Correspondence 0001829126-23-007245 from Themes ETF Trust (CIK 0001976322)
Themes ETF Trust (CIK 0001976322)
Date: Nov. 9, 2023 · CIK: 0001976322 · Accession: 0001829126-23-007245
AI Filing Summary & Sentiment
File numbers found in text: 333-271700, 811-23872
Letter
U.S. Securities and Exchange Commission 100 F Street, NE Washington, DC 20549
Re: Themes ETF Trust, File Nos. 333-271700; 811-23872
Dear Ms. White:
This correspondence responds to comments provided by telephone by the staff of the U.S. Securities and Exchange Commission (the “Staff”) pursuant to its review of the pre-effective amendment (the “Amendment”) to the registration statement for Themes ETF Trust (the “Registrant” or the “Trust”), with respect to Themes Airlines ETF, Themes China Technology ETF, Themes Cloud Computing ETF, Themes Cybersecurity ETF, Themes European Luxury ETF, Themes Future of Farming ETF, Themes Generative Artificial Intelligence ETF, Themes Global Systemically Important Banks ETF, Themes Gold Miners ETF, Themes Industry 4.0 ETF, Themes Junior Gold Miners ETF, Themes Natural Monopoly ETF, Themes Renewable Energy ETF, Themes Robotics & Automation ETF, Themes Semiconductors ETF, Themes US Cash Flow Champions ETF, Themes US Internet ETF, Themes US R&D Champions ETF, Themes Silver Miners ETF, Themes Solar Energy ETF, Themes US Small Cap Cash Flow Champions ETF, and Themes Wind Energy ETF (the “Funds”), filed on Form N-1A with the Securities and Exchange Commission on June 30, 2023, and its review of correspondence filed by the Registrant on September 11, 2023. For your convenience, the comments have been reproduced with responses following each comment. Changes made to disclosure in the Amendment are redlined in each response as applicable. The captions used below correspond to the captions the Trust uses in the registration statement. All capitalized terms not otherwise defined herein have the meaning given to them in the registration statement.
PROSPECTUS
General
1. The Staff does not agree with Registrant’s position with respect to compliance with the requirements of Investment Company Act Rule 35d-1 (“Rule 35d-1” or the “Names Rule”) as set forth in its Correspondence filed on June 30, 2023. In order to comply with the requirements of the Names Rule, please disclose that each indexed Fund other than the Themes Natural Monopoly ETF will have a policy under normal circumstances to invest at least 80% of net assets plus the amount of any borrowings for investment purposes in the investment or industry suggested by its name.
Response: The disclosure has been revised to state that each indexed Fund other than the Themes Natural Monopoly ETF has a policy to invest, under normal circumstances, at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the investment or industry suggested by its name. As an example, the disclosure for the Airlines ETF has been revised as follows:
“In constructing or adjusting the Index, the Index Provider identifies an “Index Universe” of companies that, on Selection Days (as defined below), fulfill the following requirements: … 2) are classified in the Airlines industry by the FactSet Revere Business Industry Classification System (“RBICS”), which includes companies that provide air transportation of passengers, both scheduled (regular routes) and non-scheduled (no regular routes) (“Airline Companies”)…The Fund will invest, under normal circumstances, at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in securities that comprise the Index and in American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”) based on the securities in the Index. The Fund will also invest, under normal circumstances, at least 80% of its net assets, plus borrowings for investment purposes, in securities of Airline Companies and in ADRs and GDRs based on such securities.”
2. Please provide the Staff with a copy of the Index Methodology White Paper and a list of the top ten holdings for the STOXX Global Industry 4.0 Index.
Response: The Registrant has provided under separate cover a copy of the Index Methodology White Paper and a list of the top ten holdings for the STOXX Global Industry 4.0 Index.
KAREN A. ASPINALL ● PARTNER
11300 Tomahawk Creek Pkwy, Suite 310 ● Leawood, KS 66211
Practus, LLP ● Practus.com
3. Please provide the completed Fees and Expenses Table for each Fund.
Response: The completed Fees and Expenses Table for each Fund has been provided under separate cover. As an example, the completed Fees and Expenses Table for the Airlines ETF is:
Fees and Expenses of the Fund
The following table describes the fees and expenses you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and Example below.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees 0.35%
Distribution and/or Service (12b-1) Fees None
Other Expenses* 0.00%
Total Annual Fund Operating Expenses 0.35%
* Estimated for the current fiscal year
Example
The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they were to invest $10,000 in the Fund for the time periods indicated and then redeem all of the Shares at the end of those periods. This example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
1 Year 3 Years
$36 $113
Themes Airlines ETF
4. Please tailor your Geographic Risk to address the regions or countries investors will be principally exposed to, directly or indirectly, as a result of the Fund’s investments in airline companies. Revised disclosure should address material issues in the region or country and how such issues could impact the companies the Fund invests in. This comment should be considered across all of the Funds included in your filing. Please revise as appropriate.
In addition, please be consistent in how you identify the “Airlines” industry. In some places you capitalize “Airlines” and in other places you do not.
Response: The Registrant has reviewed its Geographic Risk disclosures and believes the risks related to the Airlines, China Technology, European Luxury, Robotics & Automation, Semiconductor, US Cash Flow Champions, US Internet, US R&D Champions and US Small Cap Cash Flow Champions ETFs are appropriate as currently disclosed. Geographic Risk disclosure for the remaining Funds was revised as follows:
Cloud Computing ETF: Risk of Investing in Asia and Israel were removed.
Cybersecurity ETF: Risk of Investing in Europe was removed.
Future of Farming ETF: Risk of Investing in Israel was removed.
Generative Artificial Intelligence ETF: Risk of Investing in Europe and Asia were removed.
Global Systemically Important Banks ETF: Risk of Investing in Europe was removed.
Gold Miners ETF: Risk of Investing in Brazil, Europe, China, Hong Kong, and South Korea were removed.
Industry 4.0 ETF: Risk of Investing in India, South Korea, and Taiwan were removed.
Junior Gold Miners ETF: Risk of Investing in China, Hong Kong, Africa and the Middle East, Brazil, and South Korea were removed.
Natural Monopoly ETF: Risk of Investing in China, Hong Kong, and Israel were removed.
Renewable Energy ETF: Risk of Investing in Asia, Hong Kong, and Israel were removed.
Silver Miners ETF: Risk of Investing in Europe, Australia, Brazil, South Korea, and Africa and the Middle East were removed.
Solar Energy ETF: Risk of Investing in Australia and Risk of Investing in Africa and the Middle East were removed.
Wind Energy ETF: Risk of Investing in North America, Australia, and Africa and the Middle East were removed.
The Registrant has addressed your comment as it relates to its identification of the “airlines” industry. The disclosure has been revised to identify the industry as follows – airlines industry.
Themes China Technology ETF
5.
Clarify the impact of including companies in the Index that are subject to restrictions. For example, would the Fund be unable to hold certain Index securities and, if so, would that impact tracking error?
Response: The Fund may utilize representative sampling in certain circumstances, one of which is cited as “when a replication strategy might be detrimental or disadvantageous to shareholders, such as when there are practical difficulties or substantial costs involved in compiling a portfolio of equity securities to replicate the Index, in instances in which a security in the Index becomes temporarily illiquid, unavailable or less liquid, or as a result of legal restrictions imposed by the U.S. or Chinese government (such as tax diversification requirements or sanctions) that apply to the Fund but not the Index.” However, the Index Provider has represented that it follows guidance from the Office of Foreign Asset Control (OFAC) and strictly prohibits the inclusion of restricted or sanctioned securities in the Index. The disclosure has been revised to include the following: “Securities subject to ownership restrictions by the US or Chinese governments are excluded from the Index Universe by the Index Provider and Index Components that become subject to any such restrictions are removed by the Index Provider from the Index.”
In the event that a Chinese company in the Index gets added to the sanction list, the company would be removed from the Index, and the Fund would sell out of the security, adhering to the directive of the Index. Therefore, the inclusion of companies in the Index that are subject to restrictions is highly unlikely. Nevertheless, the impact of this scenario is disclosed in “Tracking Risk” as “The performance of the Fund may vary from the performance of the Index as a result of Fund fees and expenses, the use of representative sampling, brokerage and transaction costs, the effect of Chinese taxes, and other factors. In addition, the Fund may not be able to invest in certain securities included in the Index or invest in them in the exact proportions represented in the Index due to market disruptions, legal restrictions or limitations imposed by the Chinese government, certain exchange listing standards, or a lack of liquidity on stock exchanges in which such securities trade.”
Themes Cybersecurity ETF
6. The Index methodology described in the Principal Investment Strategies section for this Fund is inconsistent with the Index Methodology White Paper previously provided to the Staff.
Response: An incorrect Index Methodology White Paper was inadvertently provided to the Staff by the Registrant in conjunction with its Correspondence filed on June 30, 2023. The Registrant has provided under separate cover the correct Index Methodology White Paper and list of the top ten holdings for the Solactive Cyber Security Index.
7. Remove or define “significant assets” in section 2) of the first sentence of the second paragraph under “Principal Investment Strategies of the Fund – The Index” and for all other Funds as applicable as well.
Response: The Registrant has removed the term “significant assets” where noted by the Staff for all applicable Funds.
8.
In the second paragraph under “Principal Investment Strategies of the Fund – The Index”, why use “includes” the following sub-industries? Will there be other sub-industries added? Please revise or advise.
Response: The Registrant has removed the list of sub-industries from the disclosure for clarity and to be consistent with the Index Methodology White Paper. The disclosure now refers to the “digital security software” category as identified by the Index Provider using the FactSet Revere Business Industry Classification System (RBICS).
9. In the second paragraph under “Principal Investment Strategies of the Fund – The Index,” define “carrier edge network management equipment, colocation and data center services” and clarify how “government IT services” falls into the category of cybersecurity.
In addition, in the last sentence of the first paragraph on page 30 of the prospectus, please confirm that the reference to “digital software” should be “digital security software.”
Response: As noted in the response to Comment 8, the Registrant has removed the references to each of the sub-industries, including those noted in the comment, for clarity and to be consistent with the Index Methodology White Paper.
The Registrant has inserted “security” so that the disclosure now reads as follows:
“In order to be classified in the digital security software category, RBICS requires that a company generate at least 50% of its revenue from digital security software.”
Themes European Luxury ETF
10. Under “Natural Language Processing (NLP) Model Risk”, clarify what is meant by “Performance may suffer if a theme or sub-theme develops in an unexpected manner. In addition, performance may suffer if the stocks included in the Index do not benefit from the development of such themes or sub-themes. Performance may also be impacted by the inclusion of non-theme relevant exposures in the Index.” Revise for all Funds that use this disclosure.
Response: For all applicable Funds, the Registrant has replaced the disclosure cited with: “The Index Provider uses NLP models to assist in the development of the Fund’s Index. The Index’s investment theme is created by the Index Provider and the Index Provider’s description of the theme is used by the theme must be accurately described in order for the NLP screening models to identify relevant companies for index consideration. The investment theme must be accurately described in order for tThese NLP models are used to identify companies that reflect the themes and sub-themes of the Index. If a model or a the description of the theme is prove to be incorrect or incomplete, the NLP model may identify companies that are not relevant to the Fund’s investment theme or fail to identify companies that are relevant. As a result, securities may be included any decisions made in reliance thereon may lead to the inclusion or exclusion of securities in or excluded from the Index uUniverse that would have been excluded or included had the models and descriptions of the theme been correct and complete. If the composition of the Index reflects such errors, the Fund’s portfolio can be expected to also reflect the errors.”
Themes Future of Farming ETF
11. The description of the Index Methodology previously provided to the Staff is not consistent with the 50% statement included in the section “Principal Investment Strategies – The Index”: “Companies are only eligible for inclusion in the Index if they generate at least 50% of their revenues or income from …the agricultural industry.”
R
Show Raw Text
CORRESP
1
filename1.htm
November 9, 2023
Ms. Alison T. White
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re:
Themes ETF Trust, File Nos. 333-271700; 811-23872
Dear Ms. White:
This correspondence responds
to comments provided by telephone by the staff of the U.S. Securities and Exchange Commission (the “Staff”) pursuant to its
review of the pre-effective amendment (the “Amendment”) to the registration statement for Themes ETF Trust (the “Registrant”
or the “Trust”), with respect to Themes Airlines ETF, Themes China Technology ETF, Themes Cloud Computing ETF, Themes Cybersecurity
ETF, Themes European Luxury ETF, Themes Future of Farming ETF, Themes Generative Artificial Intelligence ETF, Themes Global Systemically
Important Banks ETF, Themes Gold Miners ETF, Themes Industry 4.0 ETF, Themes Junior Gold Miners ETF, Themes Natural Monopoly ETF, Themes
Renewable Energy ETF, Themes Robotics & Automation ETF, Themes Semiconductors ETF, Themes US Cash Flow Champions ETF, Themes US Internet
ETF, Themes US R&D Champions ETF, Themes Silver Miners ETF, Themes Solar Energy ETF, Themes US Small Cap Cash Flow Champions ETF,
and Themes Wind Energy ETF (the “Funds”), filed on Form N-1A with the Securities and Exchange Commission on June 30,
2023, and its review of correspondence filed by the Registrant on September 11, 2023. For your convenience, the comments have been reproduced
with responses following each comment. Changes made to disclosure in the Amendment are redlined in each response as applicable. The captions
used below correspond to the captions the Trust uses in the registration statement. All capitalized terms not otherwise defined herein
have the meaning given to them in the registration statement.
PROSPECTUS
General
1.
The Staff does not agree with Registrant’s position with respect to compliance with the requirements of Investment Company Act Rule 35d-1 (“Rule 35d-1” or the “Names Rule”) as set forth in its Correspondence filed on June 30, 2023. In order to comply with the requirements of the Names Rule, please disclose that each indexed Fund other than the Themes Natural Monopoly ETF will have a policy under normal circumstances to invest at least 80% of net assets plus the amount of any borrowings for investment purposes in the investment or industry suggested by its name.
Response: The disclosure has been revised to state that each indexed Fund other than the Themes Natural Monopoly ETF has a policy to invest, under normal circumstances, at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the investment or industry suggested by its name. As an example, the disclosure for the Airlines ETF has been revised as follows:
“In
constructing or adjusting the Index, the Index Provider identifies an “Index Universe” of companies that, on Selection Days
(as defined below), fulfill the following requirements: … 2) are classified in the Airlines industry by the FactSet Revere Business
Industry Classification System (“RBICS”), which includes companies that provide air transportation of passengers, both scheduled
(regular routes) and non-scheduled (no regular routes) (“Airline Companies”)…The
Fund will invest, under normal circumstances, at least 80% of its net assets, plus the amount of any borrowings for investment purposes,
in securities that comprise the Index and in American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”)
based on the securities in the Index. The Fund will also invest, under normal circumstances, at least 80%
of its net assets, plus borrowings for investment purposes, in securities of Airline Companies and in ADRs and GDRs based on such securities.”
2.
Please provide the Staff with a copy of the Index Methodology White Paper and a list of the top ten holdings for the STOXX Global Industry 4.0 Index.
Response: The Registrant has provided under separate cover a copy of the Index Methodology White Paper and a list of the top ten holdings for the STOXX Global Industry 4.0 Index.
KAREN A. ASPINALL ● PARTNER
11300 Tomahawk Creek Pkwy, Suite 310 ● Leawood, KS 66211
Practus, LLP ● Practus.com
3.
Please provide the completed Fees and Expenses Table for each Fund.
Response: The completed Fees and Expenses Table for each Fund has been provided under separate cover. As an example, the completed Fees and Expenses Table for the Airlines ETF is:
Fees and Expenses of the Fund
The following table describes the fees and expenses you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and Example below.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees
0.35%
Distribution and/or Service (12b-1) Fees
None
Other Expenses*
0.00%
Total Annual Fund Operating Expenses
0.35%
*
Estimated for the current fiscal year
Example
The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they were to invest $10,000 in the Fund for the time periods indicated and then redeem all of the Shares at the end of those periods. This example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
1 Year
3 Years
$36
$113
Themes Airlines ETF
4.
Please tailor your Geographic Risk to address the regions or countries investors will be principally exposed to, directly or indirectly, as a result of the Fund’s investments in airline companies. Revised disclosure should address material issues in the region or country and how such issues could impact the companies the Fund invests in. This comment should be considered across all of the Funds included in your filing. Please revise as appropriate.
In addition, please be consistent in how you identify the “Airlines”
industry. In some places you capitalize “Airlines” and in other places you do not.
Response: The Registrant has reviewed its Geographic Risk disclosures and believes the risks related to the Airlines, China Technology, European Luxury, Robotics & Automation, Semiconductor, US Cash Flow Champions, US Internet, US R&D Champions and US Small Cap Cash Flow Champions ETFs are appropriate as currently disclosed. Geographic Risk disclosure for the remaining Funds was revised as follows:
Cloud Computing ETF: Risk of Investing in Asia and Israel were removed.
Cybersecurity ETF: Risk of Investing in Europe was removed.
Future of Farming ETF: Risk of Investing in Israel was removed.
Generative Artificial Intelligence ETF: Risk of Investing in Europe and Asia were removed.
Global Systemically Important Banks ETF: Risk of Investing in Europe was removed.
Gold Miners ETF: Risk of Investing in Brazil, Europe, China, Hong Kong, and South Korea were removed.
Industry 4.0 ETF: Risk of Investing in India, South Korea, and Taiwan were removed.
Junior Gold Miners ETF: Risk of Investing in China, Hong Kong, Africa and the Middle East, Brazil, and South Korea were removed.
2
Natural Monopoly ETF: Risk of Investing in China, Hong Kong, and Israel were removed.
Renewable Energy ETF: Risk of Investing in Asia, Hong Kong, and Israel were removed.
Silver Miners ETF: Risk of Investing in Europe, Australia, Brazil, South Korea, and Africa and the Middle East were removed.
Solar Energy ETF: Risk of Investing in Australia and Risk of Investing in Africa and the Middle East were removed.
Wind Energy ETF: Risk of Investing in North America, Australia, and Africa and the Middle East were removed.
The Registrant has addressed your comment
as it relates to its identification of the “airlines” industry. The disclosure has been revised to identify the industry as
follows – airlines industry.
Themes China Technology ETF
5.
Clarify the impact of including companies in the Index that are subject to restrictions. For example, would the Fund be unable to hold certain Index securities and, if so, would that impact tracking error?
Response: The Fund may utilize representative sampling in certain circumstances, one of which is cited as “when a replication strategy might be detrimental or disadvantageous to shareholders, such as when there are practical difficulties or substantial costs involved in compiling a portfolio of equity securities to replicate the Index, in instances in which a security in the Index becomes temporarily illiquid, unavailable or less liquid, or as a result of legal restrictions imposed by the U.S. or Chinese government (such as tax diversification requirements or sanctions) that apply to the Fund but not the Index.” However, the Index Provider has represented that it follows guidance from the Office of Foreign Asset Control (OFAC) and strictly prohibits the inclusion of restricted or sanctioned securities in the Index. The disclosure has been revised to include the following: “Securities subject to ownership restrictions by the US or Chinese governments are excluded from the Index Universe by the Index Provider and Index Components that become subject to any such restrictions are removed by the Index Provider from the Index.”
In the event that a Chinese company in the Index gets added to the sanction list, the company would be removed from the Index, and the Fund would sell out of the security, adhering to the directive of the Index. Therefore, the inclusion of companies in the Index that are subject to restrictions is highly unlikely. Nevertheless, the impact of this scenario is disclosed in “Tracking Risk” as “The performance of the Fund may vary from the performance of the Index as a result of Fund fees and expenses, the use of representative sampling, brokerage and transaction costs, the effect of Chinese taxes, and other factors. In addition, the Fund may not be able to invest in certain securities included in the Index or invest in them in the exact proportions represented in the Index due to market disruptions, legal restrictions or limitations imposed by the Chinese government, certain exchange listing standards, or a lack of liquidity on stock exchanges in which such securities trade.”
Themes Cybersecurity ETF
6.
The Index methodology described in the Principal Investment Strategies section for this Fund is inconsistent with the Index Methodology White Paper previously provided to the Staff.
Response: An incorrect Index Methodology White Paper was inadvertently provided to the Staff by the Registrant in conjunction with its Correspondence filed on June 30, 2023. The Registrant has provided under separate cover the correct Index Methodology White Paper and list of the top ten holdings for the Solactive Cyber Security Index.
7.
Remove or define “significant assets” in section 2) of the first sentence of the second paragraph under “Principal Investment Strategies of the Fund – The Index” and for all other Funds as applicable as well.
Response: The Registrant has removed the term “significant assets” where noted by the Staff for all applicable Funds.
8.
In the second paragraph under “Principal Investment Strategies of the Fund – The Index”, why use “includes” the following sub-industries? Will there be other sub-industries added? Please revise or advise.
Response: The Registrant has removed the list of sub-industries from the disclosure for clarity and to be consistent with the Index Methodology White Paper. The disclosure now refers to the “digital security software” category as identified by the Index Provider using the FactSet Revere Business Industry Classification System (RBICS).
3
9.
In the second paragraph under “Principal Investment Strategies of the Fund – The Index,” define “carrier edge network management equipment, colocation and data center services” and clarify how “government IT services” falls into the category of cybersecurity.
In addition, in the last sentence of the first paragraph on page 30
of the prospectus, please confirm that the reference to “digital software” should be “digital security software.”
Response: As noted in the response to Comment 8, the Registrant has removed the references to each of the sub-industries, including those noted in the comment, for clarity and to be consistent with the Index Methodology White Paper.
The Registrant has inserted “security”
so that the disclosure now reads as follows:
“In order to be
classified in the digital security software category, RBICS requires that a company generate at least 50% of its revenue from digital
security software.”
Themes European Luxury ETF
10.
Under “Natural Language Processing (NLP) Model Risk”, clarify what is meant by “Performance may suffer if a theme or sub-theme develops in an unexpected manner. In addition, performance may suffer if the stocks included in the Index do not benefit from the development of such themes or sub-themes. Performance may also be impacted by the inclusion of non-theme relevant exposures in the Index.” Revise for all Funds that use this disclosure.
Response:
For all applicable Funds, the Registrant has replaced the disclosure cited with: “The
Index Provider uses NLP models to assist in the development of the Fund’s Index. The
Index’s investment theme is created by the Index Provider and the
Index Provider’s description of the theme is used by the
theme must be accurately described in order for the NLP screening models
to identify relevant companies for index consideration. The
investment theme must be accurately described in order for tThese
NLP models are
used to identify companies that reflect the themes and sub-themes of the
Index. If a model or a the description
of the theme is prove to be incorrect
or incomplete, the NLP model may identify companies that are
not relevant to the Fund’s investment theme or fail to identify companies that are
relevant. As a result, securities may be included any
decisions made in reliance thereon may lead to the inclusion or exclusion of securities
in or excluded from the Index uUniverse
that would have been excluded or included had the models
and descriptions of
the theme been correct and complete. If the composition of the Index reflects
such errors, the Fund’s portfolio can be expected to also reflect the errors.”
Themes Future of Farming ETF
11.
The description of the Index Methodology previously provided to the Staff is not consistent with the 50% statement included in the section “Principal Investment Strategies – The Index”: “Companies are only eligible for inclusion in the Index if they generate at least 50% of their revenues or income from …the agricultural industry.”
R