SEC Company Response from Natixis ETF Trust II (CIK 0001728860) — Apr 24, 2020
Natixis ETF Trust II (CIK 0001728860)
Date: April 24, 2020 · CIK: 0001728860 · Accession: 0001683863-20-005195
AI Filing Summary & Sentiment
File numbers found in text: 811-23500
Letter
Division of Investment Management Attention: Elena S. Stojic, Esq. VIA EDGAR File No.: 811-23500 Filing Type: Form N-1A
Dear Ms. Stojic:
This letter responds to comments of the staff (the "Staff") of the Securities and Exchange Commission (the "Commission") received by letter on January 10, 2020, regarding the initial registration statement to Natixis ETF Trust II (the "Registrant") on Form N-1A for the Natixis [ ] ETF (the "Fund"), which was filed with the Commission on December 12, 2019 (the "Registration Statement"). For your convenience, we have summarized each comment below, followed by the Registrant's response. Any term that is used, but not defined, in this letter retains the same meaning as used by the Registrant in the Registration Statement.
General
1.Comment. We note that portions of the filing, including the Fund's financial statements and Subadviser information, are incomplete. We may have additional comments on such portions when you complete them in a pre-effective amendment, on disclosures made in response to this letter, on information supplied supplementally, or on exhibits added in any amendments.
Response. The Registrant appreciates the Staff's comments on the Registration Statement, including the Staff's comments on the principal investment strategies of the Fund. Please note that the Registrant has revised the disclosure in the Registration Statement regarding the Fund, including the Fund's name (which is now the Natixis U.S. Equity Opportunities ETF), principal investment strategies and subadvisers. The Registrant has also revised the Registration Statement to include two additional series of the Registrant: the Natixis Vaughan Nelson Select ETF and the Natixis Vaughan Nelson Mid Cap ETF (each an "Initial Fund" and together with the Fund, the "Initial Funds"). The Registrant appreciates that certain comments of the Staff regarding the Fund may apply to the disclosure regarding each of the Initial Funds. The Registrant believes that the revised disclosure, including the disclosure regarding the principal investment strategies of each of the Initial Funds, is responsive to the Staff's comments on the Registration Statement.
2.Comment. The Staff is aware that Natixis Advisors, L.P., et al., filed an application and subsequent amendments seeking exemptive relief from certain provisions of the 1940 Act (the "Application"). The Commission issued an order granting certain exemptive relief on December 10, 2019 (the "Order"). Please tailor the disclosure throughout the registration statement to conform to the specific exemptive relief granted by the Order, including the relevant representations and conditions contained in the Application.
Response. In response to this comment, the Registrant has tailored the disclosure throughout the registration statement to conform to the specific exemptive relief granted by the Order, including the relevant representations and conditions contained in the Application.
Cover Page
3.Comment. The Application states the Fund will include a Legend describing how the Fund will operate differently from a traditional ETF. Revise the cover page to make the Legend more prominent. For example, consider indenting the Legend in a manner that offsets it from the rest of the text and using a larger font size. Consider other methods to better highlight the Legend.
Response. In response to this comment, the Registrant has revised the cover page to make the Legend more prominent.
4.Comment. Revise the Legend to include specific cross-references to related principal risks of the Fund by name, such as "Proxy Portfolio Structure Risk," "Predatory Trading Practices Risk," "Premium/Discount Risk," and "Trading Issues Risk."
Response. In response to this comment, the Registrant has revised the Legend to include specific cross-references to related principal risks of the Funds by name.
Prospectus
Fee Table
5.Comment. In Footnote 1 to the Fee Table, please provide more specific terms of recoupment. Specifically, please revise the recoupment language to reflect that the Adviser may be able to recover the waived fees and/or expenses if repayment does not exceed both (1) the expense ratio in place at the time such amounts were waived and (2) its current net expense ratio. Moreover, revise to clearly state that the recoupment period must be limited to one year from the time expenses were waived or incurred.
Response. The Registrant notes that the last sentence of Footnote 1 to the "Annual Fund Operating Expenses" table states that the Fund will not be obligated to repay any waived/reimbursed fees and expenses more than one year after the end of the fiscal year in which the fees or expenses were waived/reimbursed. The Registrant respectfully
submits that the above-referenced disclosure adequately states that the recoupment period is limited to one year from the time expenses were waived or reimbursed. In response to this comment, the Registrant has revised the third sentence of Footnote 1 to the Fee Table as follows:
"The Adviser will be permitted to recover management fees waived and/or expenses reimbursed to the extent that expenses in later periods fall below the applicable expense limitations both (1) the expense ratio in place at the time such amounts were waived and
(2) the Fund's current net expense ratio."
Prospectus Summary – Principal Investment Strategies (pages 1-2)
6.Comment. In the first sentence, please clarify that the Fund will primarily invest in common stocks of "exchange-traded" U.S. companies.
Response. In response to this comment, the Registrant has revised the disclosure to refer to "exchange-traded" common stocks and "exchange-traded" preferred stocks of U.S. companies.
7.Comment. In the second sentence, please define "larger capitalization companies" with greater specificity. Please provide a capitalization range or reference point, such as an index, for what the Fund considers "larger capitalization" in the Item 9 strategy.
Response. The Registrant is not aware of any requirement to include a capitalization range in the principal investment strategies where a fund's name does not suggest a focus on investments in a certain capitalization range. The Registrant does not believe the inclusion of a capitalization range or an index defining the term "large capitalization" in this context would enhance an investor's understanding of the Fund's principal investment strategies. Accordingly, no changes to the disclosure have been made.
8.Comment. The Order is conditioned on the Fund's investments being limited to securities listed or traded on a national securities exchange registered with the Commission or common stock listed on a foreign exchange that trade contemporaneously with the Fund's shares. If the Fund will invest principally in common stocks that trade on a foreign exchange contemporaneously with Fund shares, revise the principal investment strategies to discuss this condition.
Response. In response to this comment, the Registrant has revised the disclosure to state, in the principal investment strategies of each Initial Fund, that each Initial Fund may:
" • invest in common stocks listed on a foreign exchange that trade on such exchange contemporaneously with the shares."
9.Comment. In the last paragraph, please state that the Fund is actively-managed and does not intend to track an index.
Response. The requested change has been made.
10.Comment. In the last paragraph, please specifically state that the Fund will not disclose the daily holdings of the Actual Portfolio.
Response. The requested change has been made.
11.Comment. Consider revising the language of the last paragraph to more closely align with the plain English description of the difference between this Fund and a traditional ETF found in the "Proxy Portfolio Methodology" section on page 8.
Response. The Registrant respectfully submits that the language of the last paragraph reflects in plain English a summary of the Proxy Portfolio methodology that is appropriate for the "Principal Investment Strategies" section of the prospectus. Nevertheless, in response to the Staff's Comments 9 through 13, the Registrant has revised the last paragraph of the "Principal Investment Strategies" as follows:
"Non-Transparent ETF with Proxy Portfolio Structure. The Fund is a type of exchange traded fund ("ETF"). Unlike traditional ETFs, however, which generally publish their portfolio holdings on a daily basis, the Fund discloses a portfolio transparency substitute—the "Proxy Portfolio"—and certain related information about the relative performance of the Proxy Portfolio and the Fund's actual portfolio Actual Portfolio holdings (the "Proxy Portfolio Disclosures"), which are intended to help keep the market price of the Fund's shares trading at or close to the underlying net asset value ("NAV") per share of the Fund. While the Proxy Portfolio includes some of the Fund's holdings, it is not the Fund's actual portfolio Actual Portfolio and the Fund will not disclose the daily holdings of the Actual Portfolio. The purpose of disclosing the Proxy Portfolio rather than the Fund's full portfolio holdings is to protect the Fund and its shareholders against the risk that market participants could use the daily disclosure of the Fund's portfolio holdings to identify the Fund's trading strategy and engage in certain predatory trading practices (such as "front-running" or "free riding"). The Fund's exemptive relief limits the types of securities in which the Fund can invest, which may constrain the Fund's ability to implement its investment strategies and may disadvantage the Fund. The Fund is actively-managed and does not intend to track an index."
12.Comment. Consider revising the "ETF Structure" title of the last paragraph to "Non- Transparent ETF with Proxy Portfolio Structure" to specifically reference what is unique about this Fund's structure.
Response. The requested change has been made.
13.Comment. In the last sentence of the last paragraph, please delete the language "["]
and may disadvantage the Fund."
Response. The requested change has been made.
Prospectus Summary – Principal Investment Risks (pages 2-3)
14.Comment. Please consider whether a Large Capitalization Company Risk is appropriate for this Fund.
Response. The Registrant has carefully considered the Staff's comment and believes that the risks of investing in large capitalization companies are adequately disclosed in "Equity Securities Risk." Accordingly, no changes to the disclosure have been made.
15.Comment. Please consider reorganizing the principal risks related to the Fund's Proxy Portfolio structure so that these risks appear together under one main risk grouped together with related sub-risks. For example, please consider including "Proxy Portfolio Structure Risk" as a main risk with the following risks as related sub-risks: "Premium/Discount Risk"; "Trading Issues Risk"; "Authorized Participant Concentration Risk"; and "Predatory Trading Practices Risk."
Response. The requested changes have been made.
16.Comment. Consider reorganizing the Fund's principal risks so that the Fund's "Proxy Portfolio Structure Risk" appears first.
Response. The requested changes have been made.
17.Comment. Please revise the "Proxy Portfolio Structure Risk" to address the following issues, as well as any other discrepancies:
a.Please more specifically state that the Fund will not disclose the daily holdings of the Actual Portfolio.
b.Please consider including risk disclosure explaining that the Proxy Portfolio methodology is novel and not yet proven as an effective arbitrage mechanism.
c.Please note where appropriate that the Fund will incur expenses to operate the Proxy Portfolio.
d.Please explain that the effectiveness of the Proxy Portfolio as an arbitrage mechanism is contingent upon, among other things, the Fund's Factor Model analysis creating a Proxy Portfolio that "performs in a manner substantially identical to the performance of [the Fund's] Actual Portfolio."
e.Revise the last sentence of this risk to note that if the Proxy Portfolio methodology does not result in effective arbitrage, the Fund may exhibit wider premiums/discounts, bid/ask spreads and tracking error, per the Application on page 17. Additionally, please discuss here, or where appropriate, that at certain thresholds for such premiums/discounts, spreads and tracking error, the Fund's board will discuss and determine what, if anything, should be done to address such issues.
f.Please add a "Tracking Error" sub-risk that discusses the Fund's Proxy Overlap and the Fund's potential for Tracking Error, as described on page 11 of the Application. Please also disclose that the Fund does not require a minimum Proxy Overlap with its Actual Portfolio.
Response. In response to subparts (a) through (e) of this comment, the Registrant has revised the "Proxy Portfolio Structure Risk" as follows:
"Proxy Portfolio Structure Risk: Unlike traditional ETFs that provide daily disclosure of their portfolio holdings, the Fund does not disclose the daily holdings of the Actual Portfolio. Instead, the Fund discloses a Proxy Portfolio that is designed to reflect the economic exposure and risk characteristics of the Fund's actual portfolio Actual Portfolio on any given trading day. Although the Proxy Portfolio and Proxy Portfolio Disclosures are intended to provide Authorized Participants and other market participants with enough information to allow them to engage in effective arbitrage transactions that will keep the market price of the Fund's shares trading at or close to the underlying NAV per share of the Fund, while at the same time enabling them to establish cost-effective hedging strategies to reduce risk, there is a risk that market prices will vary significantly from the underlying NAV of the Fund. See "Premium/Discount Risk." Similarly, shares of the Fund may trade at a wider bid/ask spread than shares of traditional ETFs, and may therefore be more costly for investors to trade. See "Trading Issues Risk." Also, the Fund will incur expenses to license the Proxy Portfolio mechanism, which may impact shareholder returns. Additionally, the proxy mechanism itself may result in additional trading costs and/or higher bid/ask spreads, which could also may negatively impact shareholder returns to shareholders. In addition, although the Proxy Portfolio is designed to protect the Fund from predatory practices such as front-running and free-riding, market participants may nonetheless be able to use the Proxy Portfolio and Proxy Portfolio Disclosures to engage in trading practices that disadvantage the Fund. See "Predatory Trading Practices Risk." The Fund will monitor on an ongoing basis the premium/discount between the market price and the NAV of the Fund's shares, but there can be no assurance that the Proxy Portfolio methodology will operate as intended. The Proxy Portfolio methodology is novel and not yet proven as an effective arbitrage mechanism. The effectiveness of the Proxy Portfolio methodology as an arbitrage me
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April 24, 2020
U.S. Securities and Exchange Commission
Division of Investment Management
100 F Street, NE
Washington, DC 20549-0504
Attention: Elena S. Stojic, Esq.
VIA EDGAR
Re: Registrant:
Natixis ETF Trust II
File No.:
811-23500
Filing Type:
Form N-1A
Dear Ms. Stojic:
This letter responds to comments of the staff (the "Staff") of the Securities and Exchange Commission (the "Commission") received by letter on January 10, 2020, regarding the initial registration statement to Natixis ETF Trust II (the "Registrant") on Form N-1A for the Natixis [ ] ETF (the "Fund"), which was filed with the Commission on December 12, 2019 (the "Registration Statement"). For your convenience, we have summarized each comment below, followed by the Registrant's response. Any term that is used, but not defined, in this letter retains the same meaning as used by the Registrant in the Registration Statement.
General
1.Comment. We note that portions of the filing, including the Fund's financial statements and Subadviser information, are incomplete. We may have additional comments on such portions when you complete them in a pre-effective amendment, on disclosures made in response to this letter, on information supplied supplementally, or on exhibits added in any amendments.
Response. The Registrant appreciates the Staff's comments on the Registration Statement, including the Staff's comments on the principal investment strategies of the Fund. Please note that the Registrant has revised the disclosure in the Registration Statement regarding the Fund, including the Fund's name (which is now the Natixis U.S. Equity Opportunities ETF), principal investment strategies and subadvisers. The Registrant has also revised the Registration Statement to include two additional series of the Registrant: the Natixis Vaughan Nelson Select ETF and the Natixis Vaughan Nelson Mid Cap ETF (each an "Initial Fund" and together with the Fund, the "Initial Funds"). The Registrant appreciates that certain comments of the Staff regarding the Fund may apply to the disclosure regarding each of the Initial Funds. The Registrant believes that the revised disclosure, including the disclosure regarding the principal investment strategies of each of the Initial Funds, is responsive to the Staff's comments on the Registration Statement.
2.Comment. The Staff is aware that Natixis Advisors, L.P., et al., filed an application and subsequent amendments seeking exemptive relief from certain provisions of the 1940 Act (the "Application"). The Commission issued an order granting certain exemptive relief on December 10, 2019 (the "Order"). Please tailor the disclosure throughout the registration statement to conform to the specific exemptive relief granted by the Order, including the relevant representations and conditions contained in the Application.
Response. In response to this comment, the Registrant has tailored the disclosure throughout the registration statement to conform to the specific exemptive relief granted by the Order, including the relevant representations and conditions contained in the Application.
Cover Page
3.Comment. The Application states the Fund will include a Legend describing how the Fund will operate differently from a traditional ETF. Revise the cover page to make the Legend more prominent. For example, consider indenting the Legend in a manner that offsets it from the rest of the text and using a larger font size. Consider other methods to better highlight the Legend.
Response. In response to this comment, the Registrant has revised the cover page to make the Legend more prominent.
4.Comment. Revise the Legend to include specific cross-references to related principal risks of the Fund by name, such as "Proxy Portfolio Structure Risk," "Predatory Trading Practices Risk," "Premium/Discount Risk," and "Trading Issues Risk."
Response. In response to this comment, the Registrant has revised the Legend to include specific cross-references to related principal risks of the Funds by name.
Prospectus
Fee Table
5.Comment. In Footnote 1 to the Fee Table, please provide more specific terms of recoupment. Specifically, please revise the recoupment language to reflect that the Adviser may be able to recover the waived fees and/or expenses if repayment does not exceed both (1) the expense ratio in place at the time such amounts were waived and (2) its current net expense ratio. Moreover, revise to clearly state that the recoupment period must be limited to one year from the time expenses were waived or incurred.
Response. The Registrant notes that the last sentence of Footnote 1 to the "Annual Fund Operating Expenses" table states that the Fund will not be obligated to repay any waived/reimbursed fees and expenses more than one year after the end of the fiscal year in which the fees or expenses were waived/reimbursed. The Registrant respectfully
submits that the above-referenced disclosure adequately states that the recoupment period is limited to one year from the time expenses were waived or reimbursed. In response to this comment, the Registrant has revised the third sentence of Footnote 1 to the Fee Table as follows:
"The Adviser will be permitted to recover management fees waived and/or expenses reimbursed to the extent that expenses in later periods fall below the applicable expense limitations both (1) the expense ratio in place at the time such amounts were waived and
(2) the Fund's current net expense ratio."
Prospectus Summary – Principal Investment Strategies (pages 1-2)
6.Comment. In the first sentence, please clarify that the Fund will primarily invest in common stocks of "exchange-traded" U.S. companies.
Response. In response to this comment, the Registrant has revised the disclosure to refer to "exchange-traded" common stocks and "exchange-traded" preferred stocks of U.S. companies.
7.Comment. In the second sentence, please define "larger capitalization companies" with greater specificity. Please provide a capitalization range or reference point, such as an index, for what the Fund considers "larger capitalization" in the Item 9 strategy.
Response. The Registrant is not aware of any requirement to include a capitalization range in the principal investment strategies where a fund's name does not suggest a focus on investments in a certain capitalization range. The Registrant does not believe the inclusion of a capitalization range or an index defining the term "large capitalization" in this context would enhance an investor's understanding of the Fund's principal investment strategies. Accordingly, no changes to the disclosure have been made.
8.Comment. The Order is conditioned on the Fund's investments being limited to securities listed or traded on a national securities exchange registered with the Commission or common stock listed on a foreign exchange that trade contemporaneously with the Fund's shares. If the Fund will invest principally in common stocks that trade on a foreign exchange contemporaneously with Fund shares, revise the principal investment strategies to discuss this condition.
Response. In response to this comment, the Registrant has revised the disclosure to state, in the principal investment strategies of each Initial Fund, that each Initial Fund may:
" • invest in common stocks listed on a foreign exchange that trade on such exchange contemporaneously with the shares."
9.Comment. In the last paragraph, please state that the Fund is actively-managed and does not intend to track an index.
Response. The requested change has been made.
10.Comment. In the last paragraph, please specifically state that the Fund will not disclose the daily holdings of the Actual Portfolio.
Response. The requested change has been made.
11.Comment. Consider revising the language of the last paragraph to more closely align with the plain English description of the difference between this Fund and a traditional ETF found in the "Proxy Portfolio Methodology" section on page 8.
Response. The Registrant respectfully submits that the language of the last paragraph reflects in plain English a summary of the Proxy Portfolio methodology that is appropriate for the "Principal Investment Strategies" section of the prospectus. Nevertheless, in response to the Staff's Comments 9 through 13, the Registrant has revised the last paragraph of the "Principal Investment Strategies" as follows:
"Non-Transparent ETF with Proxy Portfolio Structure. The Fund is a type of exchange traded fund ("ETF"). Unlike traditional ETFs, however, which generally publish their portfolio holdings on a daily basis, the Fund discloses a portfolio transparency substitute—the "Proxy Portfolio"—and certain related information about the relative performance of the Proxy Portfolio and the Fund's actual portfolio Actual Portfolio holdings (the "Proxy Portfolio Disclosures"), which are intended to help keep the market price of the Fund's shares trading at or close to the underlying net asset value ("NAV") per share of the Fund. While the Proxy Portfolio includes some of the Fund's holdings, it is not the Fund's actual portfolio Actual Portfolio and the Fund will not disclose the daily holdings of the Actual Portfolio. The purpose of disclosing the Proxy Portfolio rather than the Fund's full portfolio holdings is to protect the Fund and its shareholders against the risk that market participants could use the daily disclosure of the Fund's portfolio holdings to identify the Fund's trading strategy and engage in certain predatory trading practices (such as "front-running" or "free riding"). The Fund's exemptive relief limits the types of securities in which the Fund can invest, which may constrain the Fund's ability to implement its investment strategies and may disadvantage the Fund. The Fund is actively-managed and does not intend to track an index."
12.Comment. Consider revising the "ETF Structure" title of the last paragraph to "Non- Transparent ETF with Proxy Portfolio Structure" to specifically reference what is unique about this Fund's structure.
Response. The requested change has been made.
13.Comment. In the last sentence of the last paragraph, please delete the language "["]
and may disadvantage the Fund."
Response. The requested change has been made.
Prospectus Summary – Principal Investment Risks (pages 2-3)
14.Comment. Please consider whether a Large Capitalization Company Risk is appropriate for this Fund.
Response. The Registrant has carefully considered the Staff's comment and believes that the risks of investing in large capitalization companies are adequately disclosed in "Equity Securities Risk." Accordingly, no changes to the disclosure have been made.
15.Comment. Please consider reorganizing the principal risks related to the Fund's Proxy Portfolio structure so that these risks appear together under one main risk grouped together with related sub-risks. For example, please consider including "Proxy Portfolio Structure Risk" as a main risk with the following risks as related sub-risks: "Premium/Discount Risk"; "Trading Issues Risk"; "Authorized Participant Concentration Risk"; and "Predatory Trading Practices Risk."
Response. The requested changes have been made.
16.Comment. Consider reorganizing the Fund's principal risks so that the Fund's "Proxy Portfolio Structure Risk" appears first.
Response. The requested changes have been made.
17.Comment. Please revise the "Proxy Portfolio Structure Risk" to address the following issues, as well as any other discrepancies:
a.Please more specifically state that the Fund will not disclose the daily holdings of the Actual Portfolio.
b.Please consider including risk disclosure explaining that the Proxy Portfolio methodology is novel and not yet proven as an effective arbitrage mechanism.
c.Please note where appropriate that the Fund will incur expenses to operate the Proxy Portfolio.
d.Please explain that the effectiveness of the Proxy Portfolio as an arbitrage mechanism is contingent upon, among other things, the Fund's Factor Model analysis creating a Proxy Portfolio that "performs in a manner substantially identical to the performance of [the Fund's] Actual Portfolio."
e.Revise the last sentence of this risk to note that if the Proxy Portfolio methodology does not result in effective arbitrage, the Fund may exhibit wider premiums/discounts, bid/ask spreads and tracking error, per the Application on page 17. Additionally, please discuss here, or where appropriate, that at certain thresholds for such premiums/discounts, spreads and tracking error, the Fund's board will discuss and determine what, if anything, should be done to address such issues.
f.Please add a "Tracking Error" sub-risk that discusses the Fund's Proxy Overlap and the Fund's potential for Tracking Error, as described on page 11 of the Application. Please also disclose that the Fund does not require a minimum Proxy Overlap with its Actual Portfolio.
Response. In response to subparts (a) through (e) of this comment, the Registrant has revised the "Proxy Portfolio Structure Risk" as follows:
"Proxy Portfolio Structure Risk: Unlike traditional ETFs that provide daily disclosure of their portfolio holdings, the Fund does not disclose the daily holdings of the Actual Portfolio. Instead, the Fund discloses a Proxy Portfolio that is designed to reflect the economic exposure and risk characteristics of the Fund's actual portfolio Actual Portfolio on any given trading day. Although the Proxy Portfolio and Proxy Portfolio Disclosures are intended to provide Authorized Participants and other market participants with enough information to allow them to engage in effective arbitrage transactions that will keep the market price of the Fund's shares trading at or close to the underlying NAV per share of the Fund, while at the same time enabling them to establish cost-effective hedging strategies to reduce risk, there is a risk that market prices will vary significantly from the underlying NAV of the Fund. See "Premium/Discount Risk." Similarly, shares of the Fund may trade at a wider bid/ask spread than shares of traditional ETFs, and may therefore be more costly for investors to trade. See "Trading Issues Risk." Also, the Fund will incur expenses to license the Proxy Portfolio mechanism, which may impact shareholder returns. Additionally, the proxy mechanism itself may result in additional trading costs and/or higher bid/ask spreads, which could also may negatively impact shareholder returns to shareholders. In addition, although the Proxy Portfolio is designed to protect the Fund from predatory practices such as front-running and free-riding, market participants may nonetheless be able to use the Proxy Portfolio and Proxy Portfolio Disclosures to engage in trading practices that disadvantage the Fund. See "Predatory Trading Practices Risk." The Fund will monitor on an ongoing basis the premium/discount between the market price and the NAV of the Fund's shares, but there can be no assurance that the Proxy Portfolio methodology will operate as intended. The Proxy Portfolio methodology is novel and not yet proven as an effective arbitrage mechanism. The effectiveness of the Proxy Portfolio methodology as an arbitrage me