Alpha Architect ETF Trust
08/08/2024 | Press release | Distributed by Public on 08/08/2024 08:58
Semi Annual Report by Investment Company Form N CSRS
ck0001592900-20240531
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-22961
EA Series Trust
(Exact name of registrant as specified in charter)
(Exact name of registrant as specified in charter)
19 E. Eagle Road
Havertown, PA 19083
(Address of principal executive offices) (Zip code)
(Address of principal executive offices) (Zip code)
19 E. Eagle Road
Havertown, PA 19083
(Name and address of agent for service)
215-882-9983
Registrant's telephone number, including area code
Date of fiscal year end: November 30, 2024
Date of reporting period: May 31, 2024
Item 1. Report to Stockholders.
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Guru Favorite Stocks ETF
Ticker: GFGF
Listed on: The Nasdaq Stock Market LLC
|
May 31, 2024
Semi-Annual Shareholder Report
www.GuruFocusETF.com
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This semi-annual shareholder report contains important information about the Guru Favorite Stocks ETF (the "Fund") for the period of December 1, 2023, to May 31, 2024, ("Period"). You can find additional information about the Fund at www.GuruFocusETF.com. You can also request this information by contacting us at (215) 882-9983.
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| WHAT WERE THE FUND COSTS FOR THE PERIOD? (based on a hypothetical $10,000 investment) | |
| COST OF $10,000 INVESTMENT |
COST PAID AS A PERCENTAGE OF $10,000 INVESTMENT
|
| $35 | 0.65% |
|
PERFORMANCE OF HYPOTHETICAL $10,000 INVESTMENT |
| WHAT FACTORS INFLUENCED PERFORMANCE FOR THE PERIOD? |
The Fund's investment sub-adviser, GuruFocus Investments, LLC (the "Sub-Adviser") tracks the equity portfolio holdings of approximately twenty Gurus. To be considered a Guru, the investor must have a long-term, publicly available, track record of at least ten years. In addition, the Guru must follow an investment strategy of investing in companies that the Guru considers to be high-quality. The Sub-Adviser ranks these Guru companies on quality when selecting securities for the Fund.
The Fund's outperformance over the Period can be attributed to two categories of stocks: technology and non-technology. Technology stocks, including Nvidia, Google, Taiwan Semiconductor, Meta, Monolithic Power Systems, and Microsoft, realized significant gains, contributing substantially to the overall increase. Similarly, non-technology stocks such as American Express, KKR, Intuitive Surgical, Goldman Sachs, and Edwards Lifesciences performed admirably, further bolstering the Fund's performance.
The accelerated expansion of the technology sector, spurred by AI's transformative impact on our lives, has heightened investor expectations regarding tech companies' revenue and profitability. Consequently, these stocks have significantly outpaced the broader market. Additionally, the Fund has avoided underperforming stocks successfully. Over the Period, only one of the Fund's 27 holdings suffered a loss exceeding 5%, in stark contrast to over 25% of S&P 500 companies that faced similar or higher declines.
| AVERAGE ANNUAL TOTAL RETURNS | ||
| One Year |
Since Inception
(12/15/2021)
|
|
| Guru Favorite Stocks ETF - NAV | 28.58% | 4.58% |
| Guru Favorite Stocks ETF - Market | 28.75% | 4.55% |
| Solactive GBS United States 1000 Index | 27.55% | 5.07% |
| S&P 500 Index | 28.19% | 6.42% |
| The Fund's past performance is not a good predictor of how the Fund will perform in the future. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemption of fund shares. | ||
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Visit www.GuruFocusETF.com for more recent performance information.
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Semi-Annual Shareholder Report: May 31, 2024
The Fund is distributed by Quasar Distributors, LLC.
|
Guru Favorite Stocks ETF
Ticker: GFGF
Listed on: The Nasdaq Stock Market LLC
|
May 31, 2024
Semi-Annual Shareholder Report
www.GuruFocusETF.com
|
| KEY FUND STATISTICS (as of Period End) | |||
| Net Assets | $30,820,911 | Portfolio Turnover Rate* | 33% |
| # of Portfolio Holdings | 28 | Advisory Fees Paid | $106,146 |
| *Portfolio turnover is not annualized and is calculated without regard to short-term securities having a maturity of less than one year. Excludes impact of in-kind transactions. |
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SECTOR WEIGHTING (as a % of Net Assets) |
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| Financials | 33.7 | % | (1) |
| Information Technology | 29.7 | % | (1) |
| Health Care | 14.3 | % | |
| Communication Services | 11.2 | % | |
| Industrials | 5.0 | % | |
| Consumer Discretionary | 3.0 | % | |
| Consumer Staples | 2.1 | % | |
| Money Market Funds | 1.0 | % | |
|
Other Assets in Excess of Liabilities (2)
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0.0 | % | (3) |
| Total | 100.0 | % | |
|
(1)For purposes of the Fund's compliance with its concentration limits, the Fund uses various sub-classifications and none of the Fund's holdings in the sub-classifications exceed 25% of the Fund's total assets.
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(2)Cash, cash equivalents and other assets in excess of liabilities.
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(3)Represents less than 0.05% of Net Assets.
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ASSET WEIGHTING
(as a % of Net Assets)
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Availability of Additional Information
For additional information about the Fund, including its prospectus, financial information, and holdings, visit www.GuruFocusETF.com. Information about the Fund's proxy voting records is available by calling (215) 882-9983.
Semi-Annual Shareholder Report: May 31, 2024
The Fund is distributed by Quasar Distributors, LLC.
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
The accompanying notes are an integral part of these financial statements.
1
Item 6. Investments.
| GURU FAVORITE STOCKS ETF |
| SCHEDULE OF INVESTMENTS |
|
May 31, 2024 (Unaudited)
|
| COMMON STOCKS - 99.0% | Shares | Value | |
| Asset Management & Custody Banks - 3.0% | |||
| KKR & Co., Inc. | 9,045 | $ | 930,188 |
| Broadline Retail - 3.0% | |||
|
Amazon.com, Inc.(a)
|
5,277 | 931,074 | |
| Consumer Finance - 3.0% | |||
| American Express Co. | 3,885 | 932,400 | |
| Financial Exchanges & Data - 2.9% | |||
| Moody's Corp. | 2,238 | 888,464 | |
| Health Care Equipment - 6.2% | |||
|
Edwards Lifesciences Corp.(a)
|
10,056 | 873,766 | |
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Intuitive Surgical, Inc.(a)
|
2,570 | 1,033,448 | |
| 1,907,214 | |||
| Health Care Technology - 1.8% | |||
|
Veeva Systems, Inc. - Class A(a)
|
3,143 | 547,668 | |
| Human Resource & Employment Services - 2.4% | |||
| Paychex, Inc. | 6,224 | 747,876 | |
| Insurance Brokers - 8.1% | |||
| Arthur J Gallagher & Co. | 4,084 | 1,034,600 | |
| Brown & Brown, Inc. | 16,355 | 1,463,936 | |
| 2,498,536 | |||
| Interactive Media & Services - 11.2% | |||
|
Alphabet, Inc. - Class A(a)
|
12,925 | 2,229,562 | |
| Meta Platforms, Inc. - Class A | 2,606 | 1,216,559 | |
| 3,446,121 | |||
| Investment Banking & Brokerage - 2.8% | |||
| Goldman Sachs Group, Inc. | 1,896 | 865,562 | |
| Life Sciences Tools & Services - 2.7% | |||
| Danaher Corp. | 3,184 | 817,651 | |
| Managed Health Care - 3.7% | |||
| Elevance Health, Inc. | 2,126 | 1,144,808 | |
The accompanying notes are an integral part of these financial statements.
2
| GURU FAVORITE STOCKS ETF |
| SCHEDULE OF INVESTMENTS (CONTINUED) |
| May 31, 2024 (Unaudited) |
| COMMON STOCKS - 99.0% (CONTINUED) | Shares | Value | |
| Multi-Sector Holdings - 4.1% | |||
|
Berkshire Hathaway, Inc. - Class B(a)
|
3,022 | $ | 1,252,317 |
| Semiconductor Materials & Equipment - 3.4% | |||
| Applied Materials, Inc. | 4,919 | 1,057,978 | |
| Semiconductors - 12.8% | |||
| Monolithic Power Systems, Inc. | 1,281 | 942,342 | |
| NVIDIA Corp. | 1,724 | 1,890,073 | |
| Taiwan Semiconductor Manufacturing Co., Ltd. - ADR | 7,341 | 1,108,785 | |
| 3,941,200 | |||
| Soft Drinks & Non-alcoholic Beverages - 2.1% | |||
|
Monster Beverage Corp.(a)
|
12,765 | 662,759 | |
| Systems Software - 10.2% | |||
| Microsoft Corp. | 7,552 | 3,135,062 | |
| Technology Hardware, Storage & Peripherals - 3.3% | |||
| Apple, Inc. | 5,259 | 1,011,043 | |
| Trading Companies & Distributors - 2.5% | |||
| Fastenal Co. | 11,872 | 783,314 | |
| Transaction & Payment Processing Services - 9.8% | |||
| Jack Henry & Associates, Inc. | 4,394 | 723,604 | |
| Mastercard, Inc. - Class A | 2,474 | 1,106,051 | |
| Visa, Inc. - Class A | 4,365 | 1,189,288 | |
| 3,018,943 | |||
|
TOTAL COMMON STOCKS(Cost $24,338,710)
|
30,520,178 | ||
| SHORT-TERM INVESTMENTS - 1.0% | |||
| Money Market Funds - 1.0% | |||
|
First American Government Obligations Fund - Class X, 5.24%(b)
|
295,554 | 295,554 | |
|
TOTAL SHORT-TERM INVESTMENTS(Cost $295,554)
|
295,554 | ||
|
TOTAL INVESTMENTS - 100.0% (Cost $24,634,264)
|
$ | 30,815,732 | |
|
Other Assets in Excess of Liabilities - 0.0%(c)
|
5,179 | ||
| TOTAL NET ASSETS - 100.0% | $ | 30,820,911 |
Percentages are stated as net assets
ADR - American Depositary Receipt
The accompanying notes are an integral part of these financial statements.
3
| GURU FAVORITE STOCKS ETF |
| SCHEDULE OF INVESTMENTS (CONTINUED) |
| May 31, 2024 (Unaudited) |
| (a) | Non-income producing security. |
| (b) | The rate shown represents the 7-day effective yield as of May 31, 2024. |
| (c) | Represents less than 0.05% of net assets. |
The Global Industry Classification Standard ("GICS®") was developed by and/or is the exclusive property of MSCI, Inc. ("MSCI") and Standard & Poor's Financial Services LLC ("S&P"). GICS® is a service mark of MSCI and S&P and has been licensed for use by U.S. Bank Global Fund Services.
(b) Not applicable.
The accompanying notes are an integral part of these financial statements.
4
GURU FAVORITE STOCKS ETF
Item 7. Financial Statements and Financial Highlights for Open-End Management Investment
Companies.
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2024 (Unaudited)
| Assets: | ||
| Investments in securities, at value (See Note 2) | $ | 30,815,732 |
| Dividends and interest receivable | 22,133 | |
| Total assets | 30,837,865 | |
| Liabilities: | ||
| Accrued investment advisory fees (See Note 4) | 16,954 | |
| Total liabilities | 16,954 | |
| Net Assets | $ | 30,820,911 |
| Net Assets Consist of: | ||
| Paid-in capital | $ | 28,055,289 |
| Total distributable earnings (accumulated deficit) | 2,765,622 | |
| Net Assets: | $ | 30,820,911 |
| Calculation of Net Asset Value Per Share: | ||
| Net Assets | $ | 30,820,911 |
| Shares Outstanding (unlimited shares of beneficial interest authorized, no par value) | 1,110,000 | |
| Net Asset Value per Share | $ | 27.77 |
| Cost of Investments in Securities | $ | 24,634,264 |
The accompanying notes are an integral part of these financial statements.
1
GURU FAVORITE STOCKS ETF
STATEMENT OF OPERATIONS
For the Period Ended May 31, 2024 (Unaudited)
| Investment Income: | ||
| Dividend income | $ | 119,581 |
| Interest income | 3,544 | |
| Total investment income | 123,125 | |
| Expenses: | ||
| Investment advisory fees (See Note 4) | 106,146 | |
| Net expenses | 106,146 | |
| Net Investment Income (Loss) | 16,979 | |
| Realized and Unrealized Gain (Loss) on Investments: | ||
| Net realized gain (loss) on: | ||
| Investments | 3,020,594 | |
| 3,020,594 | ||
| Net change in unrealized appreciation (depreciation) on: | ||
| Investments | 2,309,367 | |
| 2,309,367 | ||
| Net realized and unrealized gain (loss) on investments: | 5,329,961 | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 5,346,940 |
The accompanying notes are an integral part of these financial statements.
2
GURU FAVORITE STOCKS ETF
STATEMENT OF CHANGES IN NET ASSETS
| For the Period Ended May 31, 2024 (Unaudited) | For the Year Ended November 30, 2023 | |||
| Increase (Decrease) in Net Assets from: | ||||
| Operations: | ||||
| Net investment income (loss) | $ | 16,979 | $ | 31,920 |
| Net realized gain (loss) on investments | 3,020,594 | (3,266,053) | ||
| Net change in unrealized appreciation (depreciation) on investments | 2,309,367 | 6,504,977 | ||
| Net increase (decrease) in net assets resulting from operations | 5,346,940 | 3,270,844 | ||
| Distributions to Shareholders: | ||||
| Distributable earnings | (26,410) | (117,903) | ||
| Total distributions to shareholders | (26,410) | (117,903) | ||
| Capital Share Transactions: | ||||
| Proceeds from shares sold | 9,907,696 | 3,693,264 | ||
| Payments for shares redeemed | (16,824,868) | (4,563,812) | ||
| Transaction fees (See Note 1) | 5 | 2 | ||
| Net increase (decrease) in net assets derived from net change in capital share transactions | (6,917,167) | (870,546) | ||
| Net Increase (Decrease) in Net Assets | (1,596,637) | 2,282,395 | ||
| Net Assets: | ||||
| Beginning of period | 32,417,548 | 30,135,153 | ||
| End of period | $ | 30,820,911 | $ | 32,417,548 |
| Changes in Shares Outstanding: | ||||
| Shares outstanding, beginning of period | 1,370,000 | 1,410,000 | ||
| Shares sold | 400,000 | 160,000 | ||
| Shares repurchased | (660,000) | (200,000) | ||
| Shares outstanding, end of period | 1,110,000 | 1,370,000 |
The accompanying notes are an integral part of these financial statements.
3
GURU FAVORITE STOCKS ETF
FINANCIAL HIGHLIGHTS
| Net Asset Value, Beginning of Period |
Net Investment Income (Loss)(1)
|
Net Realized and Unrealized Gain (Loss) on Investments | Net Increase (Decrease) in Net Asset Value Resulting from Operations | Distributions from Net Investment Income | Total Distributions |
Transaction Fees (See Note 1) |
Net Asset Value, End of Period |
Total Return(2)
|
Net Assets, End of Period (000's) |
Net Expenses(3)(4)
|
Net Investment Income (Loss)(3)
|
Portfolio Turnover Rate(5)
|
|
| Six Months Ended May 31, 2024 (Unaudited) | $23.66 | 0.01 | 4.12 | 4.13 | (0.02) | (0.02) |
(0.00)(7)
|
$27.77 | 17.44% | $30,821 | 0.65% | 0.10% | 33% |
|
Year Ended November 30, 2023 |
$21.37 | 0.02 | 2.35 | 2.37 | (0.08) | (0.08) |
(0.00)(7)
|
$23.66 | 11.17% | $32,418 | 0.65% | 0.11% | 81% |
|
For the Period December 15, 2021(6)to November 30, 2022
|
$25.00 | 0.08 | (3.71) | (3.63) |
(0.00)(7)
|
(0.00)(7)
|
(0.00)(7)
|
$21.37 | -14.50% | $30,135 | 0.65% | 0.40% | 28% |
| (1) | Net investment income per share represents net investment income divided by the daily average shares of beneficial interest outstanding throughout the period. |
| (2) | All returns reflect reinvested dividends, if any, but do not reflect the impact of taxes. Total return for a period of less than one year is not annualized. |
| (3) | For periods of less than one year, these ratios are annualized. |
| (4) | Net expenses include effects of any reimbursement or recoupment. |
| (5) | For periods of less than one year portfolio turnover is not annualized and is calculated without regard to short-term securities having a maturity of less than one year. Excludes the impact of in-kind transactions. |
| (6) | Commencement of operations. |
| (7) | Rounds to less than $0.005. |
The accompanying notes are an integral part of these financial statements.
4
GURU FAVORITE STOCKS ETF
NOTES TO THE FINANCIAL STATEMENTS
May 31, 2024 (Unaudited)
May 31, 2024 (Unaudited)
NOTE 1 - ORGANIZATION
Guru Favorite Stocks ETF (the "Fund") is a series of the EA Series Trust (the "Trust"), which was organized as a Delaware statutory trust on October 11, 2013. The Trust is registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company and the offering of the Fund's shares ("Shares") is registered under the Securities Act of 1933, as amended (the "Securities Act"). The Fund is considered diversified under the 1940 Act. The Fund commenced operations on December 15, 2021. The Fund qualifies as an investment company as defined in the Financial Accounting Standards Codification Topic 946-Financial Services- Investment Companies. The Fund's investment objective is to seek long-term capital appreciation.
Shares of the Fund are listed and traded on the Nasdaq Stock Market. Market prices for the shares may be different from their net asset value ("NAV"). The Fund issues and redeems shares on a continuous basis at NAV only in blocks of 10,000 shares, called "Creation Units." Creation Units are issued and redeemed principally in-kind for securities included in a specified universe. Once created, shares generally trade in the secondary market at market prices that change throughout the day in share amounts less than a Creation Unit. Except when aggregated in Creation Units, shares are not redeemable securities of the Fund. Shares of the Fund may only be purchased or redeemed by certain financial institutions ("Authorized Participants"). An Authorized Participant is either (i) a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a DTC participant and, in each case, must have executed a Participant Agreement with the Distributor. Most retail investors do not qualify as Authorized Participants nor have the resources to buy and sell whole Creation Units. Therefore, they are unable to purchase or redeem the shares directly from the Fund. Rather, most retail investors may purchase shares in the secondary market with the assistance of a broker and are subject to customary brokerage commissions or fees.
Authorized Participants may be required to pay a transaction fee to compensate the Trust or its custodian for costs incurred in connection with creation and redemption transactions. The standard transaction fee, which is payable to the Trust's custodian, typically applies to in-kind purchases of the Fund effected through the clearing process on any business day, regardless of the number of Creation Units purchased or redeemed that day ("Standard Transaction Fees"). Variable fees are imposed to compensate the Fund for the transaction costs associated with the cash transactions fees. Certain fund deposits consisting of cash-in-lieu or cash value may be subject to a variable charge ("Variable Transaction Fees"), which is payable to the Fund, of up to 2.00% of the value of the order in addition to the Standard Transaction Fees. Variable Transaction Fees received by the Fund, if any, are displayed in the Capital Share Transactions sections of the Statements of Changes in Net Assets.
Because, among other things, the Fund imposes transaction fees on purchases and redemptions of Shares to cover the custodial and other costs incurred by the Fund in effecting trades, the Board determined that it is not necessary to adopt policies and procedures to detect and deter market timing of the Fund's Shares.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted in the United States of America ("GAAP").
A.Security Valuation.Equity securities that are traded on a national securities exchange, except those listed on the NASDAQ Global Market® ("NASDAQ") are valued at the last reported sale price on the exchange on which the security is principally traded. Securities traded on NASDAQ will be valued at the NASDAQ Official Closing Price ("NOCP"). If, on a particular day, an exchange-traded or NASDAQ security does not trade, then the most recent quoted bid for exchange-traded or the mean between the most recent quoted bid and ask price for NASDAQ securities will be used. Equity securities that are not traded on a listed exchange are generally valued at the last sale price in the over-the-counter market. If a non-exchange traded security does not trade on a particular day, then the mean between the last quoted closing bid and asked price will be used. Prices denominated in foreign currencies are converted to U.S. dollar equivalents at the current exchange rate, which approximates fair value. Redeemable securities issued by open-end investment companies are valued at the investment company's applicable net asset value, with the exception of exchange-traded open-end investment companies which are priced as equity securities. Fair values for long-term debt securities, including asset-backed securities ("ABS"), collateralized loan obligations
5
GURU FAVORITE STOCKS ETF
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
May 31, 2024 (Unaudited)
May 31, 2024 (Unaudited)
("CLO"), collateralized mortgage obligations ("CMO"), corporate obligations, whole loans, and mortgage-backed securities ("MBS") are normally determined on the basis of valuations provided by independent pricing services. Vendors typically value such securities based on one or more inputs, including but not limited to, benchmark yields, transactions, bids, offers, quotations from dealers and trading systems, new issues, spreads and other relationships observed in the markets among comparable securities; and pricing models such as yield measurers calculated using factors such as cash flows, financial or collateral performance and other reference data. In addition to these inputs, MBS and ABS may utilize cash flows, prepayment information, default rates, delinquency and loss assumptions, collateral characteristics, credit enhancements and specific deal information. Reverse repurchase agreements are priced at their acquisition cost, and assessed for credit adjustments, which represents fair value. Futures contracts are carried at fair value using the primary exchange's closing (settlement) price.
Subject to its oversight, the Trust's Board of Trustees (the "Board") has delegated primary responsibility for determining or causing to be determined the value of the Fund's investments to Empowered Funds, LLC dba EA Advisers (the "Adviser"), pursuant to the Trust's valuation policy and procedures, which have been adopted by the Trust and approved by the Board. In accordance with Rule 2a-5 under the 1940 Act, the Board designated the Adviser as the "valuation designee" of the Fund. If the Adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the Adviser in accordance with the Trust's fair valuation policy and procedures. The Adviser will provide the Board with periodic reports, no less frequently than quarterly, that discuss the functioning of the valuation process, if applicable, and that identify issues and valuation problems that have arisen, if any. As appropriate, the Adviser and the Board will review any securities valued by the Adviser in accordance with the Trust's valuation policies during these periodic reports. The use of fair value pricing by the Fund may cause the net asset value of its shares to differ significantly from the net asset value that would be calculated without regard to such considerations. As of May 31, 2024, the Fund did not hold any securities that required fair valuation due to unobservable inputs.
As described above, the Fund may use various methods to measure the fair value of their investments on a recurring basis. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.
Level 2 - Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
Level 3 - Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund's own assumptions about the assumptions a market participant would use in valuing the asset or liability and would be based on the best information available.
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
6
GURU FAVORITE STOCKS ETF
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
May 31, 2024 (Unaudited)
May 31, 2024 (Unaudited)
The following is a summary of the fair value classification of the Fund's investments as of May 31, 2024:
| DESCRIPTION | LEVEL 1 | LEVEL 2 | LEVEL 3 | TOTAL | ||||
| Assets | ||||||||
| Common Stocks | $ | 30,520,178 | $ | - | $ | - | $ | 30,520,178 |
| Money Market Funds | 295,554 | - | - | 295,554 | ||||
| Total Investments in Securities | $ | 30,815,732 | $ | - | $ | - | $ | 30,815,732 |
Refer to the Schedule of Investments for industry classification.
During the fiscal period ended May 31, 2024, the Fund did not invest in any Level 3 investments and recognized no transfers to/from Level 3. Transfers between levels are recognized at the end of the reporting period.
B.Foreign Currency. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts using the spot rate of exchange at the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions.The Fund isolates the portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. That portion of gains (losses) attributable to the changes in market prices and the portion of gains (losses) attributable to changes in foreign exchange rates are included on the "Statement of Operations" under "Net realized gain (loss) - Foreign currency" and "Change in Net Unrealized Appreciation (Depreciation) - Foreign Currency," respectively.
The Fund reports net realized foreign exchange gains or losses that arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates.
C.Federal Income Taxes.The Fund intends to continue to comply with the requirements of subchapter M of the Internal Revenue Code of 1986, as amended, as necessary to qualify as a regulated investment company and distribute substantially all net taxable investment income and net realized gains to shareholders in a manner which results in no tax cost to the Fund. Therefore, no federal income tax provision is required. As of and during the fiscal period ended May 31, 2024, the Fund did not have any tax positions that did not meet the "more-likely-than-not" threshold of being sustained by the applicable tax authority. As of and during the fiscal period ended May 31, 2024, the Fund did not have liabilities for any unrecognized tax benefits. The Fund would/will recognize interest and penalties, if any, related to unrecognized tax benefits on uncertain tax positions as income tax expense in the Statement of Operations. During the fiscal period ended May 31, 2024, the Fund did not incur any interest or penalties. The Fund is subject to examination by U.S. taxing authorities for the tax periods since the Fund's commencement of operations.
The Fund may be subject to taxes imposed on realized and unrealized gains on securities of certain foreign countries in which the Fund invests. The foreign tax expense, if any, was recorded on an accrual basis and is included in "Net realized gain (loss) on investments" and "Net increase (decrease) in unrealized appreciation or depreciation on investments" on the accompanying Statements of Operations. The amount of foreign tax owed, if any, is included in"Payable for foreign taxes" on the accompanying Statements of Assets and Liabilities and is comprised of and taxes on unrealized gains.
D.Security Transactions and Investment Income. Investment securities transactions are accounted for on the trade date. Gains and losses realized on sales of securities are determined on a specific identification basis. Dividend income is recorded on the ex-dividend date, net of any foreign taxes withheld at source. Interest income is recorded on an
7
GURU FAVORITE STOCKS ETF
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
May 31, 2024 (Unaudited)
May 31, 2024 (Unaudited)
accrual basis. Withholding taxes on foreign dividends have been provided for in accordance with the Fund's understanding of the applicable tax rules and regulations.
Distributions to shareholders from net investment income for the Fund are declared and paid on a quarterly basis and distributions to shareholders from net realized gains on securities normally are declared and paid on an annual basis. Distributions are recorded on the ex-dividend date. The Fund may distribute more frequently, if necessary, for tax purposes.
E.Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of increases and decreases in net assets from operations during the period. Actual results could differ from those estimates.
F.Share Valuation. The NAV per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding for the Fund, rounded to the nearest cent. The Fund's shares will not be priced on the days on which the New York Stock Exchange ("NYSE") is closed for regular trading. The offering and redemption price per share for the Fund is equal to the Fund's net asset value per share.
G.Guarantees and Indemnifications. In the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. Additionally, as is customary, the Trust's organizational documents permit the Trust to indemnify its officers and trustees against certain liabilities under certain circumstances. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be against the Fund that have not yet occurred. As of the date of this Report, no claim has been made for indemnification pursuant to any such agreement of the Fund.
H.Reclassification of Capital Accounts. GAAP requires that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. In addition, the Fund's realized net capital gains resulting from in-kind redemptions, in which shareholders exchanged Fund shares for securities held by the Funds rather than for cash. Because such gains are not taxable to the Fund, and are not distributed to shareholders, they have been reclassified from accumulated net realized losses to paid-in capital. For the fiscal year ended November 30, 2023, the following table shows the reclassifications made:
| Distributable Earnings | Paid In Capital |
| $(1,232,569) | $1,232,569 |
NOTE 3 - RISKS
Markets may perform poorly and the returns from the securities in which the Fund invests may underperform returns from the general securities markets. Securities markets may experience periods of high volatility and reduced liquidity in response to governmental actions or intervention, economic or market developments, or other external factors. The value of a company's securities may rise or fall in response to company, market, economic or other news.
Investment Risk. When you sell your Shares of the Fund, they could be worth less than what you paid for them. The Fund could lose money due to short-term market movements and over longer periods during market downturns. Securities may decline in value due to factors affecting securities markets generally or particular asset classes or industries represented in the markets. The value of a security may decline due to general market conditions, economic trends or events that are not specifically related to the issuer of the security or to factors that affect a particular industry or group of industries. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Therefore, you may lose money by investing in the Fund.
8
GURU FAVORITE STOCKS ETF
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
May 31, 2024 (Unaudited)
May 31, 2024 (Unaudited)
Stale Information Risk.The Sub-Adviser will recommend securities for the Fund based on publicly available information about the Gurus' holdings. However, the publicly available information does not generally reflect real-time portfolio holdings. For example, information obtained via Form 13F filings are available only quarterly, and will contain information that is at least 45 days' old. As a result, the Sub-Adviser may rank a particular security higher than it would have been ranked if the Sub-Adviser had access to all of the Guru's portfolio holdings on a real-time basis. As a result, the Fund may purchase securities or retain securities that are no longer favored by the Gurus, which may hurt the Fund's performance.
Equity Investing Risk. An investment in the Fund involves risks similar to those of investing in any fund holding equity securities, such as market fluctuations, changes in interest rates and perceived trends in stock prices. The values of equity securities could decline generally or could underperform other investments. In addition, securities may decline in value due to factors affecting a specific issuer, market or securities markets generally.
Quantitative Security Selection Risk. Data for some companies may be less available and/or less current than data used by other investment advisory firms. The Sub-Adviser uses quantitative analyses, and its processes could be adversely affected if erroneous or outdated data is utilized. In addition, securities selected using a quantitative analysis could perform differently from the financial markets as a whole as a result of the characteristics used in the analysis, the weight placed on each characteristic, and changes in the characteristic's historical trends.
Management Risk.The Fund is actively managed and may not meet its investment objective based on the Adviser's or Sub-Adviser's success or failure to implement investment strategies for the Fund.
Semi-Annual Reallocation Risk. Because the Sub-Adviser will normally recommend changes to the Fund's portfolio on a semi-annual basis, (i) the Fund's market exposure may be affected by significant market movements promptly following a semi-annual reconstitution that are not predictive of the market's performance for the subsequent semi-annual period and (ii) changes to the Fund's market exposure may lag a significant change in the market's direction (up or down) by as long as a half a year if such changes first take effect promptly following a semi-annual reconstitution. Such lags between market performance and changes to the Fund's exposure may result in significant underperformance relative to the broader equity or fixed income market.
Large-Capitalization Companies Risk. Large-capitalization companies may trail the returns of the overall stock market. Large-capitalization stocks tend to go through cycles of doing better - or worse - than the stock market in general. These periods have, in the past, lasted for as long as several years.
Mid-Capitalization Companies Risk.Investing in securities of medium-capitalization companies involves greater risk than customarily is associated with investing in larger, more established companies. These companies' securities may be more volatile and less liquid than those of more established companies. Often medium-capitalization companies and the industries in which they focus are still evolving and, as a result, they may be more sensitive to changing market conditions.
Sector Risk.Companies with similar characteristics may be grouped together in broad categories called sectors. A certain sector may underperform other sectors or the market as a whole. As the Sub-Adviser allocates more of the Fund's portfolio holdings to a particular sector, the Fund's performance will be more susceptible to any economic, business or other developments which generally affect that sector.
•Information Technology Sector Risk. The Fund will have exposure to companies operating in the technology sector. Technology companies, including information technology companies, may have limited product lines, financial resources and/or personnel. Technology companies typically face intense competition and potentially rapid product obsolescence. They are also heavily dependent on intellectual property rights and may be adversely affected by the loss or impairment of those rights.
•Financials Sector Risk. The Fund is expected to have exposure to companies in the financials sector, and therefore, the Fund's performance could be negatively impacted by events affecting this sector. The financials sector includes, for example, banks and financial institutions providing mortgage and mortgage related services. This sector can be significantly affected by, among other things, changes in interest rates, government regulation, the rate of defaults on
9
GURU FAVORITE STOCKS ETF
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
May 31, 2024 (Unaudited)
May 31, 2024 (Unaudited)
corporate, consumer and government debt, the availability and cost of capital, and fallout from the housing and sub-prime mortgage crisis.
•Healthcare Sector Risk.The Fund is expected to have exposure to companies in the healthcare sector, and therefore, the Fund's performance could be negatively impacted by events affecting this sector. The healthcare sector includes companies relating to medical and healthcare goods and services, such as companies engaged in manufacturing medical equipment, supplies and pharmaceuticals, as well as operating healthcare facilities and the provision of managed healthcare. Companies in this sector may be affected by government regulations including new regulations and scrutiny related to data privacy, and government healthcare programs, increases or decreases in the cost of medical products and services and product liability claims, among other factors. Many healthcare companies are heavily dependent on patent protection, and the expiration of a company's patent may adversely affect that company's profitability. Healthcare companies are subject to competitive forces that may result in price discounting, and may be thinly capitalized and susceptible to product obsolescence. Companies in the healthcare sector may be subject to adverse government or regulatory actions, which may be costly.
Geopolitical/Natural Disaster Risks. The Fund's investments are subject to geopolitical and natural disaster risks, such as war, terrorism, trade disputes, political or economic dysfunction within some nations, public health crises and related geopolitical events, as well as environmental disasters, epidemics and/or pandemics, which may add to instability in world economies and volatility in markets. The impact may be short-term or may last for extended periods.
See the Fund's Prospectus and Statement of Additional Information regarding the risks of investing in shares of the Fund.
NOTE 4 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS.
Empowered Funds, LLC dba EA Advisers (the "Adviser") serves as the investment adviser to the Fund. Pursuant to an investment advisory agreement (the "Advisory Agreement") between the Trust, on behalf of the Fund, and the Adviser, the Adviser provides investment advice to the Fund and oversees the day-to-day operations of the Fund, subject to the direction and control of the Board and the officers of the Trust. Under the Advisory Agreement, the Adviser is also responsible for arranging transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Fund to operate. The Adviser administers the Fund's business affairs, provides office facilities and equipment and certain clerical, bookkeeping and administrative services. The Adviser agrees to pay all expenses incurred by the Fund except for the fee paid to the Adviser pursuant to the Advisory Agreement, payments under any distribution plan adopted pursuant to Rule 12b-1, brokerage expenses, acquired fund fees and expenses, taxes (including tax-related services), interest (including borrowing costs), litigation expense (including class action-related services) and other non-routine or extraordinary expenses. Per the Advisory Agreement, the Fund pays an annual rate of 0.65% to the Adviser monthly based on average daily net assets.
GuruFocus Investments, LLC, serves as a non-discretionary investment sub-adviser to the Fund. Pursuant to an investment sub-advisory agreement (the "Sub-Advisory Agreement") among the Trust, the Adviser and the Sub-Adviser, the Sub-Adviser is responsible for determining the investment exposures for the Fund, subject to the overall supervision and oversight of the Adviser and the Board.
At a Board meeting held on December 13, 2023 and March 8-9, 2024, the Board of Trustees of the Trust (the "Trustees") including each Trustee who is not an "interested person" of the Trust, as defined in the 1940 Act, approved the Advisory & Sub-Advisory Agreements. Per the Advisory Agreement, the Fund pays an annual rate of 0.65% to the Adviser monthly based on average daily net assets.
U.S. Bancorp Fund Services, LLC ("Fund Services" or "Administrator"), doing business as U.S. Bank Global Fund Services, acts as the Fund's Administrator and, in that capacity, performs various administrative and accounting services for the Fund. The Administrator prepares various federal and state regulatory filings, reports and returns for the Fund, including regulatory compliance monitoring and financial reporting; prepares reports and materials to be supplied to the trustees; monitors the activities of the Fund's Custodian, transfer agent and fund accountant. Fund Services also serves as the transfer agent and
10
GURU FAVORITE STOCKS ETF
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
May 31, 2024 (Unaudited)
May 31, 2024 (Unaudited)
fund accountant to the Fund. U.S. Bank N.A. (the "Custodian"), an affiliate of the Administrator, serves as the Fund's Custodian.
The Custodian acts as the securities lending agent (the "Securities Lending Agent") for the Fund.
NOTE 5 - SECURITIES LENDING
The Fund may lend up to 331/3% of the value of the securities in its portfolio to brokers, dealers and financial institutions (but not individuals) under terms of participation in a securities lending program administered by the Securities Lending Agent. The securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 102% of the value of any domestic loaned securities at the time of the loan, plus accrued interest. The use of loans of foreign securities, which are denominated and payable in U.S. dollars, shall be collateralized in an amount equal to 105% of the value of any loaned securities at the time of the loan plus accrued interest. The Fund receives compensation in the form of fees and earns interest on the cash collateral. The amount of fees depends on a number of factors including the type of security and length of the loan. The Fund continues to receive interest payments or dividends on the securities loaned during the borrowing period. Gain or loss on the value of securities loaned that may occur during the term of the loan will be for the account of the Fund. The Fund has the right under the terms of the securities lending agreement to recall the securities from the borrower on demand.
The securities lending agreement provides that, in the event of a borrower's material default, the Securities Lending Agent shall take all actions the Securities Lending Agent deems appropriate to liquidate the collateral, purchase replacement securities at the Securities Lending Agent's expense, or pay the Fund an amount equal to the market value of the loaned securities, subject to certain limitations which are set forth in detail in the securities lending agreement between the Fund and the Securities Lending Agent.
During the fiscal year, the Fund had loaned securities and received cash collateral for the loans. The cash collateral is invested by the Securities Lending Agent in accordance with the Trust approved investment guidelines. Those guidelines require the cash collateral to be invested in readily marketable, high quality, short-term obligations; however, such investments are subject to risk of payment delays or default on the part of the issuer or counterparty or otherwise may not generate sufficient interest to support the costs associated with securities lending. The Fund could also experience delays in recovering its securities and possible loss of income or value if the borrower fails to return the borrowed securities, although the Fund is indemnified from this risk by contract with the Securities Lending Agent. As of the end of the fiscal year, there were no securities of the Fund out to loan.
The interest income earned by the Fund on the investment of cash collateral received from borrowers for the securities loaned to them ("Securities Lending Income, Net") is reflected in the Fund's Statement of Operations. Net securities lending income earned on collateral investments and recognized by the Fund during the fiscal periodwas $0.
Due to the absence of a master netting agreement related to the Fund's participation in securities lending, no additional offsetting disclosures have been made on behalf of the Fund for the total borrowings listed above.
NOTE 6 - PURCHASES AND SALES OF SECURITIES
For the fiscal period ended May 31, 2024, purchases and sales of securities for the Fund, excluding short-term securities and in-kind transactions, were as follows:
| Purchases | Sales | ||
| $ | 17,975,611 | $ | 10,684,616 |
For the fiscal period ended May 31, 2024, in-kind transactions associated with creations and redemptions were as follows:
| Purchases | Sales | ||
| $ | 2,070,796 | $ | 16,462,286 |
11
GURU FAVORITE STOCKS ETF
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
May 31, 2024 (Unaudited)
May 31, 2024 (Unaudited)
For the fiscal period ended May 31, 2024, short-term and long-term gains on in-kind transactions were as follows:
| Short Term | Long Term | ||
| $ | 2,759,176 | $ | 790,015 |
There were no purchases or sales of U.S. Government securities during the fiscal period.
NOTE 7 - TAX INFORMATION
The components of tax basis cost of investments and net unrealized appreciation (depreciation) for federal income tax purposes at November 30, 2023, were as follows:
|
Tax cost of Investments
|
$ 28,549,409 | |
|
Gross tax unrealized appreciation
|
4,865,887 | |
|
Gross tax unrealized depreciation
|
(997,068) | |
|
Net tax unrealized appreciation (depreciation)
|
$ | 3,868,819 |
|
Undistributed ordinary income
|
26,409 | |
|
Undistributed long-term gain
|
- | |
|
Total distributable earnings
|
26,409 | |
|
Other accumulated gain (loss)
|
(6,450,136) | |
|
Total accumulated gain (loss)
|
$ (2,554,908) |
The difference between book and tax-basis cost is attributable to wash sales. Under tax law, certain capital and foreign currency losses realized after October 31 and within the taxable year are deemed to arise on the first business day of the Fund's next taxable year.
For the fiscal year ended November 30, 2023, the Fund did not defer any qualified late year losses.
At November 30, 2023, the Fund had the following capital loss carryforwards that do not expire:
|
Short-Term |
Long-Term |
||
| $ | (3,962,085) | $ | (2,488,051) |
NOTE 8 - DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid by the Fund during the fiscal period ended May 31, 2024, and fiscal year ended November 30, 2023, were as follows:
|
Fiscal Period Ended May 31, 2024 |
Fiscal Year Ended November 30, 2023 |
|||||
|
Ordinary Income |
Ordinary Income |
|||||
| $ | 26,410 | $ | 117,903 |
NOTE 9 - SUBSEQUENT EVENTS
12
GURU FAVORITE STOCKS ETF
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
May 31, 2024 (Unaudited)
May 31, 2024 (Unaudited)
In preparing these financial statements, management of the Fund has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued. There were no transactions that occurred during the period subsequent to May 31, 2024, that materially impacted the amounts or disclosures in the Fund's financial statements.
13
GURU FAVORITE STOCKS ETF
FEDERAL TAX INFORMATION (UNAUDITED)
For the fiscal year ended November 30, 2023, certain dividends paid by the Fund may be subject to a maximum tax rate of 23.8%, as provided for by the Tax Cuts and Jobs Act of 2017. The percentage of dividends declared from ordinary income designated as qualified dividend income for the Fund was 100.00%.
For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received deduction for the fiscal year ended November 30, 2023 for the Fund was 100.00%.
The percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions under the Internal Revenue Section 871 (k)(2)(C) for the Fund was 0.00%.
14
Item 8. Changes in and Disagreements with Accountants for Open-End Management Investment
Companies.
There were no matters concerning changes in and disagreements with Accountants on accounting and financial disclosures required by Item 304 of Regulation S-K.
Item 9. Proxy Disclosures for Open-End Management Investment Companies.
There were no matters submitted during the period covered by the report to a vote of shareholders.
Item 10. Remuneration Paid to Directors, Officers, and Others of Open-End Management
Investment Companies
Not applicable. The Independent Trustees are paid by the Adviser out of the advisory fee. See Note 4 to the Financial Statements under Item 7.
Item 11. Statement Regarding Basis for Approval of Investment Advisory Contracts.
December 12, 2023 Meeting of the Board of Trustees
The Board (the members of which are referred to as "Trustees") of the EA Series Trust (the "Trust") met in-person on December 12, 2023 to consider the approval of the continuation of the Advisory Agreement between the Trust, on behalf of the Guru Favorite Stocks ETF (the "Fund"), and Empowered Funds, LLC dba EA Advisers (the "Adviser"), as well as to consider the approval of the continuation of the Sub-Advisory Agreement between the Adviser and GuruFocus Investments, LLC (the "Sub-Adviser"), each for an additional annual term. In accordance with Section 15(c) of the 1940 Act, the Board requested, reviewed, and considered materials furnished by the Adviser and Sub-Adviser relevant to the Board's consideration of whether to approve the continuation of the Advisory Agreement and Sub-Advisory Agreement. In connection with considering the approval of both the Advisory Agreement and Sub-Advisory Agreement, the Trustees who are not "interested persons" of the Trust, as that term is defined in the 1940 Act (the "Independent Trustees"), met in executive session with counsel to the Trust, who provided assistance and advice. In reaching the decision to approve both the Advisory Agreement and Sub-Advisory Agreement, the Board considered and reviewed information provided by the Adviser and Sub-Adviser at this meeting and throughout the year, including among other things information about their respective personnel, operations, financial condition, and compliance and risk management. The Board also reviewed the Advisory Agreement and Sub-Advisory Agreement. During its review and consideration, the Board focused on and reviewed the factors it deemed relevant, including:
Nature, Quality and Extent of Services.The Board was presented and considered information concerning the nature, quality and extent of the overall services provided by the Adviser to GFGF. In this connection, the Board considered the responsibilities of the Adviser, recognizing that the Adviser had invested significant time and effort in structuring the Trust and GFGF, and arranging service providers for GFGF. In addition, the Board considered that the Adviser is responsible for providing investment advisory oversight services to GFGF, executing all GFGF's transactions, monitoring compliance with GFGF's objectives, policies and restrictions, and carrying out directives of the Board. The Board also considered the services being provided by the Adviser in the oversight of the Trust's administrator, transfer agent and custodian. In addition, the Board evaluated the integrity of each of the Adviser's and Guru's personnel, the experience of the portfolio managers in managing assets and the adequacy of each of the Adviser's and Guru's resources. The Board also considered the Adviser's ongoing oversight responsibilities vis-à-vis Guru, noting the extensive work the Adviser has performed in monitoring Guru's compliance program. They noted their discussions with Guru regarding its compliance program and the commitments of Guru as it relates to compliance. The Board also considered that Guru provides its services to GFGF as a non-discretionary investment sub-adviser.
Performance.The Board considered the third-party peer group analysis that included a comparison against both other exchanged-traded funds and mutual funds. It was determined that the Adviser and Guru have consistently managed the Fund's portfolio with its stated investment objective and strategies. The Trustees noted that GFGF outperformed its ETF and mutual fund peer group by 14 and 523 basis points, respectively, over the past 12 months ended October 31, 2023. The Board concluded that GFGF's performance was reasonable.
Comparative Fees and Expenses.In considering the advisory fees and sub-advisory fees, the Board reviewed and considered the fees in light of the nature, quality and extent of the services provided by the Adviser and Guru, respectively. With respect to the advisory fee and expense ratio for the Fund, the Board also considered the fees and expense ratios versus the fees and expenses charged to other exchange-traded funds and mutual funds. The Board noted that, as it relates to GFGF, the Fund's expense ratio was above the average expense ratio for its ETF peer group but below the average expense ratio for its mutual fund peer group. As it relates to GFGF's management fee, the Fund's management fee was above the average for its ETF peer group but below the average management fee for its mutual fund peer group. With respect to the sub-advisory fees, the Board noted that they were payable solely out of the unitary management fee payable to the Adviser. The Adviser also presented two sets of independent peer analyses - the first being ETFs, with the second being mutual funds. The Board also considered the allocation of fees among the Adviser and Guru.
The Board considered, among other information, the data provided in the third-party report. Fee information was provided in quartiles, ranging from quartile one (the least expensive) to quartile four (the most expensive). GFGF's total expense ratio (for both gross and net) and management fee were in the following quartiles:
|
Fund
|
Total Expense Ratio
|
Net Expense Ratio
|
Management Fee Only
|
|||
|
ETFs
|
Mutual Funds
|
ETFs
|
Mutual Funds
|
ETFs
|
Mutual Funds
|
|
|
GFGF
|
Highest Quartile
|
2ndLowest Quartile
|
Highest Quartile
|
2nd Lowest Quartile
|
Highest Quartile
|
2nd Highest Quartile
|
The Board was agreeable to the fee levels.
Costs and Profitability.The Board further considered information regarding the potential profits, if any, that may be realized by each of the Adviser and Guru in connection with providing their respective services to GFGF. The Board reviewed the profit and loss information provided by the Adviser with respect to GFGF, noting that GFGF is profitable to the Adviser at this time. The Board also reviewed the same type of information provided by the Guru that showed it was not profitable at this time. They also considered the information provided by Guru that estimated it would reach the breakeven point when GFGF has approximately $50 million in assets. The Board also reviewed the costs associated with the personnel, systems and equipment necessary to manage GFGF and to meet the regulatory and compliance requirements adopted by the SEC and other regulatory bodies. The Board also considered other expenses the Adviser would pay in accordance with the Advisory Agreement. The Board took into consideration that the Adviser agreed to pay all expenses incurred by GFGF except for the fees paid to the Adviser pursuant to the Advisory Agreement, payments under any distribution plan adopted pursuant to Rule 12b-1, brokerage expenses, acquired fund fees and expenses, taxes, interest (including borrowing costs), litigation expenses and other non-routine or extraordinary expenses. The Board also considered the respective financial obligations of the Adviser and Guru, as the sponsor of GFGF.
Other Benefits.The Board further considered the extent to which the Adviser or GFGF Sub-Adviser might derive ancillary benefits from GFGF's operations. For example, the Adviser may engage in soft dollar transactions in the future, although it did not currently plan to do so. In addition, the Adviser may benefit from continued growth in the Trust by potentially negotiating better fee arrangements with key vendors serving the Fund.
Economies of Scale.The Board also considered whether economies of scale would be realized by GFGF as its assets grow larger, including the extent to which this is reflected in the level of fees to be charged. The Board also noted that the advisory and sub-advisory fees do not include breakpoints but concluded that it was premature to meaningfully evaluate potential economies of scale.
Conclusion.No single factor was determinative of the Board's decision to approve the continuation of the Advisory Agreement (for an additional annual period) and Sub-Advisory Agreement (until March 31, 2024); rather, the Board based its determination on the total mix of information available to it. Based on a consideration of all the factors in their totality, the Board, including a majority of the Independent Trustees, approved each of the Advisory Agreement and Sub-Advisory Agreement, including the compensation payable under each Agreement.
March 8-9, 2024 Meeting of the Board of Trustees
The Board (the members of which are referred to as "Trustees") of the EA Series Trust (the "Trust") met in-person on March 8-9, 2024 to consider the approval of the continuation of the Advisory Agreement between the Trust, on behalf of the Guru Favorite Stocks ETF (the "Fund"), and Empowered Funds, LLC dba EA Advisers (the "Adviser"), as well as to
consider the approval of the continuation of the Sub-Advisory Agreement between the Adviser and GuruFocus Investments, LLC (the "Sub-Adviser"), each for an additional annual term. In accordance with Section 15(c) of the 1940 Act, the Board requested, reviewed, and considered materials furnished by the Adviser and Sub-Adviser relevant to the Board's consideration of whether to approve the continuation of the Advisory Agreement and Sub-Advisory Agreement. In connection with considering the approval of both the Advisory Agreement and Sub-Advisory Agreement, the Trustees who are not "interested persons" of the Trust, as that term is defined in the 1940 Act (the "Independent Trustees"), met in executive session with counsel to the Trust, who provided assistance and advice. In reaching the decision to approve both the Advisory Agreement and Sub-Advisory Agreement, the Board considered and reviewed information provided by the Adviser and Sub-Adviser at this meeting and throughout the year, including among other things information about their respective personnel, operations, financial condition, and compliance and risk management. The Board also reviewed the Advisory Agreement and Sub-Advisory Agreement. During its review and consideration, the Board focused on and reviewed the factors it deemed relevant, including:
Nature, Quality, and Extent of Services. The Board was presented with and considered information concerning the nature, quality, and extent of the overall services provided by the Adviser to the Fund.In this connection, the Board considered the responsibilities of the Adviser, recognizing that the Adviser had invested significant time and effort in structuring the Trust and the Fund, as well as arranging service providers for the Fund. In addition, the Board considered that the Adviser is responsible for providing investment advisory oversight services to the Fund, executing all Fund transactions, monitoring compliance with the Fund's objectives, policies and restrictions, and carrying out directives of the Board. The Board also considered the services provided by the Adviser in the oversight of the Trust's administrator, transfer agent, and custodian. In addition, the Board evaluated the integrity of each of the Adviser's and Sub-Adviser'spersonnel, the experience of the portfolio managers in managing assets, and the adequacy of each of the Adviser's and the Sub-Adviser'sresources to perform the services provided under the Advisory Agreement and Sub-Advisory Agreement. They considered the Sub-Adviser's hiring of a compliance consulting firm to provide support and services, including the provision of chief compliance officer services. The Board further discussed the enhancements to the Sub-Adviser's compliance program and the experience of the Sub-Adviser's new chief compliance officer. The Board also considered the Adviser's ongoing oversight responsibilities vis-à-vis the Sub-Adviser.
Performance.The Board considered the third-party peer group analysis comparing the Fund's performance to the performance of other funds that the third-party deemed to be comparable to the Fund. It was determined that the Adviser and the Sub-Adviser have consistently managed the Fund's portfolio in accordance with its stated investment objective and strategies. The Board noted that the Fund underperformed the average total return of its ETF peer group by 313 (3.13%) basis points but outperformed its mutual fund peer group by 1595 (15.95%) basis points over the past 12 months ended February 29, 2024. The Board noted that the Fund outperformed the average total return of its ETF and mutual fund peer groups by 312 (3.12%) and 701 (7.01%) basis points, respectively, over the past 24 months ended February 29, 2024. The Board concluded that the Fund's performance was reasonable.
Comparative Fees and Expenses. In considering the advisory fees and sub-advisory fees, the Board reviewed and considered the fees in light of the nature, quality, and extent of the services being provided by the Adviser and the Sub-Adviser, respectively. With respect to the advisory fees and expense ratio for the Fund, the Board also considered the fees and expense ratio versus the fees and expenses charged to other exchange-traded funds and mutual funds. The Board also considered the allocation of fees between the Adviser and the Sub-Adviser.
The Board compared the Fund's gross total expense ratio, net total expense ratio, and management fee against the average gross total expense ratio, average net total expense ratio, and average management fee for ETFs and mutual funds in the Fund's peer group. The Fund's gross total expense ratio (0.65%) was higher than the average for ETFs (0.59%) and was lower than the average for mutual funds (1.05%); the Fund's net total expense ratio (0.65%) was higher than the average for ETFs (0.54%) and was lower than the average for mutual funds (1.01%); and the Fund's management fee (0.65%) was higher than the average for ETFs (0.52%) and lower than the average for mutual funds (0.86%). The Board considered that the Fund's fee arrangement in which the Adviser is responsible for paying most of the Fund's operating expenses out of its resources, noting that comparisons with the Fund's overall expense ratio may be more relevant than comparisons to management fees only. They stated that such a comparison demonstrates the Fund's overall cost structure is within the range of expense ratios of its respective ETF and mutual fund peers.
The Board considered, among other information, the data provided in the third-party report comparing the Fund's fees to those of other funds that the third-party deemed to be comparable to the Fund. Fee information was provided in quartiles,
ranging from quartile one (the least expensive) to quartile four (the most expensive). This data included a comparison of the Fund's expense ratio against both ETFs and mutual funds. The Fund's total expense ratio (for both gross and net) and management fee were in the following quartiles:
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Fund
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Total Expense Ratio
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Net Expense Ratio
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Management Fee Only
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|||
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ETFs
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Mutual Funds
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ETFs
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Mutual Funds
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ETFs
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Mutual Funds
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|
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GFGF
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Quartile 3
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Quartile 1 (lowest observed)
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Quartile 3
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Quartile 1 (lowest observed)
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Quartile 3
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Quartile 2
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With respect to the sub-advisory fee, the Board noted that it was payable solely out of the unitary management fee payable to the Adviser. The Board considered the representations from the Adviser and the Sub-Adviser that neither firm manages any other accounts that follow a similar strategy to the Fund. The Board was agreeable to the fee levels.
Costs and Profitability. The Board further considered information regarding the potential profits, if any, that may be realized by each of the Adviser and the Sub-Adviser in connection with providing their respective services to the Fund. The Board reviewed the profit and loss information provided by the Adviser with respect to the Fund, noting that the Fund is not profitable to the Adviser at this time. The Board also reviewed the same type of information provided by the Sub-Adviser that showed it was not profitable at this time. They also considered the information provided by the Sub-Adviser that estimated it would reach the breakeven point when the Fund has approximately $50 million in assets. The Board discussed the financial condition of the Sub-Adviser, noting that the Sub-Adviser has sufficient capital to maintain its commitment to the Fund for an additional annual period. The Board also reviewed the costs associated with the personnel, systems, and equipment necessary to manage the Fund and to meet the regulatory and compliance requirements adopted by the SEC and other regulatory bodies. The Board also considered other expenses of the Fund the Adviser would pay in accordance with the Advisory Agreement. The Board took into consideration that the Adviser agreed to pay all expenses incurred by the Fund except for the fees paid to the Adviser pursuant to the Advisory Agreement, payments under any distribution plan adopted pursuant to Rule 12b-1, brokerage expenses, acquired fund fees and expenses, taxes, interest (including borrowing costs), the fees and expenses associated with the Fund's securities lending program, litigation expenses and other non-routine or extraordinary expenses. The Board also considered the respective financial obligations of the Adviser, as well as the Sub-Adviser, who serves as the sponsor of the Fund.
Other Benefits. The Board further considered the extent to which the Adviser or the Sub-Adviser might derive ancillary benefits from the Fund's operations. For example, the Adviser may engage in soft dollar transactions in the future, although it does not currently plan to do so. In addition, the Adviser may benefit from continued growth in the Trust by potentially negotiating better fee arrangements with key vendors serving the Fund and other series in the Trust.
Economies of Scale. The Board also considered whether economies of scale would be realized by the Fund as its assets grow larger, including the extent to which this is reflected in the level of fees to be charged. The Board also noted that the advisory and sub-advisory fees do not include breakpoints but concluded that it was premature to meaningfully evaluate potential economies of scale given the Fund's current assets.
Conclusion.No single factor was determinative of the Board's decision to approve the continuation of the Advisory Agreement and Sub-Advisory Agreement for an additional annual term; rather, the Board based its determination on the total mix of information available to it. Based on a consideration of all the factors in their totality, the Board, including the Independent Trustees, unanimously determined that the Advisory Agreement and Sub-Advisory Agreement, including the compensation payable under each Agreement, were fair and reasonable to the Fund. The Board, including the Independent Trustees, unanimously determined that the approval of the continuation of each of the Advisory Agreement and the Sub-Advisory Agreement was in the best interests of the Fund and its shareholders.
Item 12. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 13. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 14. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable to open-end investment companies.
Item 15. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's board of trustees.
Item 16. Controls and Procedures.
(a) The Registrant's President (principal executive officer) and Treasurer (principal financial officer) have reviewed the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act")) as of a date within 90 days of the filing of this report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934. Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized and reported and made known to them by others within the Registrant and by the Registrant's service provider.
(b) There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
Item 17. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies
Not applicable to open-end investment companies.
Item 18. Recovery of Erroneously Awarded Compensation.
There have been no required recovery of erroneously awarded incentive based compensation to an executive officer from the registrant that required an accounting restatement.
Item 19. Exhibits.
| (a) |
(1) Any code of ethics or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Not applicable.
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(2) A separate certification for each principal executive and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Furnishedherewith.
| (b) |
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (Registrant) | EA Series Trust | |
| By (Signature and Title) | /s/ Patrick Cleary | |
| Patrick Cleary, President, Chief Executive Officer, and Principal Executive Officer | ||
| Date: | 8/2/2024 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By (Signature and Title) | /s/ Patrick Cleary | |
| Patrick Cleary, President, Chief Executive Officer, and Principal Executive Officer | ||
| Date: | 8/2/2024 | |
| By (Signature and Title) | /s/ Sean Hegarty | |
| Sean Hegarty, Treasurer, Chief Financial Officer, Comptroller, and Principal Financial Officer | ||
| Date: | 8/2/2024 |