Guinness Atkinson Asia Focus Fund (IASMX) N-CSRSCertified semi-annual shareholder report (management investment company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

Investment Company Act file number 811-08360

Guinness Atkinson Funds

(Exact name of registrant as specified in charter)

251 South Lake Avenue, Suite 800

Pasadena, CA 91101

(Address of principal executive offices) (Zip code)

(Name and address of agent for service)

James J. Atkinson, Jr.

251 South Lake Avenue, Suite 800

Pasadena, CA 91101

Registrant’s telephone number, including area code: (866-307-5990) 

Date of fiscal year end: December 31

Date of reporting period: June 30, 2023

Item 1. Reports to Stockholders.

The registrant’s semi-annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940, as amended (the “Investment Company Act”), is as follows:

SmartETFs

Semi-Annual Report

June 30, 2023 (Unaudited)

TABLE OF CONTENTS

July 31, 2023

Dear SmartETF Shareholders,

We’re delighted to report that all of the SmartETFs have positive total return over the year-to-date period ending June 30, 2023. Even better, some of the SmartETFs have produced exceptional returns. More on that in a moment.

Notwithstanding the positive first half of 2023, we’re the first to acknowledge that the ride has been a bit bumpy the last couple of years. We’re not too fazed by that; we’ve been doing this a long time and we know that over time we see extremes of both optimism and pessimism. We also know that at both extremes it seems as though the current extreme will never end. Which is to say we’re more focused on the long-term. Which makes sense given the mega themes which form the basis for SmartETFs. These mega themes are long-term by nature and will continue despite the markets undergoing cyclical ups and downs.

MOTO, the SmartETFs Transportation & Technology ETF has had a great first half of the year, up 27.79% over the period. MRAD, the SmartETFs Advertising & Marketing Technology ETF was up 19.42% during the first six months.

The SmartETFs Dividend Builder ETF (DIVS) produced a total return of 10.84% in the first half of the year. We think that’s quite a good outcome for what many might think is a boring dividend fund. This is one of the oldest ETFs in the SmartETFs lineup and one that sports quite an exceptional long-term track record. We won’t belabor the point, but we do encourage you to see for yourself in the adjacent performance table.

The SmartETFs Sustainable Energy II ETF was only up 8.86% during the first half. We say “only” because this ETF has been motoring ahead the last year plus, a fact that is evident in the total return for the 12-month period ending June 30, 2023, which came it at 22.28%.

The SmartETFs Asia Pacific Dividend Builder ETF produced a total return of 3.40% for the first half of the year.

Our objective with SmartETFs is not just to provide investors with excellent investment opportunities but to also inform and engage. If you haven’t already done so we encourage you to sign up for our email service at www.SmartETFs.com. Or, if you prefer, simply visit the website occasionally to see the latest news and views from our portfolio managers.

We appreciate the confidence you’ve placed in us and look forward to continuing to serve you.

Regards,

Jim Atkinson

President

SmartETFs 

SmartETFs Semi-Annual Report Letter June 2023

Periods of greater than one year are average annualized returns; one year and shorter period returns are actual returns. All returns are for the periods ending June 30, 2023.

The Asia Pacific Dividend Builder ETF and the Dividend Builder ETF converted from traditional openend mutual funds to exchange traded funds on March 29, 2021. Performance data shown for these two ETFs includes their performance history as traditional open-end mutual funds.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Current performance of the Funds may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.smartetfs.com.

Expense ratios are from the most recent prospectus (dated May 1, 2023) and are from the most recent audited financials (period ending December 31, 2022) at the time that prospectus was completed. 

Morningstar Ratings Through June 30, 2023

Morningstar Ratings Disclosure

Global Innovators Fund ratings shown were given for the Investor Share Class.

For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in distribution percentages.)

© 2023 Morningstar, Inc. All Rights Reserved. The information contained herein (1) is proprietary to Morningstar (2) may not be copied or distributed and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

SMARTETFS SMART TRANSPORTATION & TECHNOLOGY ETF
SEMI-ANNUAL REPORT FOR THE PERIOD ENDED
JUNE 30, 2023

The Fund’s total expense ratio is 0.92% and the net expense ratio is 0.68%. The Adviser has contractually agreed to reduce its fees and/or pay ETF expenses in order to limit the Fund’s total annual operating expense to 0.68% through June 30, 2026. For the Fund’s current six-month expense ratios, please refer to the Financial Highlights section of this report.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by visiting www.SmartETFs.com, or calling (866) 307-5990.

Total returns for certain periods reflect a fee waiver in effect and in the absence of this waiver, the total returns would be lower. Returns reflect the reinvestment of distributions made by the Fund, if any. The graph and the performance table above do not reflect the deduction of taxes that a shareholder would pay on Fund distribution or the redemption of Fund shares.

Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the ETF. Brokerage commissions will reduce returns. SmartETFs NAVs are calculated using prices as of 4:00 PM Eastern Time. The closing price is the Mid-Point between the Bid and Ask price as of the close of exchange. Closing price returns do not represent the returns you would receive if you traded shares at other times.

In the first half of 2023, the SmartETFs Smart Transportation & Technology ETF (“MOTO ETF”) produced a total return (USD) of +28.85% vs the MSCI World Index (net return) of +15.09%. The fund therefore outperformed the index by 13.76% over the period.

The equities held within the MOTO ETF are categorized into 3 broad categories; EV Manufacturers (split into EV-Transition and EV-Dominated), Equipment Manufacturers (split into Components and Semiconductors) and Services. 

The strongest category was Services, delivering an average +36.8% total return over the period. Quanta Services was a notable performer, delivering a positive return of +38%, as the company increasingly emerges as a key enabler of the energy transition through it’s grid expertise and deep, skilled labour force.

The weakest category was Equipment, where the average company delivered +26.5%. Within this category, the average Components name returned +26.3% and the average Semiconductor name returned +26.8% in the period. Batteries were a notable area of weakness within components as names like Samsung SDI and LG Chem underperformed the market driven by declining battery prices and weak battery export data. Offsetting this was NVIDIA which delivered a 189.5% return during the half after releasing stellar Q1 results and raising guidance by 53% relative to consensus expectations. The key driver for the beat was an inflection in Generative AI leading to explosive growth in the Data Centre business (Q2 guidance implies a near doubling of data centre revenues on a sequential basis.) This led analysts to raise EPS estimates by 40-50% in each of the next three years and cemented the company's place as the go-to AI play within the stock market. 

There were no stock switches in the ETF during the period.

Our portfolio is typically allocated across 35 equally weighted equities providing exposure across the value chain of Smart Transportation.

We hold 19.2% exposure to EV manufacturers, of which 3.9% is invested in EV Dominated names and 15.3% is invested in EV Transition names. Within this category we hold Tesla, one of the largest electric vehicle manufacturers in the world and an innovator in the autonomous driving space with its Autopilot and Full SelfDriving offerings.

We hold a 70.3% weight to equipment providers split across Components (44.8%) and Semiconductors (25.5%). Within Components we have 16.4% exposure to Autonomous, 19.5% exposure to Car Components, and 8.9% exposure to Battery equipment providers. For example, Sensata sells sensors vital to autonomous mobility; Vitesco produces components for electrified drivetrains; and Samsung SDI manufactures batteries for electric vehicles. The portfolio also provides 25.5% exposure to Semiconductors across Power (8.1%), General (8.4%), and Connectivity (8.9%) applications. For example, ON Semiconductor provides power semiconductors for traction inverters and on-board chargers. 

The portfolio provides 7.8% exposure to Services including Transportation-as-a-Service (TaaS). The fund is invested in Alphabet which owns Waymo LLC, the operator of a commercial self-driving taxi service in Phoenix, Arizona.

Heading into 2023, a key concern amongst commentators was that China (which accounted for 59% of the global market and most of global growth) would experience a material slowdown, driven by the removal of state subsidies. Instead, what we saw was a brief pause, followed by OEMs responding by lowering prices by as much as 20% in order to stimulate further demand.

Thus, as we sit at the mid-point of the year we are left with a picture that looks much like December 2022: a robust global EV market driven largely by China (in terms of both scale and growth rate), with strong demand coming through from elsewhere; Globally, for the first half of the year, total market growth looks to be around 40% yoy, with China growing 65%; Europe, (the second largest market) growing at c.20% and the US + RoW growing at c.50% (albeit from a lower base).

In terms of penetration rates, EVs now account for 14% of all new cars sold on a global basis; 35% in China, 21% in Europe and just over 10% in the US.

News flow throughout the half was largely supportive and built upon pre-established trends; we saw more stringent emissions legislation from several countries including:

We continue to witness a growing disconnect between the “haves” and the “have nots” regarding clean technology offerings:

Finally, throughout the half we saw a steady trickle of announcements relating to debottlenecking some of the industry’s biggest problems such as charging infrastructure and battery sustainability:

Looking out to the rest of the year and beyond, we continue to see a bright outlook for EV growth driven by continued policy support, improving economics and a gradual removal of friction costs. We expect the penetration of EVs to rise from the current 14% rate to 20% by 2025, 50% by 2030 and 100% by 2040. At that point, it implies an overall population of one billion EVs, over 35 times greater than the current stock at the end of 2022. The MOTO ETF will remain positioned to benefit from these themes.

Will Riley and Jonathan Waghorn

July 2023

International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from social, economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.

The companies in which the Fund invests may be subject to rapid changes in technology, intense competition, rapid obsolescence of products and services, loss of intellectual property protections, evolving industry standards and frequent new product productions and changes in business cycles and government regulations.

These risks could adversely affect the value of companies in which the Fund invests. Limitations on applications for autonomous or electric vehicles could adversely affect the value of companies in which the Fund invests.

The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. One cannot invest directly in an index.

Please refer to the Schedule of Investments for details on Fund holdings. Current and future portfolio holdings are subject to risk. 

The information provided herein represents the opinion of Guinness Atkinson Asset Management, Inc. for the period stated and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Opinions, Fund holdings and sector allocations are subject to change at any time, and are not recommendations to buy or sell any security. 

SmartETFs Smart Transportation & Technology ETF

Schedule of Investments

at June 30, 2023 (Unaudited)

The accompanying notes are an integral part of these financial statements. 

SmartETFs Smart Transportation & Technology ETF

Schedule of Investments

at June 30, 2023 (Unaudited)

ADR - American Depository Receipt

PLC - Public Limited Company

The accompanying notes are an integral part of these financial statements. 

The accompanying notes are an integral part of these financial statements. 

SmartETFs Advertising & Marketing Technology ETF
SEMI-ANNUAL REPORT FOR THE PERIOD ENDED
JUNE 30, 2023

The Fund’s total expense ratio is 7.51% and the net expense ratio is 0.68%. The Adviser has contractually agreed to reduce its fees and/or pay ETF expenses in order to limit the Fund’s total annual operating expense to 0.68% through June 30, 2026. For the Fund’s current six-month expense ratios, please refer to the Financial Highlights section of this report.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by visiting www.SmartETFs.com, or calling (866) 307-5990.

Total returns for certain periods reflect a fee waiver in effect and in the absence of this waiver, the total returns would be lower. Returns reflect the reinvestment of distributions made by the Fund, if any. The graph and the performance table above do not reflect the deduction of taxes that a shareholder would pay on Fund distribution or the redemption of Fund shares.

Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the ETF. Brokerage commissions will reduce returns. SmartETFs NAVs are calculated using prices as of 4:00 PM Eastern Time. The closing price is the Mid-Point between the Bid and Ask price as of the close of exchange. Closing price returns do not represent the returns you would receive if you traded shares at other times

The SmartETFs Advertising & Marketing Technology ETF launched on December 30, 2020.

The ETF invests in companies which are using technology to disrupt the advertising and marketing industries. These companies include those involved in programmatic advertising, targeted digital advertising, consumer data and targeting, customer relationship management, marketing automation, and other technologies that aid in advertising and marketing.

In the first half of 2023, the SmartETFs Advertising & Marketing Technology ETF produced a total return of 19.42% (NAV, in USD), versus the MSCI World Index (net return) of 15.09% (in USD). The Fund therefore outperformed by 4.33%.

At quarter end, the Fund’s AUM was $1.2mn.

Year-to-date performance review 

· (1) Recovery Rally: Over the start of 2023, equities rallied hard with the growthiest parts of the market significantly outperforming. Higher beta areas performed particularly strongly - benefitting the Fund - as the factors which had performed worst over 2022, saw a strong reversal and led the market higher.

· (2) Market Reversal: The positive sentiment that had driven markets, quickly unwound. The rally had been led by a small number of seemingly fragile data points, but as new data emerged, investors reassessed their inflation expectations and the outlook became markedly more hawkish. With the prospect of higher rates for an extended period of time, longer duration assets were impacted the hardest, and markets retreated, as did the Fund’s relative performance.

· (3) Banking Crisis: Three large bank failures in the US and the Credit Suisse rescue in Europe showed growing stress in the banking sector and highlighted the impacts of an historically stringent monetary tightening cycle. However, after a short sell-off in early March, volatility abated, and risk aversion retreated as swift liquidity support by central banks (and several takeovers) prevented a widespread escalation. Over this period, the Financials and Energy sectors performed particularly poorly, but other parts of the market (notably Healthcare & IT) saw positive performance. The Fund also outperformed over the month.

· (4) AI Induced Rally: Since the end of March, a focus on Artificial Intelligence, and more specifically its potential use cases for a range of business cases, caused a sharp market rally. The largest gainers were the semiconductor names within the IT sector, as well as a range of associated sectors which have tangential exposure. It is worth noting that AI is not a new phenomenon but the launch of ChatGPT in early 2023 was the first consumer facing AI application and has therefore drawn attention to the technology. The number of S&P 500 companies citing AI on their earnings call has more than doubled over the last 6 months and, in many cases, has been richly rewarded by the market. More specifically, the optimism surrounding AI has focused on a handful of large cap names, which have driven the majority of performance. There is growing concern that such lack of breadth is not a stable base for an enduring bull market as the largest ten names in the S&P 500 have accounted for nearly all the index’s returns until the end of May. Whilst the Fund has some exposure to the large US tech names that have benefitted from this rally, it also has c.50% invested small and mid-cap market cap companies which lagged. Overall the Fund therefore underperformed over Q2.

We made no changes to the portfolio in the first half of 2023.

The table below shows the Fund’s 1-year forward earnings and sales growth (analyst consensus estimates) versus the MSCI World Index.

Source: Bloomberg; SmartETFs

The Fund at year end has higher expected sales and earnings growth vs the broad market and this is characteristic of the secular growth that the adtech/martech industries are expected to experience.

With inflation seemingly moderating and global central banks appearing to slow the rate of growth hikes, and a significant de-rating in valuations having occurred, many of the 2022 headwinds for equity markets, and growth stocks in particular, are looking more positive. However, uncertainty remains as none of these issues have been resolved conclusively and second-order effects, or indeed new issues, may arise in the coming months. Indeed, with global growth expected to slow, the prospects of a recession remain high (particularly in Europe and Asia), potentially creating a meaningful dent into company earnings. In many respects, we believe these concerns have largely been ‘priced-in’ to earnings estimates, but this does not necessarily preclude further earnings downgrades to come.

Whilst there may be volatility in equity markets and for AdTech companies, there is good reason to be optimistic longer term. We continue to see an acceleration in technological transformations that will have a lasting effect on how consumers and businesses operate once the economic cycle turns to growth. As such, we believe this Fund and its holdings are well positioned to benefit from such transformations, which include the move from traditional to digital advertising. 

The Fund at year end has higher expected sales and earnings growth vs the broad market and this is characteristic of the secular growth that the adtech/martech industries are expected to experience. Whilst there may be volatility in equity markets and for adtech companies, there is good reason to be optimistic longer term. We continue to see an acceleration in technological transformations post-COVID that will have a lasting effect on how consumers and businesses operate once the economic cycle turns to growth. As such, we believe this Fund and its holdings are well positioned to benefit from such transformations, which include the move from traditional to digital advertising.

Sagar Thanki

July 2023

International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from social, economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.

The companies in which the Fund invests may be subject to rapid changes in technology, intense competition, rapid obsolescence of products and services, loss of intellectual property protections, evolving industry standards and frequent new product productions and changes in business cycles and government regulations.

These risks could adversely affect the value of companies in which the Fund invests. Limitations on applications for autonomous or electric vehicles could adversely affect the value of companies in which the Fund invests.

The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. One cannot invest directly in an index.

The S&P 500 Index is a free float-adjusted market capitalization weighted index of the 500 largest publicly traded companies in the US. One cannot invest directly in an index.

Earnings growth is not a measure of the Fund’s future performance.

Earnings growth is the annual compound growth rate (CAGR) of a company’s net income.

Growth stocks typically are more volatile than value stocks; however, value stocks have a lower expected growth rate in earnings and sales.

Please refer to the Schedule of Investments for details on Fund holdings. Current and future portfolio holdings are subject to risk.

The information provided herein represents the opinion of Guinness Atkinson Asset Management, Inc. for the period stated and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Opinions, Fund holdings and sector allocations are subject to change at any time, and are not recommendations to buy or sell any security. 

PLC - Public Limited Company

The accompanying notes are an integral part of these financial statements. 

The accompanying notes are an integral part of these financial statements. 

SMARTETFS SUSTAINABLE ENERGY II ETF
SEMI-ANNUAL REPORT FOR THE PERIOD ENDED
JUNE 30, 2023

The Fund’s total expense ratio is 3.29% and the net expense ratio is 0.79%. The Adviser has contractually agreed to reduce its fees and/or pay ETF expenses in order to limit the Fund’s total annual operating expense to 0.79% through June 30, 2026. For the Fund’s current six-month expense ratios, please refer to the Financial Highlights section of this report.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by visiting www.SmartETFs.com, or calling (866) 307-5990.

Total returns for certain periods reflect a fee waiver in effect and in the absence of this waiver, the total returns would be lower. Returns reflect the reinvestment of distributions made by the Fund, if any. The graph and the performance table above do not reflect the deduction of taxes that a shareholder would pay on Fund distribution or the redemption of Fund shares.

Shares of ETFs are bought and sold at market price (not NA V) and are not individually redeemed from the ETF. Brokerage commissions will reduce returns. SmartETFs NAVs are calculated using prices as of 4:00 PM Eastern Time. The closing price is the Mid-Point between the Bid and Ask price as of the close of exchange. Closing price returns do not represent the returns you would receive if you traded shares at other times

In the first half of 2023 the SmartETFs Sustainable Energy ETF produced a total return (USD, NAV) of 8.86% vs the MSCI World Index (net return) of 15.09%. The ETF therefore underperformed the index by 6.23% over the period. 

The key events, both positive and negative for sector sentiment, that have affected the energy transition, company profitability and share price performance so far this year have included:

Drivers of fund performance

The first half of 2023 saw continued positive momentum for the energy transition. Further details emerged on the significant energy transition policy commitments that were announced by the EU and US last year. Against this, disruption in the banking sector, coupled with volatile sentiment around interest rates, brought fears of a slowdown in funding that could affect the level of future sustainable energy investments. In this report, we review macro developments, contribution to fund returns in the half, outlook and portfolio valuation. 

The first half of 2023 saw the SmartETFs Sustainable Energy II ETF delivering a total return (USD, NAV) of +8.86%, underperforming the MSCI World Index (net return) of +15.09%. The key events, both positive and negative for sector sentiment, that have affected the energy transition, company profitability and share price performance so far this year have included:

Within the portfolio our best performing segments were our semiconductor and grid exposed names. Underperforming segments included our solar inverter holdings as well as our wind exposed names.

Within semiconductors, our holdings in ONSemi and Infineon both benefitted from the general strength in the semiconductor space, but also from improved idiosyncratic outlooks: ONSemi hosted a Capital Markets Day which highlighted the strong progress they are making in silicon carbide power semiconductors. They stressed their intention to grow faster than the broader semi market out to 2027 and upgraded their long-term margin targets from 28% to 40%; Infineon increased their revenue guidance and upgraded full year margin expectations from 25% to “high- twenties” driven by robust activity in their core auto and industrial end markets.

Our electrical equipment names Eaton, Hubbell, Schneider, Itron and Legrand all performed strongly driven by an acceleration in global electrification activity and an easing of supply chain bottlenecks; Hubbell noted particular strength in their utility division driven by a sustainable step up in grid modernisation activity; Schneider, Eaton and Legrand all cited strength in their core low voltage markets and Itron saw an easing in their supply chain, allowing them to procure components which had historically been difficult to source.

Within our solar holdings we saw a bifurcation between module manufacturers Canadian Solar and First Solar, who benefitted from declining polysilicon prices as well as favourable tax announcements, and inverter names of Enphase and Solaredge who noted a slight slowdown in activity driven by higher interest rates and changing regulation in California. It was worthy of note that both inverter players view this slowdown as temporary in nature as the market gets used to changes in regulation and still expect annual earnings growth north of 20%.

The final notable area of weakness was with our wind IPP holdings; China Longyuan and China Suntien, where price evolution has been driven by concerns around Chinese subsidy reforms as well as underperformance in the broader Chinese equity market.

2.       Activity

There was one Buy during the half (Legrand) and the portfolio was actively rebalanced. Legrand is the world’s only global specialist in electrical and digital building infrastructures. It sells more than 300,000 individual electrical products, biased to residential and commercial markets, to a broad global customer base. We believe that the company is well placed to benefit from secular trends such as electrification and efficiency 

3.       Outlook

Looking at the remainder of 2023 and beyond, we expect further acceleration of the energy transition:

The outlook we summarise here is broadly consistent with current government activity and observable investment plans. To be clear, however, the growth described falls well short of the energy transition activity needed to achieve a net zero I 1.5 degree scenario in 2050, as targeted by the IPCC and reiterated at COP27. In a net zero scenario, the deployment of renewable generation capacity, penetration of EVs and battery storage, use of alternative fuels and implementation of energy efficiency measures will need to accelerate markedly.

At June 30, 2023, the SmartETFs Sustainable Energy II ETF traded on a 2023/24 P/E of 20/17x and a 2023/24 EV/EBITDA of 13/11x. The Fund trades at about an 8% premium to the MSCI World Index, which we see as justified given the attractive growth rates available to invest in across the sector. As a sense check, consensus EPS growth (2023-2025E) of the portfolio (at c.20%pa) is well ahead of the MSCI World (at c.6%pa), and looking over the next five years, we believe that the portfolio is likely to deliver average earnings growth of around 13-14%pa, comfortably ahead of growth in the MSCI World.

Will Riley and Jonathan Waghorn

July 2023

The Fund invests in foreign securities, which involves political, economic and currency risks, greater volatility, and differences in accounting methods. These risks are greater for emerging markets. The Fund’s focus on the energy sector to the exclusion of other sectors exposes the Fund to greater market risk and potential monetary losses than if the Fund’s assets were diversified among various sectors. The Fund invests in smaller companies, which involves additional risks such as limited liquidity and greater volatility.

P/E Ratio is the price-to-earnings ratio and is a ratio for valuing a company that measures its current share price relative to its earnings per share.

EV/EBITDA is the enterprise value (EV) to earnings before interest, taxes, depreciation, and amortization (EBITDA). This ratio is used by investment managers to measure a company’s return on investment.

The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. Net Return reflects deduction for withholding tax but reflects no deduction for fees and expenses. Net Return is net of local withholding taxes that any investor would pay. This index is unmanaged, not available for investment and does not incur expenses.

Please refer to the Schedule of Investments for details on Fund holdings. Current and future portfolio holdings are subject to risk.

The information provided herein represents the opinion of Guinness Atkinson Asset Management, Inc. for the period stated and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Opinions, Fund holdings and sector allocations are subject to change at any time, and are not recommendations to buy or sell any security. 

PLC - Public Limited Company

The accompanying notes are an integral part of these financial statements. 

The accompanying notes are an integral part of these financial statements. 

SmartETFs Asia Pacific Dividend Builder ETF
SEMI-ANNUAL REPORT FOR THE PERIOD ENDED
JUNE 30, 2023

The Fund’s total expense ratio is 4.94% and the net expense ratio is 0.78%. The Adviser has contractually agreed to reduce its fees and/or pay ETF expenses in order to limit the Fund’s total annual operating expense to 0.78% through June 30, 2026. For the Fund’s current six-month expense ratios, please refer to the Financial Highlights section of this report.

The SmartETFs Asia Pacific Dividend Builder ETF acquired the assets and liabilities of the predecessor mutual fund, the Guinness Atkinson Asia Pacific Dividend Builder Fund, on March 26, 2021. As a result of the transaction, the Fund adopted the accounting and performance history of its predecessor mutual fund. Performance results shown prior to March 26, 2021, reflect the performance of the predecessor mutual fund. The Market Price returns shown prior to March 26, 2021, reflects the predecessor mutual funds’ NAV.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by visiting www.SmartETFs.com, or calling (866) 307-5990.

Total returns for certain periods reflect a fee waiver in effect and in the absence of this waiver, the total returns would be lower. Returns reflect the reinvestment of distributions made by the Fund, if any. The graph and the performance table above do not reflect the deduction of taxes that a shareholder would pay on Fund distribution or the redemption of Fund shares.

Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the ETF. Brokerage commissions will reduce returns. SmartETFs NAVs are calculated using prices as of 4:00 PM Eastern Time. The closing price is the Mid-Point between the Bid and Ask price as of the close of exchange. Closing price returns do not represent the returns you would receive if you traded shares at other times.

The Fund rose 3.40% on a NAV basis in the first six months of 2023 compared to the MSCI AC Pacific ex Japan Net Total Return Index which rose 2.69%. Of the dividends declared by portfolio companies in the first half (some of which will be paid in second half), 21 companies increased, 6 were unchanged, 8 fell and 1 has resumed. 

The first half of 2023 has been an eventful one. Whilst the fall of Silicon Valley Bank, First Republic, and Credit Suisse led to a shaky start in the US and Europe, both markets have seen double digit year-to-date growth as a result of the investor enthusiasm related to the AI space. In the case of the US, the market has also been pricing a softer FED outlook due to the positive inflation print in May. Conversely, Asian markets, as measured by MSCI AC Pacific ex Japan Net Return Index started off strongly, led by China’s post-COVID rebound. However, Asian market performance has since lagged developed markets on the back of the slower than expected China recovery and rising geopolitical tensions between China and the West, resulting in 2.7% year-to-date growth, notably behind their developed counterparts.

Within Asia, the emerging markets have so far, outperformed their developed market peers. Emerging market outperformance has been led by Taiwan and Korea, up 14.1% and 8.9% respectively in the first half of 2023. Both markets’ indices skew towards technology stocks (70% for Taiwan, 47% of Korea), which have made them beneficiaries from the current AI excitement.

India saw a tricky start to the year, as allegations of corporate governance issues at the Adani Group, one of the country’s leading conglomerates, were brought to light. However, the country has shown resilience amidst the broader macro backdrop; inflation has fallen to 4.4%, aided by heavily discounted Russian oil. That is not to say that all emerging markets have outperformed year-to-date. In fact, the two worst performing countries were Thailand and Malaysia. In Thailand, continued political uncertainty driven has led to weakened investor confidence.

On a year-to-date basis, 20 of the 36 stocks held in the fund have outperformed the fund’s benchmark. Of these stocks, nine lie in the Information Technology sector, and four of the top five year-to-date performers are in the Information Technology sector. The remaining company that sits in the top five of the portfolio is NetEase which has benefitted from easing Chinese gaming regulations and strong games performances.

The fund’s year-to-date underperformers can be characterised into two key categories. As expected, we were not immune to the weaker Chinese market performance, which as mentioned earlier, has been led by a slower post-COVID recovery, as well as increasing geopolitical uncertainty. Of the 16 names that underperformed the benchmark index, eight were Chinese and two are based in Hong Kong. Financial companies were another main detractor from year-to-date performance. The five weakest stocks in the first half of 2023 fit into either one or both of these categories. Link REIT, China Overseas Land and Investment, and Shenzhou International are Chinese and Hong Kong stocks, Public Bank is a Malaysian financial company, and China Merchants Bank is China’s most profitable commercial bank.

Activity

There were no changes to the portfolio during the period.

Portfolio Positioning

The largest country exposures in the Fund are to China at 33%, followed by Taiwan at 21%, Australia at 10% and Singapore at 8%. China exposure is in line with the benchmark weight; Singapore is 5% over and Taiwan is 3% over while Australia is 8% under and Korea is 9% under-weight relative to the benchmark.

The three largest sector exposures are the 29% weight in Financials (20% banks, 9% insurance), 26% in Technology and 18% in Consumer Discretionary. These three are overweight against the benchmark by 7%, 4% and 5% respectively. There is 11% in real estate, making it 6% overweight, of which 8% is in Real Estate Investment Trusts (REITs). The biggest underweights are in Energy, Materials, and Industrials where we have no exposure. The Energy and Materials complex did well for most of the first half of the year, but both have fallen back in the last two months.

We do not have exposure to the big technology or e-commerce names that dominate the Chinese benchmark because they either do not pay or only pay a small dividend. Taiwanese exposure consists of seven positions of which six are in the technology sector, in semiconductors, electrical component makers and electronic assembly. We have no exposure to software services or to the more cyclical memory chip makers. 

The portfolio is 70% focused on companies with regional sales and 30% exposed to overseas markets. There is a 68% exposure to Emerging Asia and 32% exposure to Developed Asia (Australia, Hong Kong, New Zealand and Singapore). The split between Consumer and non-Consumer is more subjective. Most banks we treat as non-consumer unless they lean heavily into consumer finance and private customers. We treat general and life insurance as primarily Consumer whereas we treat reinsurance as non-Consumer. Some technology component makers supply commercial customers, but where the end products are mainly consumer electronics, we categorise them as Consumer. We assess the split between Consumer and non-Consumer at 63% and 37%.

Outlook

Headline inflation rates around the world are now falling, or have at least stabilised, but core inflation rates (excluding food and energy) have tended to be stickier. The steep rises we have seen in interest rates over the last year and a half have therefore, now given way to a pause in many cases but central banks around the world are not yet ready to contemplate cuts. Only China, with its sluggish economic recovery, weighed by weak consumer confidence and fragile property sector is reducing interest rates. Thus, from a macro-economic perspective we are experiencing a form of cyclical hiatus: higher interest rates and a higher cost of living are starting to bite and some form of recession seems likely but when and how deep is far from clear.

Average annual earnings growth for the Fund over the next two years is forecast to be 2.3% compared to 7.0% for the benchmark, with a 2.0% contraction in 2023 followed by a 6.8% expansion in 2024. The gap is not concerning to us; it is caused by our exposure to Taiwanese technology names whose earnings for 2023 are expected to contract. This is reflected in the price and as we can see from the performance of Taiwanese stocks this year, the market is looking ahead.

Earnings expectations for the region have been reduced led by China earnings which have been lowered 6% for each of the next two years. We view this as analyst estimates factoring in data that have already been presented following the slower than expected China reopening. Despite moderating estimates, Chinese earnings growth forecasts are still healthy, with earnings expected to grow 12% in 2023 and 15% in 2024.

Edmund Harriss

Mark Hammonds

July 2023

International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from social, economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.

The companies in which the Fund invests may be subject to rapid changes in technology, intense competition, rapid obsolescence of products and services, loss of intellectual property protections, evolving industry standards and frequent new product productions and changes in business cycles and government regulations.

These risks could adversely affect the value of companies in which the Fund invests. Limitations on applications for autonomous or electric vehicles could adversely affect the value of companies in which the Fund invests.

The MSCI AC Pacific Ex-Japan Index is a market capitalization weighted index that monitors the performance of stocks from the Pacific region, excluding Japan. Net Return reflects deduction for withholding tax but reflects no deduction for fees and expenses. Net Return is net of local withholding taxes that any investor would pay. The index is unmanaged and not available for investment, and do not incur expenses.

Earnings growth is not a measure of the Fund’s future performance.

Earnings growth is the annual compound growth rate (CAGR) of a company’s net income.

Please refer to the Schedule of Investments for details on Fund holdings. Current and future portfolio holdings are subject to risk.

The information provided herein represents the opinion of Guinness Atkinson Asset Management, Inc. for the period stated and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Opinions, Fund holdings and sector allocations are subject to change at any time, and are not recommendations to buy or sell any security. 

The accompanying notes are an integral part of these financial statements.

SmartETFs Asia Pacific Dividend Builder ETF

Schedule of Investments

at June 30, 2023 (Unaudited)

The accompanying notes are an integral part of these financial statements. 

The accompanying notes are an integral part of these financial statements. 

SmartETFs Dividend Builder ETF
SEMI-ANNUAL REPORT FOR THE PERIOD ENDED
JUNE 30, 2023

The Fund’s total expense ratio is 1.22% and the net expense ratio is 0.65%. The Adviser has contractually agreed to reduce its fees and/or pay ETF expenses in order to limit the Fund’s total annual operating expense to 0.65% through June 30, 2026. For the Fund’s current six-month expense ratios, please refer to the Financial Highlights section of this report.

The SmartETFs Dividend Builder ETF acquired the assets and liabilities of the predecessor mutual fund, the Guinness Atkinson Dividend Builder Fund, on March 26, 2021. As a result of the transaction, the Fund adopted the accounting and performance history of its predecessor mutual fund. Performance results shown prior to March 26, 2021, reflect the performance of the predecessor mutual fund. The Market Price returns shown prior to March 26, 2021, reflects the predecessor mutual funds’ NAV.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by visiting www.SmartETFs.com, or calling (866) 307-5990.

Total returns for certain periods reflect a fee waiver in effect and in the absence of this waiver, the total returns would be lower. Returns reflect the reinvestment of distributions made by the Fund, if any. The graph and the performance table above do not reflect the deduction of taxes that a shareholder would pay on Fund distribution or the redemption of Fund shares.

Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the ETF. Brokerage commissions will reduce returns. SmartETFs NAVs are calculated using prices as of 4:00 PM Eastern Time. The closing price is the Mid-Point between the Bid and Ask price as of the close of exchange. Closing price returns do not represent the returns you would receive if you traded shares at other times.

Dividend Review

The Fund’s dividend yield at the end of the quarter was 2.17% (net of withholding tax) vs the MSCI World Index’s 2.06% (gross of withholding tax). 

So far, in 2023, we have had dividend updates from 27 of our 35 holdings.

Performance review

The SmartETFs Dividend Builder ETF in the first six months of 2023 produced a total return of 11.28% (in USD), versus the MSCI World Index return of 15.09% (in USD). The fund therefore underperformed by 3.81%.

Year to Date Performance Summary

· (1) Recovery Rally: Over the start of 2023, equities rallied hard with the growthiest parts of the market significantly outperforming. Higher beta areas performed particularly strongly as did the lowest quality areas of the market, as the factors which had performed worst over 2022, saw a strong reversal and led the market higher.

· (2) Market Reversal: The positive sentiment that had driven markets, quickly unwound. The rally had been led by a small number of seemingly fragile data points, but as new data emerged, investors reassessed their inflation expectations and the outlook became markedly more hawkish. With the prospect of higher rates for an extended period of time, longer duration assets were impacted the hardest, and markets retreated.

· (3) Banking Crisis: Three large bank failures in the US and the Credit Suisse rescue in Europe showed growing stress in the banking sector and highlighted the impacts of an historically stringent monetary tightening cycle. However, after a short sell-off in early March, volatility abated, and risk aversion retreated as swift liquidity support by central banks (and several takeovers) prevented a widespread escalation. Over this period, the Financials and Energy sectors performed particularly poorly, but other parts of the market (notably Healthcare & IT) saw positive performance.

· (4) AI Induced Rally: Since the end of March, a focus on Artificial Intelligence, and more specifically its potential use cases for a range of business cases, caused a sharp market rally. The largest gainers were the semiconductor names within the IT sector, as well as a range of associated sectors which have tangential exposure. It is worth noting that AI is not a new phenomenon but the launch of ChatGPT in early 2023 was the first consumer facing AI application and has therefore drawn attention to the technology. The number of S&P 500 companies citing AI on their earnings call has more than doubled over the last 6 months and, in many cases, has been richly rewarded by the market. More specifically, the optimism surrounding AI has focused on a handful of large cap names, which have driven the majority of performance (see last month’s commentary). There is growing concern that such lack of breadth is not a stable base for an enduring bull market as the largest ten names in the S&P 500 have accounted for nearly all the index’s returns until the end of May.

Where we are now? A broadening rally

On the whole, H1 2023 was a record low for US equity market breadth. Just 32% of US stocks outperformed the market, highlighting the sharp concentration of winners. EU stocks have fared slightly better, with 45% of stocks outperforming as of half-year end, but this is still well below historical averages. That said, over the month of June, the rally broadened out somewhat. As has been the case for much of the year, the technology sector continued to run, but positive performance was shared more equally amongst other sectors including Consumer Discretionary, Industrials and Materials. 

Up until June, much of the AI rally had been driven by a narrow group of names, but as the macro conditions evolved and the market pricing of a recession diminished, cyclical sectors faired particularly well, allowing for a more widespread market. The consensus that a soft landing may still be possible gained conviction over June, with new data pointing to an increasingly robust US economy. Goldman Sachs now see just a 25% chance of a US recession in the next 12 months, as the regional banks have stabilized, deposit outflows have slowed, and lending volumes are up. This has been compounded by recently released data which shows that everything from GDP to new home sales and durable goods orders all beat consensus estimates. This domestic US strength gives the Fed additional room to slow the economy through further monetary tightening in an effort to get inflation under control, whilst still maintaining some economic growth and avoiding a hard landing.

In H1 2023, the Fund’s underperformance versus the MSCI World Index can be attributed to:

Activity

We made no changes to the portfolio in the first half of the year.

Portfolio Positioning

We continue to maintain a fairly even balance between quality defensive and quality cyclical/growth companies. We have approximately 45% in quality defensive companies (e.g., Consumer Staples and Healthcare companies) and around 55% in quality cyclical or growth-oriented companies (e.g., Industrials, Financials, Consumer Discretionary, Information Technology).

While the defensive names tend to have lower beta and hold up better when markets are falling, the cyclical holdings allow the Fund to capture performance when markets are rebounding and rising. However, it is important to note that we believe that within these more cyclical sectors we are owning the ‘quality’ businesses. All the companies we seek to invest in have strong balance sheets and a history of performing well in difficult market environments. Within Financials, for example, we hold no Banks, which helps to dampen the cyclicality of our Financials, but we do own exchange groups such as CME and Deutsche Boerse (which do well in periods of market volatility as volumes tend to increase).

The Fund also has zero weighting to Energy, Utilities, Materials, Real Estate and Communication. The largest overweight is to Consumer Staples.

In terms of geographic exposure (shown below), the largest difference between the Fund and the benchmark is our exposure to the US (as measured by country of domicile). The Fund at quarter end had c.56% weighting to North America, which compares to the index at c.71%. 

The largest geographic overweight remains Europe ex-UK and the UK, though we are diversified around the world with 56% in the US, 36% in Europe and 6% in Asia Pacific. Within Asia Pacific we have one company listed in Taiwan (Taiwan Semiconductor Manufacturing) and one company listed in Australia (Sonic Healthcare).

Outlook

Whilst the Fund tends to trade at a discount to the broader market, at the end of the quarter, the Fund was trading on 19.6x 2023 expected earnings; a c.9% premium to the broad market.

This slight valuation premium on a PE basis, reflects the current quality of the portfolio. The Fund continues to hold consistently highly profitable companies with strong balance sheets and pricing power to pass on higher costs. We believe there is a strong case for dividend investing in general, and particularly in low growth environments such as we are experiencing today. Further, we believe that sustainable and growing dividends may offer better opportunities than a ‘high yield’ dividend approach, as ‘high yield’ stocks can often be in more economically sensitive sectors, or sectors with greater regulatory influence, which have historically performed poorly in recessionary-type environments.

As ever, we believe our unchanging approach of focusing on quality compounders and dividend growers should continue to stand us in good stead in our search for rising income streams and long-term capital growth.

Ian Mortimer

Matthew Page

July 2023

The Fund’s strategy of investing in dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and could reduce or eliminate the payment of dividends in the future or the anticipated acceleration of dividends could not occur. The Fund invests in foreign securities, which involve political, economic and currency risks, greater volatility, and differences in accounting methods. These risks are greater for emerging markets. The Fund invests in small- or mid-cap companies, which involve additional risks such as limited liquidity and greater volatility than larger companies. When inflation rate is greater than expected, that markets may respond differently to changes in the inflation rate than the Advisor expects, or inflation may manifest in such a way that the Fund is unable to provide reasonable protection against inflation.

The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. This index is unmanaged and is not available for investment, and does not incur expenses.

The S&P 500 Index is a free float-adjusted market capitalization weighted index of the 500 largest publicly traded companies in the US. One cannot invest directly in an index

PER or P/E - Price to Earnings ratio is calculated by dividing current price of the stock by the company's trailing months' earnings per share.

Earnings growth is not a measure of the Fund’s future performance.

Dividend yield is calculated by annualizing the last quarterly dividend paid and dividing it by the current share price.

Diversification does not assure a profit nor protect against loss in a declining market. 

Please refer to the Schedule of Investments for details on Fund holdings. Current and future portfolio holdings are subject to risk.

The information provided herein represents the opinion of Guinness Atkinson Asset Management, Inc. for the period stated and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Opinions, Fund holdings and sector allocations are subject to change at any time, and are not recommendations to buy or sell any security.

The accompanying notes are an integral part of these financial statements. 

SmartETFs Dividend Builder ETF

Schedule of Investments

at June 30, 2023 (Unaudited)

The accompanying notes are an integral part of these financial statements. 

SmartETFs Dividend Builder ETF

Schedule of Investments

at June 30, 2023 (Unaudited)

The accompanying notes are an integral part of these financial statements.

SmartETFs

STATEMENTS OF ASSETS AND LIABILITIES

at June 30, 2023 (Unaudited)

The accompanying notes are an integral part of these financial statements.

SmartETFs

STATEMENTS OF ASSETS AND LIABILITIES

at June 30, 2023 (Unaudited)

The accompanying notes are an integral part of these financial statements. 

SmartETFs

STATEMENTS OF OPERATIONS

For the Six Months Ended June 30, 2023 (Unaudited)

The accompanying notes are an integral part of these financial statements. 

SmartETFs

STATEMENTS OF OPERATIONS

For the Six Months Ended June 30, 2023 (Unaudited)

The accompanying notes are an integral part of these financial statements. 

SmartETFs

STATEMENTS OF CHANGES IN NET ASSETS