Correspondence 0001999371-24-004273 from Tidal Trust II (CIK 0001924868)
Tidal Trust II (CIK 0001924868)
Date: April 1, 2024 · CIK: 0001924868 · Accession: 0001999371-24-004273
AI Filing Summary & Sentiment
File numbers found in text: 333-264478, 811-23793
Letter
VIA EDGAR TRANSMISSION Division of Investment Management Washington, DC 20549 Re: Tidal Trust II (the “Trust”) Post-Effective Amendment No. 162 to the Trust’s Registration Statement on Form N-1A (the “Amendment”) File Nos. 811-23793; 333-264478
Dear Ms. McManus:
This correspondence responds to comments the Trust received on behalf of the staff of the U.S. Securities and Exchange Commission (the “Staff” or the “Commission”) on March 13, 2024 and March 15, 2024, with respect to the Registration Statement and the Trust’s proposed two new series, the Return Stacked Bonds & Futures Yield ETF and the Return Stacked U.S. Equity & Futures Yield ETF (each, a “Fund,” and 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.
PROSPECTUS
Fees and Expenses
1. Fee Table: Please remove footnote 1.
Response: The Trust respectfully declines to remove footnote 1. It is important to note that the inclusion of this footnote was a direct response to a request made by the SEC Staff as well as several follow-up discussions. The Trust was agreeable to adding the footnote as an accommodation because its aim was to provide clarity and transparency in our registration statements. Furthermore, we note that, for consistency across Tidal Investments LLC’s advised funds, similar footnotes have been added to the registration statements of the Trust, Tidal ETF Trust, and Tidal Trust III.
Removing the footnote would not only deviate from the standard set by previous discussions with the SEC Staff but also introduce inconsistencies across our registration statements, potentially causing confusion for investors. Additionally, administratively, monitoring and managing such changes across multiple Trusts and multiple filings would impose a significant burden on our resources and create unnecessary complexity in our compliance efforts.
Each Fund’s completed Fees and Expenses table and Expense Example are as shown in the attached Appendix A.
2. Please supplementally confirm that the Subsidiary’s fees and expenses are included in other expenses and management fees, not in AFFE.
Response: The Trust confirms that the Subsidiary’s fees and expenses are not included in AFFE. The Trust also responds supplementally by noting that the Adviser and Futures Trading Advisor will not receive any additional compensation for services provided to the Subsidiary. The Trust further responds by noting that the Subsidiary’s expenses will not be included in “Other Expenses” in the Fund’s Fees and Expenses table in the Prospectus because the Subsidiary’s expenses are part of the Fund’s expenses subject to the Fund’s unitary management fee.
3. Please confirm that there are no fee reimbursement or recoupment arrangements with respect to any fee waivers of the Funds’ unitary management fees.
Response: The Trust confirms that there are no fee reimbursement or recoupment arrangements with respect to any fee waivers of the Funds’ unitary management fees.
Principal Investment Strategies
4. Please qualify the one-dollar statement to note that financing costs, if any, will be deducted.
Response: The Trust respectfully declines to provide the requested qualification as it would be inaccurate. The Fund’s Futures Yield Strategy is limited to the trading of futures contracts, which are already net of embedded financing costs. It is therefore accurate to state that the return of the Futures Yield strategy is essentially stacked on top of the returns of the Bond / Equity strategies. Adding disclosure that financing costs will be deducted would double-count the cost of financing.
5. With respect to Return Stacked Bonds & Futures Yield ETF’s Bond strategy disclosure:
i. Please define and provide the metrics that the Fund utilizes to measure duration. For example, effective maturity or dollar weighted average maturity.
ii. Please describe the targeted credit quality of the bond funds, if any.
iii. Please revise to clarify that the Fund will consider the investment of the underlying funds when determining compliance with its own names rule policy.
Response:
i. The Prospectus has been revised to note that duration will be measured as modified duration and a definition has been added.
ii. The Trust confirms that the Fund has no targeted credit quality for the bond funds.
iii. The Trust confirms that Item 9 disclosure in the Prospectus has been supplemented to note that the Fund will consider the investment of the underlying funds when determining compliance with its own names rule policy.
6. With respect to the Return Stacked U.S. Equity & Futures Yield ETF’s Equity strategy disclosure:
i. Please clarify if the Fund will target broad-based US equity ETFs that provide exposure to large capitalization companies. If not, please clarify the Fund’s target capitalization, if any. Similarly, clarify any capitalization targets for equity indices associated with potential futures contracts. We note reference to small and mid-cap companies in the SAI.
ii. With respect to the Fund’s Collateral Futures Yield disclosure, please explain how the Fund investing up to 100% in non-equities does not render the Fund’s name materially deceptive or misleading.
Response:
i. The Trust respectfully notes that the Fund’s strategy disclosure currently states that “the Fund seeks to capture the total return of large-capitalization U.S. equities (meaning companies with a market capitalization greater than $8 billion).” The Trust notes that large-capitalization risk disclosure has been added to the Fund’s principal investment risk disclosures in the Prospectus and the relevant discussion in the SAI. The Trust also notes that the reference to small and mid-cap companies in the SAI relates to potential investments outside of its principal investment strategy.
ii. As noted in the Prospectus, the Fund’s Name Rule policy is to, under normal circumstances, invest at least 80% of its net assets, plus borrowings for investment purposes, in (a) the Equity strategy and (b) the Futures Yield strategy. Further, the Fund will target a 100% exposure to each of its Equity strategy and its Futures Yield strategy. As a result, the Fund’s investments via its Futures Yield Strategy are consistent with its policy.
7. With respect to the Funds’ Futures Yield strategy disclosure:
i. Please advise if the Fund may invest in equity futures tied to a single issuer. If so, does the Fund have an optimal exposure? For example, a targeted range or minimum? We may have further comments.
ii. Please confirm that the list of futures contract types includes all of those that the Funds plan to principally invest in.
iii. Please provide the Funds’ definition of emerging markets countries.
iv. In light of the fact that the Funds may have limited exposure to any given asset class at any given time, please clarify in disclosure what “diversified basket” means.
Response:
i. The Trust confirms that the Fund does not intend to invest in equity futures tied to a single issuer.
ii. The Trust confirms that the list of futures contract types includes all of those that the Funds plan to principally invest in.
iii. The Prospectus has been supplemented to include the Fund’s definition of emerging markets, which will read substantially as follows:
The Futures Trading Advisor has broad discretion to identify countries that it considers to qualify as “emerging markets.” Unless otherwise indicated, in determining whether a country is an emerging market, the Futures Trading Advisor may take into account specific or general factors that the Investment Manager deems to be relevant, including interest rates, inflation rates, exchange rates, monetary and fiscal policies, trade and current account balances and/or legal, social and political developments, as well as whether the country is considered to be emerging or developing by supranational organizations such as the World Bank, the United Nations, or other similar entities. Emerging market countries generally will include countries with low gross national product per capita and the potential for rapid economic growth and are likely to be located in Africa, Asia, the Middle East, Eastern and Central Europe and Central and South America.
iv. The Trust notes that the Prospectus has been revised to remove the term “diversified” in the foregoing sentence to seek to avoid potential investor confusion with the Investment Company Act’s definition of the term.
8. With respect to the Funds’ Cayman Subsidiary disclosures:
i. Please confirm in correspondence that (a) the Cayman Subsidiary’s management fee, including performance fees, if any, will be included in the “Management Fees” and the wholly-owned Subsidiary’s expenses will be included in “Other Expenses” in the Fund’s fee table; (b) the Subsidiary and its board of directors will agree to designate an agent for service of process in the United States; (c) the Subsidiary and its board of directors will agree to inspection by the Staff of the Subsidiary’s books and records, which will be maintained in accordance with Section 31 of the Investment Company Act and the rules thereunder; and (d) the Cayman Subsidiary’s board will sign the Fund’s registration statement.
ii. Please explain in correspondence whether the financial statements of the Subsidiary will be consolidated with those of the Fund, if not. Please explain why not.
iii. Please disclose that the Fund does not currently intend to create or acquire primary control of any entity which primarily engages in investment activities in securities or other assets other than entities wholly-owned by the Fund.
iv. Disclose that each investment adviser to the Subsidiary complies with the provisions of the Investment Company Act related to investment advisory contracts (Section 15) as an investment adviser to the Fund under Section 2(a)(20) under the Investment Company Act.
v. Disclose as appropriate, whether any of the Cayman subsidiaries’ principal investment strategies or principal risks constitute principal investment strategies or risks of the Fund. The principal investment strategies and risk disclosure of a Fund that invests in this type of Subsidiary should reflect the aggregate operations of the Fund and the Subsidiary.
Response:
i.
(a) The Trust responds supplementally by noting that the Adviser and Futures Trading Advisor will not receive any additional compensation for services provided to the Subsidiary. The Trust further responds by noting that the Subsidiary’s expenses will not be included in “Other Expenses” in the Fund’s Fees and Expenses table in the Prospectus because the Subsidiary’s expenses are part of the Fund’s expenses subject to the Fund’s unitary management fee.
(b) The Subsidiary and/or its board of directors will agree to designate an agent for service of process in the United States.
(c) The Subsidiary and/or its board of directors, for so long as the Fund is the sole investor in the Subsidiary, will agree to inspection by the Staff of the Subsidiary’s books and records, which will be maintained in accordance with Section 31 of the 1940 Act and the rules thereunder.
(d) The Trust notes that the Subsidiary is not required to execute the registrant’s post-effective amendments. The Subsidiary is not offering its securities in the United States, nor is the Subsidiary a co-issuer of the Fund’s securities.
ii. The Trust confirms that the financial statements o
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CORRESP
1
filename1.htm
Tidal
Trust II
234
West Florida Street, Suite 203
Milwaukee,
Wisconsin 53204
April
1, 2024
VIA
EDGAR TRANSMISSION
Kim
McManus
U.S.
Securities and Exchange Commission
Division
of Investment Management
100
F Street NE
Washington,
DC 20549
Re: Tidal
Trust II (the “Trust”)
Post-Effective
Amendment No. 162 to the Trust’s Registration Statement on Form N-1A (the “Amendment”)
File
Nos. 811-23793; 333-264478
Dear
Ms. McManus:
This
correspondence responds to comments the Trust received on behalf of the staff of the U.S. Securities and Exchange Commission (the “Staff”
or the “Commission”) on March 13, 2024 and March 15, 2024, with respect to the Registration Statement and the Trust’s
proposed two new series, the Return Stacked Bonds & Futures Yield ETF and the Return Stacked U.S. Equity & Futures Yield ETF
(each, a “Fund,” and 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.
PROSPECTUS
Fees
and Expenses
1. Fee
Table: Please remove footnote 1.
Response:
The Trust respectfully declines to remove footnote 1. It is important to note that the inclusion of this footnote was a direct response
to a request made by the SEC Staff as well as several follow-up discussions. The Trust was agreeable to adding the footnote as an accommodation
because its aim was to provide clarity and transparency in our registration statements. Furthermore, we note that, for consistency across
Tidal Investments LLC’s advised funds, similar footnotes have been added to the registration statements of the Trust, Tidal ETF
Trust, and Tidal Trust III.
Removing
the footnote would not only deviate from the standard set by previous discussions with the SEC Staff but also introduce inconsistencies
across our registration statements, potentially causing confusion for investors. Additionally, administratively, monitoring and managing
such changes across multiple Trusts and multiple filings would impose a significant burden on our resources and create unnecessary complexity
in our compliance efforts.
Each
Fund’s completed Fees and Expenses table and Expense Example are as shown in the attached Appendix A.
2. Please
supplementally confirm that the Subsidiary’s fees and expenses are included in other
expenses and management fees, not in AFFE.
Response:
The Trust confirms that the Subsidiary’s fees and expenses are not included in AFFE. The Trust also responds supplementally by
noting that the Adviser and Futures Trading Advisor will not receive any additional compensation for services provided to the Subsidiary.
The Trust further responds by noting that the Subsidiary’s expenses will not be included in “Other Expenses” in the
Fund’s Fees and Expenses table in the Prospectus because the Subsidiary’s expenses are part of the Fund’s expenses
subject to the Fund’s unitary management fee.
3. Please
confirm that there are no fee reimbursement or recoupment arrangements with respect to any
fee waivers of the Funds’ unitary management fees.
Response:
The Trust confirms that there are no fee reimbursement or recoupment arrangements with respect to any fee waivers of the Funds’
unitary management fees.
Principal
Investment Strategies
4. Please
qualify the one-dollar statement to note that financing costs, if any, will be deducted.
Response:
The Trust respectfully declines to provide the requested qualification as it would be inaccurate. The Fund’s Futures Yield Strategy
is limited to the trading of futures contracts, which are already net of embedded financing costs. It is therefore accurate to state
that the return of the Futures Yield strategy is essentially stacked on top of the returns of the Bond / Equity strategies. Adding disclosure
that financing costs will be deducted would double-count the cost of financing.
5. With
respect to Return Stacked Bonds & Futures Yield ETF’s Bond strategy disclosure:
i. Please
define and provide the metrics that the Fund utilizes to measure duration. For example, effective
maturity or dollar weighted average maturity.
ii. Please
describe the targeted credit quality of the bond funds, if any.
iii. Please
revise to clarify that the Fund will consider the investment of the underlying funds when
determining compliance with its own names rule policy.
Response:
i. The
Prospectus has been revised to note that duration will be measured as modified duration and
a definition has been added.
ii. The
Trust confirms that the Fund has no targeted credit quality for the bond funds.
iii. The
Trust confirms that Item 9 disclosure in the Prospectus has been supplemented to note that
the Fund will consider the investment of the underlying funds when determining compliance
with its own names rule policy.
6. With
respect to the Return Stacked U.S. Equity & Futures Yield ETF’s Equity strategy
disclosure:
i. Please
clarify if the Fund will target broad-based US equity ETFs that provide exposure to large
capitalization companies. If not, please clarify the Fund’s target capitalization,
if any. Similarly, clarify any capitalization targets for equity indices associated with
potential futures contracts. We note reference to small and mid-cap companies in the SAI.
ii. With
respect to the Fund’s Collateral Futures Yield disclosure, please explain how the Fund
investing up to 100% in non-equities does not render the Fund’s name materially deceptive
or misleading.
Response:
i. The
Trust respectfully notes that the Fund’s strategy disclosure currently states that
“the Fund seeks to capture the total return of large-capitalization U.S. equities (meaning
companies with a market capitalization greater than $8 billion).” The Trust notes that
large-capitalization risk disclosure has been added to the Fund’s principal investment
risk disclosures in the Prospectus and the relevant discussion in the SAI. The Trust also
notes that the reference to small and mid-cap companies in the SAI relates to potential investments
outside of its principal investment strategy.
ii. As
noted in the Prospectus, the Fund’s Name Rule policy is to, under normal circumstances,
invest at least 80% of its net assets, plus borrowings for investment purposes, in (a) the
Equity strategy and (b) the Futures Yield strategy. Further, the Fund will target a 100%
exposure to each of its Equity strategy and its Futures Yield strategy. As a result, the
Fund’s investments via its Futures Yield Strategy are consistent with its policy.
7. With
respect to the Funds’ Futures Yield strategy disclosure:
i. Please
advise if the Fund may invest in equity futures tied to a single issuer. If so, does the
Fund have an optimal exposure? For example, a targeted range or minimum? We may have further
comments.
ii. Please
confirm that the list of futures contract types includes all of those that the Funds plan
to principally invest in.
iii. Please
provide the Funds’ definition of emerging markets countries.
iv. In
light of the fact that the Funds may have limited exposure to any given asset class at any
given time, please clarify in disclosure what “diversified basket” means.
Response:
i. The
Trust confirms that the Fund does not intend to invest in equity futures tied to a single
issuer.
ii. The
Trust confirms that the list of futures contract types includes all of those that the Funds
plan to principally invest in.
iii. The
Prospectus has been supplemented to include the Fund’s definition of emerging markets,
which will read substantially as follows:
The
Futures Trading Advisor has broad discretion to identify countries that it considers to qualify as “emerging markets.” Unless
otherwise indicated, in determining whether a country is an emerging market, the Futures Trading Advisor may take into account specific
or general factors that the Investment Manager deems to be relevant, including interest rates, inflation rates, exchange rates, monetary
and fiscal policies, trade and current account balances and/or legal, social and political developments, as well as whether the country
is considered to be emerging or developing by supranational organizations such as the World Bank, the United Nations, or other similar
entities. Emerging market countries generally will include countries with low gross national product per capita and the potential for
rapid economic growth and are likely to be located in Africa, Asia, the Middle East, Eastern and Central Europe and Central and South
America.
iv. The
Trust notes that the Prospectus has been revised to remove the term “diversified”
in the foregoing sentence to seek to avoid potential investor confusion with the Investment
Company Act’s definition of the term.
8. With
respect to the Funds’ Cayman Subsidiary disclosures:
i. Please
confirm in correspondence that (a) the Cayman Subsidiary’s management fee, including
performance fees, if any, will be included in the “Management Fees” and the wholly-owned
Subsidiary’s expenses will be included in “Other Expenses” in the Fund’s
fee table; (b) the Subsidiary and its board of directors will agree to designate an agent
for service of process in the United States; (c) the Subsidiary and its board of directors
will agree to inspection by the Staff of the Subsidiary’s books and records, which
will be maintained in accordance with Section 31 of the Investment Company Act and the rules
thereunder; and (d) the Cayman Subsidiary’s board will sign the Fund’s registration
statement.
ii. Please
explain in correspondence whether the financial statements of the Subsidiary will be consolidated
with those of the Fund, if not. Please explain why not.
iii. Please
disclose that the Fund does not currently intend to create or acquire primary control of
any entity which primarily engages in investment activities in securities or other assets
other than entities wholly-owned by the Fund.
iv. Disclose
that each investment adviser to the Subsidiary complies with the provisions of the Investment
Company Act related to investment advisory contracts (Section 15) as an investment adviser
to the Fund under Section 2(a)(20) under the Investment Company Act.
v. Disclose
as appropriate, whether any of the Cayman subsidiaries’ principal investment strategies
or principal risks constitute principal investment strategies or risks of the Fund. The principal
investment strategies and risk disclosure of a Fund that invests in this type of Subsidiary
should reflect the aggregate operations of the Fund and the Subsidiary.
Response:
i.
(a) The
Trust responds supplementally by noting that the Adviser and Futures Trading Advisor will
not receive any additional compensation for services provided to the Subsidiary. The Trust
further responds by noting that the Subsidiary’s expenses will not be included in “Other
Expenses” in the Fund’s Fees and Expenses table in the Prospectus because the
Subsidiary’s expenses are part of the Fund’s expenses subject to the Fund’s
unitary management fee.
(b) The
Subsidiary and/or its board of directors will agree to designate an agent for service of
process in the United States.
(c) The
Subsidiary and/or its board of directors, for so long as the Fund is the sole investor in
the Subsidiary, will agree to inspection by the Staff of the Subsidiary’s books and
records, which will be maintained in accordance with Section 31 of the 1940 Act and the rules
thereunder.
(d) The
Trust notes that the Subsidiary is not required to execute the registrant’s post-effective
amendments. The Subsidiary is not offering its securities in the United States, nor is the
Subsidiary a co-issuer of the Fund’s securities.
ii. The
Trust confirms that the financial statements o