Correspondence 0001623632-24-000892 from Federated Hermes ETF Trust (CIK 0001849998)
Federated Hermes ETF Trust (CIK 0001849998)
Date: July 16, 2024 · CIK: 0001849998 · Accession: 0001623632-24-000892
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FEDERATED HERMES ETF TRUST
4000 Ericsson Drive
Warrendale, Pennsylvania 15086-7561
July 16, 2024
Mark Cowan
U.S. Securities and Exchange Commission
Division of Investment Management
100 F Street, N.E.
Washington, DC 20549-4720
RE:
FEDERATED HERMES ETF TRUST (the “Registrant”)
Federated Hermes MDT Large Cap Growth ETF (“LCGETF”)
Federated Hermes MDT Large Cap Value ETF (“LCVETF”)
Federated Hermes MDT Small Cap Core ETF (“SCCETF”)
Federated Hermes MDT Large Cap Core ETF (“LCCETF”)
(each a “Fund” and collectively, the “Funds”)
1933 Act File No. 333-258934
1940 Act File No. 811-23730
Dear Mr. Cowan:
The Registrant is filing this correspondence
to respond to comments of the Staff of the Securities and Exchange Commission (the “Staff”) provided on June 20, 2024, with
respect to the Registrant’s Post-Effective Amendment No. 12 under the Securities Act of 1933, as amended (the “1933 Act”),
and Amendment No. 13 under the Investment Company Act of 1940, as amended (the “1940 Act”), to its registration statement
with respect to the registration of the above-named Funds filed on April 30, 2024 (the “Registration Statement”).
The Registrant intends to file an amended Registration
Statement reflecting the responses herein.
General Comments
1. The Registrant is responsible for the accuracy and adequacy of its disclosure
notwithstanding review by the Staff.
2. The Registrant must file its responses on EDGAR no later than 5 business
days before the effective date of the Registration Statement. It is requested that the Registrant provide a courtesy notification to the
Staff upon EDGAR acceptance of the correspondence.
3. The Registrant’s response must include the marked disclosure changes
that the Registrant intends to make by either including specific pages of the Registration Statement with the correspondence or by clearly
indicating the revised disclosure in the correspondence.
4. Please note that where a comment is made in one section or in one Fund such
comment should be addressed in all other sections and Funds where it applies in the Registration Statement.
RESPONSE:
The Registrant will respond
as requested.
Prospectus Summary Sections and Statutory
Prospectus Sections (All Funds)
COMMENT 1. Prospectus – Cover Page
In the first sentence on the cover page of each
Fund (immediately under “A Portfolio of Federated Hermes ETF Trust”), please revise and clarify the disclosure to be consistent
with disclosure in the investment strategy.
RESPONSE:
The Registrant will revise this disclosure for
each Fund as follows (deletions stricken and additions bold and underlined, as applicable):
LCGETF:
“A fund seeking long-term capital appreciation
by investing primarily in common stocks of large capitalization (large-cap) large-sized U.S. companies
with higher forecasted growth values relative to the market.
LCVETF:
“A fund seeking to provide long-term capital
appreciation by investing primarily in common stocks of large capitalization (large-cap) large cap U.S.
companies undervalued relative to the market.
SCCETF:
A fund seeking long-term capital appreciation
by investing primarily in common stock of small capitalization (small-cap) U.S. companies.
LCCETF:
A fund seeking long-term capital appreciation
by investing primarily in the common stock of large capitalization (large-cap) U.S. companies.
COMMENT 2. Prospectus - Risk/Return Summary:
Fees and Expenses
Please delete Footnote 1 to the Fee Table, as
it is neither permitted nor required by Form N-1A.
RESPONSE:
Respectfully, the Registrant believes that the
presentation of the approved but inactive Rule 12b-1 Fee (“Dormant Fee”) in each Fund’s respective footnote is consistent
with Instruction 3(d)(i) to Item 3 of Form N-1A and is material information for Fund investors. The Funds do not, and cannot, include
the Dormant Fee in the Fee Table itself.
In fairness to investors, the Registrant believes
that it is important to identify the following in a footnote that: (1) the Dormant Fee has been approved by the Registrant’s Board
of Trustees (“Board”); (2) provides the maximum allowable fee amount, as applicable; and (3) discloses that the Dormant Fee
is not currently being charged and will not be incurred or charged until approved to be activated by the Board. Therefore, the Registrant
respectfully declines to make any changes in response to this comment.
COMMENT 3. Prospectus - Risk/Return Summary:
Fees and Expenses Example
The Staff notes the following disclosure in the second introductory
paragraph:
“The Example also assumes that your investment has
a 5% return each year and that operating expenses remain the same.”
Please revise this disclosure to state that the Example numbers
reflect the application of the fee waiver and expense limitation shown in the fee table, or disclose that the Example numbers are shown
without taking the fee waiver and expense limitation into account.
RESPONSE:
The Registrant confirms that the Example numbers for the Funds
do not include fee waivers or expense reimbursements and are based on gross expenses.
The Registrant will revise the second introductory paragraph
of the Example as shown below (additions bold and underlined):
“The Example assumes that you invest $10,000 for
the time periods indicated and then redeem or hold all of your Shares as the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses remain the same. The expenses used
to calculate the Fund’s Example do not include fee waivers or expense reimbursements. Although your actual costs and returns
may be higher or lower, based on these assumptions your costs would be:”
COMMENT 4. Prospectus - Risk/Return Summary:
What are the Fund’s Main Investment Strategies?
The Staff notes that for each Fund, the strategy
disclosure should clarify whether the investment universe for each Fund relates exclusively to the securities in each Fund’s index
(for example the Russell 1000® Growth Index) or whether the investment universe for each Fund includes securities not included in
its index.
The Staff raises this question because each Fund
includes inconsistent disclosures that appear to indicate that each Fund is not managed exclusively to its index. For example, phrases
such as “some,” “primarily,” and “include but are not limited to” are used. Please consider clarifying
to what types of investments these phrases refer.
RESPONSE:
The Registrant confirms that none of the Funds
intend to operate as index funds and each Fund maintains the flexibility to invest in securities that are outside of the respective index
referenced in its principal investment strategies. The Registrant believes that each Fund’s investment strategies are clear on this
point by consistently using the noted language and other similar language and as each Fund clearly states in its principal investment
strategies that it is not designed to track the overall composition of the noted index. In addition, the Registrant notes that Instruction
3 to Item 9(b)(1) of Form N-1A states that a negative strategy is not a principal investment strategy. Accordingly, the Funds do not describe
their strategy to not invest exclusively in the noted indices. Therefore, the Registrant respectfully declines to make any changes in
response to this comment.
COMMENT 5. Prospectus - Risk/Return Summary:
What are the Fund’s Main Investment Strategies?
In the first sentence of each Fund’s investment
strategy, please delete the word “primarily” and align the statement with each Fund’s 80% policy.
RESPONSE:
The Registrant notes that each Fund’s 80%
policy is clearly described in a standalone paragraph within the investment strategies. The first sentence of each Fund’s investment
strategy is not intended to serve as a restatement or shortened discussion of the Fund’s 80% policy and accurately describes the
principal investment strategies of the Fund. Therefore, the Registrant respectfully declines to make any changes in response to this comment.
COMMENT 6. Prospectus - Risk/Return Summary:
What are the Fund’s Main Investment Strategies?
In alignment with Comment 4, above, the Staff
notes disclosures in each Fund’s investment strategy referencing language that is not clear on each Fund’s intended investments.
For example, phrases such as “most of” and “include but are not limited to” should be deleted and more definitive
investment statements should be made.
RESPONSE:
Please refer to the Registrant’s response
to Comment 4 above.
COMMENT 7. Prospectus - Risk/Return Summary:
What are the Fund’s Main Investment Strategies?
The Staff requests that the Registrant proofread
and closely review the strategies of each Fund to address and clarify defined terms, correct typos, correct missed words and ensure overall
disclosure consistency, as applicable, in each Fund.
RESPONSE:
The Registrant will respond as requested.
COMMENT 8. Prospectus - Risk/Return Summary:
What are the Fund’s Main Investment Strategies?
The Staff notes disclosure in each Fund describing
its investment strategy to employ a quantitative model. For example:
“The Adviser implements its
strategy using a quantitative model driven by fundamental and technical stock selection variables, including relative value, profit trends,
capital structure and price history.”
Please further explain and clarify these criteria
in plain English and customize the disclosure for each of the Funds.
RESPONSE:
The Registrant will revise the noted disclosure as shown below
(deletions stricken):
“The Adviser implements its
strategy using a quantitative model driven by fundamental and technical stock selection variables, including relative value, profit
trends, capital structure and price history.”
In addition, the Registrant does not believe
it is appropriate to customize this disclosure for each Fund, as this could imply four different quantitative models are being used. The
same quantitative model process is applied to each Fund, and the customization and differences between the Funds reflect the differences
in the universe of securities in which each Fund invests as already otherwise described by the principal investment strategies.
COMMENT 9. Prospectus - Risk/Return Summary:
What are the Fund’s Main Investment Strategies?
The Staff notes disclosure in each Fund’s
investment strategies regarding its 80% investment policy. Please revise each Fund’s 80% investment policy to clarify that each
Fund’s 80% investment policy will only be satisfied with investments in large or small capitalization companies, as applicable,
rather than as a mix of capitalization and growth or value characteristics.
RESPONSE:
The Registrant notes it drafted each Fund’s
80% investment policy to comply with the recent amendments (“Amendments”) to Rule 35d-1 of the 1940 Act in advance of the
December 2025 compliance date for the Amendments.
Under the Amendments, a fund’s name is
misleading if the name includes terms suggesting that a fund focuses its investments in issuers who have, particular characteristics (e.g.,
a name with the terms such as “growth” or “value”); a particular type of investment or investments; a particular
industry or group of industries; or particular countries or geographic regions unless the fund adopts a policy to invest, under normal
circumstances, at least 80% of the value of its assets in investments in accordance with the investment focus that the fund’s name
suggests.
The names of both LCGETF and LCVETF contain
both a particular type of investment (equity securities) and particular characteristics (large capitalization growth and large capitalization
value, respectively). Accordingly, the Registrant has drafted each Fund’s 80% policy to state that such Fund will “invest
its assets so that at least 80% of its net assets (plus any borrowings for investment purposes) are invested in a mix of large-cap and
[growth or value] investments,” as applicable.
The Registrant notes this approach is consistent
with the discussion on pages 49-50 of the adopting release for the Amendments which states:
“Where a fund’s name
suggests an investment focus that has multiple elements, the fund’s 80% investment policy must address each of those elements. For
instance, a fund with a name that references two or more distinct investment focuses (e.g., “XYZ Technology and Growth Fund”)
could have an investment policy that provides that each security included in the 80% basket must be in both the technology sector and
meet the fund’s growth criteria. Alternatively, such a fund could instead have an investment policy that provides that 80%
of the value of the fund’s assets will be invested in a mix of technology investments and growth investments, with some technology
investments, some growth investments, and some investments in both of these categories, with no minimum or maximum investment requirements
specified for either category.” (emphasis added)
Therefore, the Registrant respectfully declines
to make any changes in response to this comment.
COMMENT 10. Prospectus - Risk/Return Summary:
What are the Fund’s Main Investment Strategies?
In each Fund’s investment strategy, the
Staff notes disclosure purporting to define securities contained in each Fund’s index. Please consider replacing phrases such as
“similar to companies contained in the Index” with “within the range of the companies contained in the Index”
or more definitive statements.
RESPONSE:
The Registrant will revise each Fund’s
80% investment policy as follows (deletions stricken and additions bold and underlined, as applicable):
LCGETF:
The Fund will invest its assets so that at least
80% of its net assets (plus any borrowings for investment purposes) are invested in a mix large-cap and growth investments. For purposes
of this policy, large-cap and growth investments will be defined as companies with market capitalizations or
growth characteristics, as applicable, similar to within the range of companies in the Russell 1000® Growth
Index, and growth investments will be defined as companies with growth characteristics that meet the applicable parameters for inclusion
in the Russell 1000® Growth Index.
LCVETF:
The Fund will invest its assets so that at least
80% of its net assets (plus any borrowings for investment purposes) are invested in a mix of large-cap and value investments. For purposes
of this policy, large-cap and value investments will be defined as companies with market capitalizations or value
characteristics, as applicable, similar to within the range of companies in the Russell 1000® Value Index,
and value investments will be defined as companies with value characteristics that meet the applicable parameters for inclusion in the
Russell 1000® Value Index.
SCCETF:
The Fund will invest its assets so that at least
80% of its net assets (plus any borrowings for investment purposes) are invested in small companies. For purposes of this policy, small
companies will be defined as companies with market capitalizations similar to within the range of companies
in the Russell 2000® Index.
LCCETF:
The Fund will invest its assets so that at least
80% of its net assets (plus any borrowings for investment purposes) are invested in large-cap companies. For purposes of this policy,
large-cap companies will be defined as companies with market capitalizations similar to within the range of companies
in the Russell 1000® Index.
COMMENT 11. Prospectus - Risk/Return Summary:
What are the Fund’s Main Investment Strategies?
The Staff notes the following sample disclosure
in the Funds:
“The Fund will notify shareholders
at least 60 days in advance of any change in its investment policies that would enable the Fund to normally invest less than 80% of its
net assets (plus any borrowings for investment purposes) in a mix of large-cap and growth investm