Investment Process

INVESTMENT PHILOSOPHY

At 2ndVote Funds we believe that companies focused on shareholder returns are better for investors than companies focused on political activism or social agendas. Our investment strategy is consistent with the view of renowned economist Milton Freidman that a business’ first responsibility is to generate returns for its shareholders. We also believe that investors should be able to invest in a manner consistent with their own values.

INVESTMENT APPROACH

First, we weed out all companies opposing the rights and freedoms relevant to each ETF, using 2VR’s proprietary database and company evaluations. Next, our sub-adviser, LTI, applies its rigorous, proprietary investment analysis with proven stock valuation metrics, to create portfolios of what we believe are high-quality companies.

Investment Process

We invest to create investment returns for you, in line with your values. Our process for selecting the companies in which our ETFs invest is twofold:

1. To assure that we are investing in companies focused on producing shareholders returns, our sub-adviser, Laffer Tengler Investments, Inc., (LTI) applies two well-recognized stock valuation metrics (Relative Dividend Yield and Relative-Price-to-Sales Ratio) focused on financial information: Dividends and Sales. It then applies its rigorous, proprietary investment analysis to stock selection – including specific fundamental qualitative and quantitative factors – to help create diverse portfolios of high-quality companies.
2. To assure that our products do not oppose our investors’ values, we use the unique proprietary research developed by 2VR to identify companies in the S&P 1500 that oppose 2nd Amendment rights, border security, support for law enforcement, or a civil society; or that support abortion. We then eliminate those companies from the investment universe for our EGIS and LYFE ETFs respectively.

This process is designed to result in a portfolio of profit-oriented, business-focused companies with a solid return outlook, that are aligned with our investors’ values.

Screening Out Companies Pursuing Political Activism or Social Agendas That May Oppose Your Values

All 2ndVote Funds 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 of at least $2 billion.

Each stock is first scored using the proprietary rating system developed by 2ndVote Research (2VR), whose founder is an indirect primary owner of the Adviser. 2VR dives deep to weed out companies that advocate for progressive agendas. The rating system evaluates information, for a number of issues, 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, and any other activities that demonstrate advocacy/activism by or on behalf of the company.

For example, companies that are evaluated as having progressive agendas on the issues relevant to each ETF (e.g., that oppose 2nd Amendment rights, border security, civil society or support for law enforcement; or support abortion), are excluded from the investment universe for our EGIS and LYFE ETFs respectively.

Each of the 2ndVote ETFs utilize different political/social screens based on their investment objective.

All companies begin with a base “3.0” or Neutral score for each issue researched, 2VR gathers and evaluates research on companies’ activities and policies, using a proprietary algorithm to convert this behavior into a company 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.

2ndVote Society Defended ETF (2nd Amendment)

Ticker Symbol: Cboe: EGIS

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 that is then added or deducted from the base score. The degree to which companies provide direct or indirect support to organizations that support gun free zones, support of gun control legislation, oppose Stand Your Ground Laws, oppose Concealed Carry, support banning of firearms or refusal to do business with the firearms industry, and related advocacy groups or legislation will lower their 2ndVote 2nd Amendment score.

The degree to which companies have an over-reliance on, or outsourced supply chain to countries with interests adverse to the United States or which provide direct or indirect support to organizations that back open borders, promote or support sanctuary cities, that encourage the DREAM act or are anti-Immigration and Customs Enforcement will lower their 2ndVote Border Security score. Direct or indirect support of organizations which lower a company’s 2ndVote 2nd Amendment and Border Security scores are collectively referred to as “anti-safe society actions.”

The direct or indirect monetary donations amount can increase (donations for pro-2nd Amendment or Border Security causes) or decrease (donations for groups that support “anti-safe society actions”) their 2ndVote rating. Ultimately a company receives a combined 2nd Amendment Score and Border Security score of between 1 and 5, which may not be a whole number.

Ultimately a company receives each a 2nd Amendment Score and Border Security Score of between 1 and 5, which may not be a whole number.

1.00

A score of one (1) represents a “Liberal” company which provides direct support for, or engages in, activities that seek to promote anti-safe society actions 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 anti-safe society actions, agendas, activities, and the like.

3.00

A score of three (3) represents a “Neutral” company which neither support nor oppose Safe Society activities, agendas, causes, etc. by its direct or indirect actions or policies. However, a company may be scored a 3 if it has offsetting activities that are both in support and opposition to safe society actions.

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 safe society 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 safe society 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 2nd Amendment or Border Security score.

Conservative

Liberal

Cato

American Civil Liberties Union

Firearms Policy Foundation

Center for American Progress

Commission of the Southern Baptist Convention

Coalition to Stop Gun Violence

The Heritage Foundation

National Urban League

Gun Owners of America

League of Latin American Citizens

NRA

United States Hispanic Chamber of Commerce

Family Research Council

Amnesty International

American Conservative Union

Brody Campaign

American Family Association

Hispanic Federation

Conservative

Cato

Firearms Policy Foundation

Commission of the Southern Baptist Convention

The Heritage Foundation

Gun Owners of America

NRA

Family Research Council

American Conservative Union

American Family Association

Liberal

American Civil Liberties Union

Center for American Progress

Coalition to Stop Gun Violence

National Urban League

League of Latin American Citizens

United States Hispanic Chamber of Commerce

Amnesty International

Brody Campaign

Hispanic Federation

This list is constantly updated based on 2ndVote’s research. The Adviser is a licensee of 2ndVote’s research. The Fund will hold securities with a Border Security Score of “3” or better on the rating system.

All the 2ndVote Funds investment objectives are non-fundamental policies and may be changed by the Board of Trustees without shareholder approval upon 60 days’ written notice to shareholders. The Funds are actively managed and do not seek to replicate any index.

Fundamental Financial Analysis - Two Time-Proven Stock Valuation Metrics

Once the 2VR screening process is completed, companies are then analyzed using two time-proven stock valuation metrics –both pioneered by its investment team and Sub-Adviser, Laffer Tengler Investments (LTI). LTI 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”). RPSR is the dominant fundamental selection methodology. RDY 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 1500 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 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 1500 Index.

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

Where the dividend is less of a factor in management’s calculus (as in fallen-angel growth companies), 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 1500 Index.

Fundamental Screening - Research

Proprietary Research Process

Remaining companies are then further analyzed by using 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 an actively managed concentrated Fund portfolio of typically 30 to 40 names, with an overweight to the highest conviction names. An individual security will comprise no more than 10% of the portfolio weighting (usually 5%) and no less than 2% of its weighting.

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

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 10% at time of purchase accompanied by a maximum sector weighting of 2 times the sector weight in the S&P 1500. Consult with your financial advisor who will explain how the specialized 2ndVote Funds fit in your overall portfolio allocation.

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.