please identify the primary providers)
and summarize each provider’s criteria or methodology.
Response: The Registrant
respectfully declines to add the requested disclosure. When performing its ESG evaluation, in addition to its own proprietary data, Insight
receives and evaluates ESG-related data from numerous third-party providers, which are subject to change. In addition, when determining
an issuer’s ESG score, which, in turn, is incorporated into Insight’s security selection process, Insight aggregates and incorporates
data received from the numerous third-party providers into its proprietary evaluation methodology. Insight does not consider any of these
third-party providers to be the “primary” providers for purposes of determining an ESG score. As a result, Insight and the
Registrant believe including the identity of a third-party data provider and a summary of its criteria or methodology would potentially
mischaracterize the role of the data
received from the specific
third-party data provider in determining ESG scores. Please see the response to Comment 8 regarding the limitations of ESG data provided
by third parties.
6. Comment: In the following paragraph in the Principal Investment Strategy section, please
clarify what the revenue thresholds are that would cause an issuer to be excluded from the fund’s investment universe.
Issuers also will be excluded where,
at the time of purchase, their revenue exceeds certain thresholds derived from products, or they are in an industry and/or sector, that
are considered unsuitable for the fund based on their vulnerability to ESG risk (for example, tobacco, gambling, controversial weapons
and coal extraction) and the risk they potentially pose to fund performance.
Response: The Registrant
has revised the disclosure as follows:
Issuers also will be excluded where,
at the time of purchase and based on available information, their revenue exceeds certain thresholds (generally 0%-5%
depending on the product, industry or sector, except for Coal Power generation, which may not be more than 10% of an issuer’s revenue)
derived from products, or they are in an industry and/or sector, that are considered unsuitable for the fund based on their vulnerability
to ESG risk (for example, tobacco, gambling, controversial weapons and coal extraction) and the risk they potentially pose to fund performance.
7. Comment: Because the fund invests in foreign securities, please disclose that where all or a
portion of the foreign securities in which the fund invests trade in a market that is closed when the fund’s listing exchange is
open, there could be changes between the last quoted prices for such securities in the closed foreign markets and the value of those securities
during the fund’s trading day. Please note that this could lead to differences between the trading price of the fund’s shares
and the underlying value of the fund’s shares.
Response: The Registrant
believes the following disclosure, currently included in “Foreign Investment Risk” in the Principal Risks section,
addresses the disclosure requested by the comment:
To the extent securities
held by the fund trade in a market that is closed when the exchange on which the fund's shares trade is open, there may be deviations
between the current price of a security and the last quoted price for the security in the closed foreign market. These deviations could
result in the fund experiencing premiums or discounts greater than those of ETFs that invest in domestic securities.
8. Comment: Please consider adding risk disclosure in the Principal Risks section related
to the use of third party data providers that clarifies that different providers may use different criteria, that those criteria may vary
significantly between or among providers, and that data and ratings from third parties may be inconsistent and can become unreliable.
Response: The Registrant
has revised the “ESG investment approach risk” in the Principal Risks section as follows:
ESG investment approach risk.
The fund's incorporation of ESG considerations into its investment approach may cause it to make different investments than funds that
invest principally in corporate bonds but do not integrate incorporate ESG considerations of
ESG issues when selecting investments. Under certain economic conditions, this could cause the fund to underperform funds
that do not incorporate ESG considerations. For example, the incorporation of ESG considerations may result in the fund forgoing
opportunities to buy certain securities when it might otherwise be advantageous to do so or selling securities when it might otherwise
be disadvantageous for the fund to do so. The incorporation of ESG considerations may also affect the fund’s
exposure to certain sectors and/or types of investments, and may adversely impact the fund’s performance depending on whether such
sectors or investments are in or out of favor in the market. Insight’s security selection process incorporates ESG data provided
by third parties, which may be limited for certain issuers and/or only take into account one or a few ESG related components. In addition,
ESG data may include quantitative and/or qualitative measures, and consideration of this data may be subjective. Different methodologies
may be used by the various data sources that provide ESG data. ESG data from third parties used by Insight as part of its proprietary
ESG process often lacks standardization, consistency, and transparency, and for certain issuers such data may not be available, complete
or accurate. Insight’s evaluation of ESG factors relevant to a particular issuer may be adversely affected in such instances. As
a result, the fund’s investments may differ from, and potentially underperform, funds that incorporate ESG data from other sources
or utilize other methodologies.
9. Comment: In the discussion of “Interest rate risk” in the Principal Risks
section, please disclose that interest rates are currently at historical lows and the potential effects on the fund’s risk profile.
Response: The discussion
of “Interest rate risk” has been revised as follows. The Registrant notes the sentence prior to and following the added disclosure
discuss the potential effects of low interest rates on the fund and the fund’s investments.
Interest rate risk. Prices
of bonds and other fixed rate fixed-income securities tend to move inversely with changes in interest rates. Typically, a rise in rates
will adversely affect fixed-income securities and, accordingly, will cause the value of the fund’s investments in these securities
to decline. Recently, interest rates in the U.S. and certain foreign markets have been low relative to historic levels. During
periods of very low interest rates, which occur from time to time due to market forces or actions of governments and/or their central
banks, including the Board of Governors of the Federal Reserve System in the U.S., the fund may be subject to a greater risk of principal
decline from rising interest rates. When interest rates fall, the fund’s investments in new securities may be at lower yields and
may reduce the fund’s income. The magnitude of these fluctuations in the market price of fixed-income securities is
generally greater for securities
with longer effective maturities and durations because such instruments do not mature, reset interest rates or become callable for longer
periods of time.
10. Comment: Please consider whether the discontinuation of LIBOR is a principal risk of the fund
and, if so, please include related risk disclosure. For example, if the fund invests in instruments that pay interest at a floating rate
based on LIBOR, if there are no fallback provisions, consider the impact of the discontinuation of LIBOR on the instruments’ liquidity.
Also consider if the transition from LIBOR to a successor rate will impact an instrument’s liquidity or value.
Response: The Registrant
confirms that the discontinuation of LIBOR is not currently considered a principal risk of the fund.
11. Comment: Please consider whether the fund is subject to principal risks related to Brexit and
if so, add appropriate corresponding risk disclosure.
Response: The
Registrant notes that the “European risk” discussion in the Principal Risks section includes a discussion related to
uncertain potential consequences of Brexit and the risks related to the potential for other countries to exit the European Union in the
future.
12. Comment: In the discussion of “Emerging market risk” in the Principal
Risks section, if a principal risk of the fund, please disclose the risks associated with investment in China. Also please add
disclosure to note there may be limitations on the rights and remedies available to the fund (individually or in combination with
other shareholders) against emerging market portfolio companies. Please see April 21, 2020 Public Statement – Emerging Market Investments Entail Significant Disclosure, Financial Reporting and Other Risks; Remedies are Limited.
Response: