Correspondence 0001839882-25-008809 from Tidal Trust III (CIK 0001722388)
Tidal Trust III (CIK 0001722388)
Date: Feb. 13, 2025 · CIK: 0001722388 · Accession: 0001839882-25-008809
AI Filing Summary & Sentiment
File numbers found in text: 333-221764, 811-23312
Letter
VIA EDGAR TRANSMISSION Division of Investment Management Washington, DC 20549 Re: Tidal Trust III (the “Trust”) Post-Effective Amendment No. 81 to the Trust’s Registration Statement on Form N-1A (the “Amendment”) File Nos. 811-23312; 333-221764
Dear Ms. Rossotto:
This correspondence responds to comments the Trust received from the staff of the U.S. Securities and Exchange Commission (the “Staff” or the “Commission”) on January 30, 2025, with respect to the Registration Statement and the Trust’s proposed new series, the Intech S&P Large Cap Diversified Alpha ETF and Intech S&P Small-Mid Cap Diversified Alpha ETF (each a “Fund,” together the “Funds”). For your convenience, the comments have been reproduced with responses following each comment. Capitalized terms not otherwise defined have the same meaning as in the Registration Statement.
General
1. The Staff notes that the sub-adviser’s name is prominently featured in each Fund’s name. Please confirm supplementally whether the Funds intend to rely on a manager of managers exemptive relief.
Response: The Trust responds supplementally by confirming that the Funds do not intend to rely on a manager of managers exemptive relief.
Prospectus
2. In each Fund’s Principal Investment Strategies section, clarify and revise the first paragraph in plain English. For example, what does improved risk and return diversification mean? Also, disclose here what the Fund is investing in on a principal basis, e.g., common stocks. Also, please provide a typical time frame for the rebalances referenced in this paragraph.
Response: The Trust responds by revising the referenced disclosure as provided to the Staff under separate cover.
3. Given how concentrated the returns of the S&P 500 have been recently, please ensure your risk factor disclosure discusses the risk of underperformance as a result of each Fund’s diversified status.
Response: The Trust responds by adding the following risk factor for each Fund:
Index Concentration Risk. To the extent that the Index becomes concentrated in a few large issuers, the Fund may be unable to achieve similar weights in these positions due to its status as a diversified fund. This could impact the Fund’s ability to achieve its investment objective.
4. In each Fund’s Principal Investment Strategies section, it states that “diversification” refers to the Fund’s approach to seeking to balance risk and return contributions across holdings. What is the balance the Fund is seeking to achieve? Please elaborate on this as it appears to be the goal of the Fund’s strategy.
Response: The Trust responds by revising the referenced disclosure as provided to the Staff under separate cover.
5. In general, please disclose each Fund’s strategy in plain English. For example, what is each Fund seeking to achieve and how does it do it? Further, each Fund has “Alpha” in its name but seeks returns similar to the Index. Please disclose what Alpha is and how the Fund seeks to achieve it. Also, If the Fund seeks returns similar to the Index, why is the Fund a desirable investment over an index fund? Also, what specifically is the purpose of the risk return profile and target weight, which is how the Fund is rebalancing.
Response: The Trust responds by revising the referenced disclosure as provided to the Staff under separate cover.
6. In each Fund’s Principal Investment Strategies section, where it discusses “the potential to capture additional returns through systematic adjustments,” please revise to explain how additional returns are captured through the Fund’s rebalancing.
Response: The Trust responds by revising the referenced disclosure as provided to the Staff under separate cover.
7. In each Fund’s Principal Investment Strategies section, it states that the Fund will have high portfolio turnover. Does each Fund account for these costs with respect to its goal of comparable or improved performance versus its Index?
Response: The Trust responds supplementally by directing the Staff to existing disclosure that states, “[t]his turnover rate reflects the periodic rebalancing required to maintain the Fund’s intended risk and return profile and target weights, rather than a complete change in portfolio,” which the Trust believes is responsive to this comment. Accordingly, the Trust respectfully declines to make additional revisions in response to this comment.
8. Each Fund is actively managed, and it constructs and rebalances its portfolio differently than its Index. As such, each Fund appears to operate with freedom to concentrate. This freedom is generally considered prohibited by sections 8(b)(1) and 13(a)(3) of the 1940 Act since there is no stated objective standard (i.e., the Funds do not track indices). Provide an analysis as to why each policy complies these rules, or otherwise revise the policy accordingly.
Response: The Trust responds by removing disclosure indicating a Fund may concentrate in an industry in accordance with its index. Each Fund has also adopted a policy to not concentrate in any industry.
9. In the S&P Large Cap Diversified Alpha ETF’s (“Large Cap Fund”) “Performance” section, please confirm that the sub-adviser was primarily responsible for managing the predecessor fund during the entire performance period. In addition, how the performance is presented is unclear. Prior performance of the predecessor fund must be adjusted to reflect the maximum sales load of the predecessor fund. Also, the prior performance of the predecessor fund may use either the gross fees and expenses incurred by the predecessor fund (before any waivers/reimbursement) or otherwise make a one-time adjustment for the Large Cap Fund’s gross expenses, if such expenses are higher. Revise accordingly.
Response: The Trust responds supplementally by confirming that the sub-adviser was primarily responsible for managing the predecessor fund during the entire performance period and by directing the Staff to existing disclosure that states, “[t]he Sub-Adviser was either the investment adviser or the sub-adviser for the Predecessor Fund for the entire performance period shown.”
In addition, the Trust responds by making revisions, as provided to the Staff under separate cover, to make clear that the performance is calculated based on the gross fees and expenses of the predecessor fund (before any waivers/reimbursement) and that the predecessor fund did not have a sales load.
10. In correspondence:
a. Describe the background of the predecessor fund, including information about why it was created.
b. State whether the Sub-Adviser believes that the predecessor fund could have complied with subchapter M of the Internal Revenue Code.
c. Describe whether the predecessor fund made any strategy changes within one year prior to the date the registration statement was filed. If so, explain whether such changes were made in anticipation of conversion to the Large Cap Fund.
d. Please discuss any variations over the same one-year period in the level of assets of the predecessor fund, for example, through redemptions, transfers to another person or fund, or cash infusions.
e. If any investors redeemed during the same one-year period, please describe whether they were able to invest in an account or fund with substantially similar strategies as the predecessor fund.
f. Represent supplementally that the Trust has the records necessary to support the calculation of the performance of the predecessor fund as required by Rule 204-2(a)(16) under the Investment Advisers Act of 1940.
Response: The Trust responds supplementally as follows:
a. The Predecessor Fund was formed and launched with the intention of implementing Intech’s U.S. Enhanced Plus equity strategy in a commingled structure to achieve consistent, risk-managed returns for primarily institutional investors. The Predecessor Fund commenced investment operations on March 1, 2004 and was not created with the intention of converting into a registered investment company.
b. The Sub-Adviser believes that the Predecessor Fund could have complied with subchapter M of the Internal Revenue Code.
c. The Predecessor Fund did not make any strategy changes during the referenced period.
d. There were no material variations in the Predecessor Fund’s asset level during the referenced period. There were, however, routine subscriptions and redemptions during this period.
e. During the referenced period, any redeeming investors were not able to invest in an Intech managed fund or account with substantially similar strategies as the predecessor fund.
f. The Trust confirms that it has the records necessary to support the calculation of the performance of the Predecessor Fund as required by Rule 204-2(a)(16) under the Investment Advisers Act of 1940.
11. As the predecessor fund can’t show after tax returns, the Fund may include in the summary section and risk return summary standardized after tax returns for the post registration period only, provided the Fund also includes standardized before tax returns for the post registration period.
Response: The Trust responds supplementally by acknowledging the Staff’s comment.
12. In the Funds’ Item 9 section, in the section titled “Find Diverse Risk and Return Sources/Correlations,” revise to explain how correlation may reduce concentration risk. Clarify what concentration risks are and how they are reduced.
Response: The Trust responds by revising the referenced disclosure as provided to the Staff under separate cover.
13. In the Funds’ Item 9 section, in the section titled “Construct a Diversified Portfolio,” revise to explain what idiosyncratic risks are and how they are reduced.
Response: The Trust responds by revising the referenced disclosure as provided to the Staff under separate cover.
14. In the Funds’ Item 9 section, in the section titled “Rebalance to Stay on Track,” it states that the Funds may deviate from their target weights. Clarify that these target weights are determined by Sub-Adviser.
Response: The Trust responds confirming that the prospectus has been revised to clarify that the Sub-Adviser sets the target weights.
15. In the Funds’ Item 9 section, with respect to the section titled “Non-Index Securities,” are these determined with qualitative analysis? If so, disclose how the Funds make these determinations.
Response: The Trust responds by revising the referenced disclosure as provided to the Staff under separate cover.
16. With respect to the “Performance of Similarly Managed Accounts” section:
a. The name of the composite is similar to the Intech S&P Small-Mid Cap Diversified Alpha ETF’s (‘SMID Fund”) name and may be confusing. Consider revising.
b. The disclosure mentions the name of the SMID Fund ten times. Please revise to avoid reference to the SMID Fund with respect to the performance presented, so it is not misleading.
c. It is unclear how performance is calculated. Confirm that the presentation is either net of all actual fees and expenses, including sales loads, related to the accounts in the composite, or adjusted to reflect all of the SMID Fund’s expenses (including sales loads). Choose one or the other.
d. Represent supplementally that the Trust has the records necessary to support the calculation of the performance of the composite as required by Rule 204-2(a)(16) under the Investment Advisers Act of 1940.
e. Performance is less than one year. Please tell us supplementally the
Show Raw Text
CORRESP
1
filename1.htm
Tidal
Trust III
234
West Florida Street, Suite 203
Milwaukee,
Wisconsin 53204
February
13, 2025
VIA
EDGAR TRANSMISSION
Karen
Rossotto
U.S.
Securities and Exchange Commission
Division
of Investment Management
100
F Street NE
Washington,
DC 20549
Re: Tidal
Trust III (the “Trust”)
Post-Effective
Amendment No. 81 to the Trust’s Registration Statement on Form N-1A (the “Amendment”)
File
Nos. 811-23312; 333-221764
Dear
Ms. Rossotto:
This
correspondence responds to comments the Trust received from the staff of the U.S. Securities and Exchange Commission (the “Staff”
or the “Commission”) on January 30, 2025, with respect to the Registration Statement and the Trust’s proposed new series,
the Intech S&P Large Cap Diversified Alpha ETF and Intech S&P Small-Mid Cap Diversified Alpha ETF (each a “Fund,”
together the “Funds”). For your convenience, the comments have been reproduced with responses following each comment. Capitalized
terms not otherwise defined have the same meaning as in the Registration Statement.
General
1. The
Staff notes that the sub-adviser’s name is prominently featured in each Fund’s
name. Please confirm supplementally whether the Funds intend to rely on a manager of managers
exemptive relief.
Response:
The Trust responds supplementally by confirming that the Funds do not intend to rely on a manager of managers exemptive relief.
Prospectus
2. In
each Fund’s Principal Investment Strategies section, clarify and revise the first paragraph
in plain English. For example, what does improved risk and return diversification mean? Also,
disclose here what the Fund is investing in on a principal basis, e.g., common stocks. Also,
please provide a typical time frame for the rebalances referenced in this paragraph.
Response:
The Trust responds by revising the referenced disclosure as provided to the Staff under separate cover.
3. Given
how concentrated the returns of the S&P 500 have been recently, please ensure your risk
factor disclosure discusses the risk of underperformance as a result of each Fund’s
diversified status.
Response:
The Trust responds by adding the following risk factor for each Fund:
1
Index
Concentration Risk. To the extent that the Index becomes concentrated in a few large issuers, the Fund may be unable to achieve similar
weights in these positions due to its status as a diversified fund. This could impact the Fund’s ability to achieve its investment
objective.
4. In
each Fund’s Principal Investment Strategies section, it states that “diversification”
refers to the Fund’s approach to seeking to balance risk and return contributions across
holdings. What is the balance the Fund is seeking to achieve? Please elaborate on this as
it appears to be the goal of the Fund’s strategy.
Response:
The Trust responds by revising the referenced disclosure as provided to the Staff under separate cover.
5. In
general, please disclose each Fund’s strategy in plain English. For example, what is
each Fund seeking to achieve and how does it do it? Further, each Fund has “Alpha”
in its name but seeks returns similar to the Index. Please disclose what Alpha is and how
the Fund seeks to achieve it. Also, If the Fund seeks returns similar to the Index, why is
the Fund a desirable investment over an index fund? Also, what specifically is the purpose
of the risk return profile and target weight, which is how the Fund is rebalancing.
Response:
The Trust responds by revising the referenced disclosure as provided to the Staff under separate cover.
6. In
each Fund’s Principal Investment Strategies section, where it discusses “the
potential to capture additional returns through systematic adjustments,” please revise
to explain how additional returns are captured through the Fund’s rebalancing.
Response:
The Trust responds by revising the referenced disclosure as provided to the Staff under separate cover.
7. In
each Fund’s Principal Investment Strategies section, it states that the Fund will have
high portfolio turnover. Does each Fund account for these costs with respect to its goal
of comparable or improved performance versus its Index?
Response:
The Trust responds supplementally by directing the Staff to existing disclosure that states, “[t]his turnover rate reflects the
periodic rebalancing required to maintain the Fund’s intended risk and return profile and target weights, rather than a complete
change in portfolio,” which the Trust believes is responsive to this comment. Accordingly, the Trust respectfully declines to make
additional revisions in response to this comment.
8. Each
Fund is actively managed, and it constructs and rebalances its portfolio differently than
its Index. As such, each Fund appears to operate with freedom to concentrate. This freedom
is generally considered prohibited by sections 8(b)(1) and 13(a)(3) of the 1940 Act since
there is no stated objective standard (i.e., the Funds do not track indices). Provide an
analysis as to why each policy complies these rules, or otherwise revise the policy accordingly.
Response:
The Trust responds by removing disclosure indicating a Fund may concentrate in an industry in accordance with its index. Each Fund has
also adopted a policy to not concentrate in any industry.
2
9. In
the S&P Large Cap Diversified Alpha ETF’s (“Large Cap Fund”) “Performance”
section, please confirm that the sub-adviser was primarily responsible for managing the predecessor
fund during the entire performance period. In addition, how the performance is presented
is unclear. Prior performance of the predecessor fund must be adjusted to reflect the maximum
sales load of the predecessor fund. Also, the prior performance of the predecessor fund may
use either the gross fees and expenses incurred by the predecessor fund (before any waivers/reimbursement)
or otherwise make a one-time adjustment for the Large Cap Fund’s gross expenses, if
such expenses are higher. Revise accordingly.
Response:
The Trust responds supplementally by confirming that the sub-adviser was primarily responsible for managing the predecessor fund during
the entire performance period and by directing the Staff to existing disclosure that states, “[t]he Sub-Adviser was either the
investment adviser or the sub-adviser for the Predecessor Fund for the entire performance period shown.”
In
addition, the Trust responds by making revisions, as provided to the Staff under separate cover, to make clear that the performance is
calculated based on the gross fees and expenses of the predecessor fund (before any waivers/reimbursement) and that the predecessor fund
did not have a sales load.
10. In
correspondence:
a. Describe
the background of the predecessor fund, including information about why it was created.
b. State
whether the Sub-Adviser believes that the predecessor fund could have complied with subchapter
M of the Internal Revenue Code.
c. Describe
whether the predecessor fund made any strategy changes within one year prior to the date
the registration statement was filed. If so, explain whether such changes were made in anticipation
of conversion to the Large Cap Fund.
d. Please
discuss any variations over the same one-year period in the level of assets of the predecessor
fund, for example, through redemptions, transfers to another person or fund, or cash infusions.
e. If
any investors redeemed during the same one-year period, please describe whether they were
able to invest in an account or fund with substantially similar strategies as the predecessor
fund.
f. Represent
supplementally that the Trust has the records necessary to support the calculation of the
performance of the predecessor fund as required by Rule 204-2(a)(16) under the Investment
Advisers Act of 1940.
Response:
The Trust responds supplementally as follows:
a. The
Predecessor Fund was formed and launched with the intention of implementing Intech’s
U.S. Enhanced Plus equity strategy in a commingled structure to achieve consistent, risk-managed
returns for primarily institutional investors. The Predecessor Fund commenced investment
operations on March 1, 2004 and was not created with the intention of converting into a registered
investment company.
b. The
Sub-Adviser believes that the Predecessor Fund could have complied with subchapter M of the
Internal Revenue Code.
c. The
Predecessor Fund did not make any strategy changes during the referenced period.
d. There
were no material variations in the Predecessor Fund’s asset level during the referenced
period. There were, however, routine subscriptions and redemptions during this period.
e. During
the referenced period, any redeeming investors were not able to invest in an Intech managed
fund or account with substantially similar strategies as the predecessor fund.
f. The
Trust confirms that it has the records necessary to support the calculation of the performance
of the Predecessor Fund as required by Rule 204-2(a)(16) under the Investment Advisers Act
of 1940.
3
11. As
the predecessor fund can’t show after tax returns, the Fund may include in the summary
section and risk return summary standardized after tax returns for the post registration
period only, provided the Fund also includes standardized before tax returns for the post
registration period.
Response:
The Trust responds supplementally by acknowledging the Staff’s comment.
12. In
the Funds’ Item 9 section, in the section titled “Find Diverse Risk and Return
Sources/Correlations,” revise to explain how correlation may reduce concentration risk.
Clarify what concentration risks are and how they are reduced.
Response:
The Trust responds by revising the referenced disclosure as provided to the Staff under separate cover.
13. In
the Funds’ Item 9 section, in the section titled “Construct a Diversified Portfolio,”
revise to explain what idiosyncratic risks are and how they are reduced.
Response:
The Trust responds by revising the referenced disclosure as provided to the Staff under separate cover.
14. In
the Funds’ Item 9 section, in the section titled “Rebalance to Stay on Track,”
it states that the Funds may deviate from their target weights. Clarify that these target
weights are determined by Sub-Adviser.
Response:
The Trust responds confirming that the prospectus has been revised to clarify that the Sub-Adviser sets the target weights.
15. In
the Funds’ Item 9 section, with respect to the section titled “Non-Index Securities,”
are these determined with qualitative analysis? If so, disclose how the Funds make these
determinations.
Response:
The Trust responds by revising the referenced disclosure as provided to the Staff under separate cover.
16. With
respect to the “Performance of Similarly Managed Accounts” section:
a. The
name of the composite is similar to the Intech S&P Small-Mid Cap Diversified Alpha ETF’s
(‘SMID Fund”) name and may be confusing. Consider revising.
b. The
disclosure mentions the name of the SMID Fund ten times. Please revise to avoid reference
to the SMID Fund with respect to the performance presented, so it is not misleading.
c. It
is unclear how performance is calculated. Confirm that the presentation is either net of
all actual fees and expenses, including sales loads, related to the accounts in the composite,
or adjusted to reflect all of the SMID Fund’s expenses (including sales loads). Choose
one or the other.
d. Represent
supplementally that the Trust has the records necessary to support the calculation of the
performance of the composite as required by Rule 204-2(a)(16) under the Investment Advisers
Act of 1940.
e. Performance
is less than one year. Please tell us supplementally the