Investment Process

INVESTMENT PHILOSOPHY

Investment Process

Social Screen the 1500 Largest Stocks by Market Capitalization

All 2ndVote ETFs begin the investment process with the initial universe of the 1500 largest domestic stocks by market capitalization, which includes U.S. companies that fall into the large and mid-sized capitalization range and have a market capitalization greater than $2 billion.
 
Each stock is first scored using the proprietary rating system developed by 2ndVote, Inc. (“2V”), whose founder is an indirect owner of the Adviser. The rating system evaluates information about companies’ direct and indirect corporate donations; activities and stated policies of companies; documented sponsorships for various political and advocacy-related events; corporate leadership donations, activities and advocacy; and lobbying spent for or against various issues on federal and state levels (collectively, “Activities and Policies Data”).
 
Information on these Activities and Policies is gathered from different data sources including: Form 990’s, the IRS electronic filing database, official company websites, official company annual reports, news publications, keyword google searches, and any other sources that demonstrate advocacy/activism by or on behalf of the company.
Each of the 2ndVote ETFs utilize different social screens based on their investment objective.
 
While all companies begin with a base “3.0” or Neutral score, 2V gathers Activities and Policies Data, converts this data into a point system that is then added or deducted from the base score.

Select a Fund to Learn More

2ndVote Life Neutral Plus ETF (Life)

Ticker Symbol: Cboe: LYFE
Social Screen:
While all companies begin with a base “3.0” or Neutral score, 2ndVote gathers Activities and Policies Data, converts this data into a point system which is then added or deducted from the base score. Direct or indirect monetary donations amount can increase (donations for pro-life causes) or decrease (donations for pro-abortion causes) their 2ndVote rating.
The degree to which companies provide direct or indirect support to abortion or abortion related advocacy groups or legislation will lower their 2ndVote score. This would include any company that provides any degree of direct financial support for Planned Parenthood Federation of America and the Center for Reproductive Rights, or that is directly or indirectly involved in abortion or labels itself as pro-choice, and would include a company performing abortions or providing any abortion services, engaging in pro-choice/abortion advocacy of any kind, sponsoring legislation that supports abortion or STEM cell research on fetal tissue or promoting, supporting, or manufacturing of abortion drugs.
Ultimately a company receives a Life Score of between 1 and 5, which may not be a whole number. The Fund will hold securities with a Life Score of “3” or better on the rating system.
1.00
A score of one (1) represents a “Liberal” company which provides direct support for, or engages in, activities that seek to promote abortion causes, agendas, activities, and the like.
2.00
A score of two (2) represents a “Lean Liberal” company which provides indirect support for, or engages in, activities that seek to promote abortion causes, agendas, activities, and the like.
3.00
A score of three (3) represents a “Neutral” company which neither supports nor opposes activities, agendas, causes, etc. by its direct or indirect actions or policies that support or promote an abortion or pro-life agenda. However, a company may be scored a 3 if it has offsetting activities that are both in support and opposition to pro-life and abortion issues.
4.00
A score of four (4) represents a “Lean Conservative” company that provides indirect support for, or engages in, activities that seek to promote pro-life causes, agendas, activities, and the like.
5.00
A score of five (5) represents a “Conservative” company that provides direct support for, or engages in, activities that seek to promote pro-life causes, agendas, activities, and the like.
The following is an example of advocacy groups that result in points being added (Conservative) or deducted (Liberal) to a 2ndVote score.
Conservative
Liberal
Alliance Defending Freedom
Amnesty International
American Family Association
American Civil Liberties Union
Concerned Women for America
Center for American Progress
Family Research Council
Center for Reproductive Rights
Fellowship of Christian Athletes
Girls Inc
Heritage Foundation
NARAL Pro Choice America
Life Site
Planned Parenthood Federation of America
Salvation Army
Susan G. Komen
Susan B. Anthony
YMCA
Conservative
Alliance Defending Freedom
American Family Association
Concerned Women for America
Family Research Council
Fellowship of Christian Athletes
Heritage Foundation
Life Site
Salvation Army
Susan B. Anthony
Liberal
Amnesty International
American Civil Liberties Union
Center for American Progress
Center for Reproductive Rights
Girls Inc
NARAL Pro Choice America
Planned Parenthood Federation of America
Susan G. Komen
YMCA
This list is constantly updated based on 2ndVote research. The Adviser is a licensee of 2ndVote’s research.

Fundamental Screening - Two Time-Proven Stock Valuation Metrics

Once the 2nd Vote screening process is completed, Companies are then value -scored by two time-proven stock valuation metrics –both pioneered by its investment team and Sub-Adviser, Laffer Tengler Investments. Laffer Tengler believes these valuation metrics are consistent and robust indicators of investment value. Furthermore, they are methodologies that focus on factual information: Relative Dividend Yield (“RDY”) and Relative Price-to-Sales Ratio (“RPSR”). Relative Price-to-Sales Ratio is the dominant fundamental selection methodology. Relative Dividend Yield provides a level of confirmation and conviction to the selection when dividends are available.

Relative Dividend Yield (“RDY”):

RDY measures the yield of a particular stock compared to the yield on the companies comprising the S&P 500 and does so over long periods of time. Since a stock’s relative yield and relative price are inverse, one can generally conclude that as a stock’s yield is rising, its price is declining—like a bond. Consequently, a rising RDY provides an opportunity for investors to at least consider an underperforming, cheaply valued stock for purchase.

 

Company managements and boards of directors pay the dividend out of free cash flow, not earnings.  In maturing U.S. companies these seasoned professionals often operate within a “dividend paying culture” and set the dividend as a portion of long-term, sustainable real earnings power because management teams are loathed to cut dividends.

 

The relative nature of the RDY metric is also important because it measures the relative attractiveness of a stock compared to its own history and compared to the S&P 500 Index.

Relative Price- to -Sales Ratio (“RPSR”):

In fallen-angel growth companies where the dividend is less of a factor in management’s calculus, we look at sales. The price-to-sales ratio measures how much investors are paying for a unit of sales, the relative price-to-sales ratio reveals what investors have historically paid for a particular company’s sales compared to what they are paying for the sales of all the companies in the S&P 500 Index.

Fundamental Screening - Research

Proprietary Research Process

Remaining companies are then further analyzed by using an additional fundamental investment analysis to ensure the purchase of high-quality companies that comply with the Funds’ investment objectives and social criterion. This process determines the final investment portfolio and security weights.

This additional proprietary research process analyzes Fund qualitative and quantitative data for each company. Examples include:

Qualitative Factors

The valuation discipline combined with its proprietary research methodology provide a level of confidence to build a concentrated Fund portfolio of 30 to 40 names. We would construct a 30-40 stock portfolio for each Fund with an overweight to the highest conviction names. An individual security will comprise no more than 10% of the portfolio weighting and no less than 2%.

Consult with your financial advisor who will explain how the specialized 2ndVote ETFs fit in your overall portfolio allocation.

Quantitative Factors

Sales Growth, Operating Margins, Positive and Growing Free Cash Flow, Dividend Coverage and Dividend Growth, Asset Turnover/Quality Investment in Business/Return on Invested Capital, Equity Leverage/Balance Sheet Relative Price/Earnings Financial Risk

The valuation discipline combined with its proprietary research methodology provide a level of confidence to build a concentrated Fund portfolio of 30 to 40 names. We would construct a 30-40 stock portfolio for each Fund with an overweight to the highest conviction names. An individual security will comprise no more than 10% of the portfolio weighting and no less than 2%.

Consult with your financial advisor who will explain how the specialized 2ndVote ETFs fit in your overall portfolio allocation.

Final Portfolio of Stocks:

The final portfolio of stocks for each ETF is a concentrated portfolio of approximately 30-40 stocks with an overweight to the highest conviction names.

Active and Constant Portfolio Monitoring:

Each stock receives a proprietary buy/sell range based on historical relative dividend yield or historical relative price-to-sales. The range is set based on each stock’s own history, relative to the market and is established one standard deviation from the mean.
The maximum holding for any stock is 5% at time of purchase accompanied by a maximum sector weighting of 2 times the sector weight in the S&P 500.

Asset Allocation

Asset allocation means that you spread your money among different asset classes, such as equities, fixed income, and cash equivalents. Each of these respond differently to different trends in the market, so having a blend of them in your portfolio can help you minimize losses in a market downturn.

 

In general, the younger you are, the higher percentage of equities you should own. This is because you have a longer investment period in which to make up losses if they occur, and the stock market has always trended up over time. More seasoned investors might have a higher percentage of fixed income holdings and be more reliant on regular income than on big stock gains.

 

Asset allocation is a key component of any investment strategy. Your portfolio should be diversified, and how your assets are allocated can reduce your risk. partially determines how diversified you are.

Asset Allocation vs. Diversification

Although asset allocation is a critical part of creating a diverse portfolio, it is not quite the same concept as diversification. You can have your money allocated across several types of asset classes without properly diversifying those investments. For example, if the stocks in your portfolio are all securities in just a few large-cap companies, you may have concentration risk.

 

Diversifying your portfolio means covering a lot of different risk and return levels with your various investments. In order to receive favorable federal income tax treatment as a “regulated investment company” (RIC), a fund must have at least 50% of their assets invested in cash, cash items, government securities, and other securities that do not exceed 5% of fund’s total asset value. The Funds intend to qualify as RICs for federal income tax purposes.

What Are Core and Satellite Holdings?

Core holdings are the central investments of a long-term portfolio. When building your portfolio, it is essential that the core holdings have a history of reliable service and consistent returns.
A common strategy that investors use is to hold an asset that tracks the overall market for an extended time horizon, such as an S&P 500. They will then augment that asset with specific stocks or other types of funds such as Electronically Traded Funds (ETFs) to create opportunities for gaining better risk-adjusted returns.

 

These secondary investments are called satellite or non-core holdings. They focus on growth stocks or specific sectors of the market that are poised to outperform. Once an investor has built a strong core holding for their investment portfolio, they have more flexibility to take on risk in other areas of their portfolio.

Why Proper Allocation Is Important

Allocating assets based on your individual investment strategy is what almost every investor would consider good practice. Even billionaire institutional investors lose money on certain bets. But since they are properly hedged, it ensures they will not go down on a single bad investment.

 

A balance between equities, fixed income, and cash instruments is also important because it is a strategy that allows for macroeconomic movements beyond an investor’s horizon.

2ndVote ETFs are Non-Core Equity Holdings

The 2ndVote ETFs are considered satellite or non core equity strategies, utilizing the growth at a reasonable price (“GARP”) investment style. GARP investing combines tenets of both growth and value investing by finding companies that show consistent earnings growth but do not sell at overly high valuations.

 

2ndVote portfolios are designed to maximize appropriate exposure, moderate risk, and stay true to the investment process mirroring the firm’s core tenants; all to generate long-term total returns.

The Funds’ investment objectives, risks, charges, and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company which can be obtained by clicking here. Please read it carefully before investing.
2ndVote Funds are distributed by Foreside Financial Services, LLC.
Investing involves risk. Principal loss is possible.
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