#AI is trending. But artificial intelligence isn’t just a fad; AI is in its Renaissance moment, at the beginning of a new direction that initially feels new and novel, but over time becomes normal as it becomes increasingly integrated into our lives.

In large part, we have ChatGPT to thank for bringing AI to the mainstream. While AI was already widely in use, since November 2022 ChatGPT put each of us in the driver’s seat to explore the power of Natural Language Process (NLP), an AI technique that has revolutionized interactions between computers and human language.

Beyond NLP, there is a huge variety of AI tools and techniques that are equally impressive and capable, and which are mostly used by corporations for data analytics, by health care companies to support diagnostics, and manufacturers for automation. In each of these use cases, AI is widely used and accepted, but is less visible to the general populace. One area where AI has long been in use, but less well known, is AI applications in the investment process, specifically for stock research and portfolio construction.

The foundation of investments is in data, and the lifeblood of AI is data. AI algorithms are capable of identifying patterns, signals, relationships, and potential opportunities that humans alone cannot discern amid massive sets of widely available financial data. The combination of investment data and AI can lead to superior investment products that exemplify timely investment decision making, increased accuracy and efficiency, and, relative to robust teams of human research analysts and human portfolio managers, lower costs.

Since 2016, Qraft Technologies has been focused on developing AI innovations for the investment space. We first began by developing AI trade signal tools, then in 2019 we launched our first two NYSE-listed active ETFs featuring AI-driven security selection and portfolio construction, followed by a market risk indicator in 2022. We aim to follow that up in 2023 by launching an abnormal trade detection signal.

In each of these innovations, applying AI tools and techniques offer a distinct advantage over processes dependent on humans alone. Today, we will focus on AI-driven security selection and portfolio construction and the advantage this presents over traditional fundamental asset management.

Seeking an Advantage with AI in Active Management

At Qraft, our AI-driven strategies use machine learning to identify stocks in our human-defined investment universe that demonstrate the greatest potential for alpha generation.

Our proprietary AI models for stock analysis are designed and trained to predict the next one month’s relative strength for each security in the investable universe. Separately, our AI models for portfolio construction take into account prevailing market conditions as well as human defined, product specific parameters designed to manage risk in the portfolio, such as limits on individual position size and maximum sector weights. An AI algorithm then constructs a portfolio of stocks that have the greatest potential to deliver outperformance given these considerations.

The Qraft AI-Enhanced ETFs are actively managed and portfolio holdings are updated monthly to reflect the latest stock and market-level predictions generated by Qraft’s AI. By updating the portfolio monthly, we seek to strike a balance between the strategy’s long-term performance and profitability with transaction costs and turnover. Data availability is also a consideration as many financial data points are only updated monthly.

Actively managing and regularly updating portfolio holdings presents an advantage over passive strategies that rebalance less frequently. For example, comparing the actively-managed Qraft AI-Enhanced U.S. Large Cap Momentum ETF (AMOM) to a passive momentum-focused equivalent, iShares MSCI USA Momentum Factor ETF (MTUM), we see updating the portfolio regularly provides flexibility that passive options lose out on. Both ETFs pursue momentum factor exposure, but the dynamic nature of Qraft’s actively managed portfolio allows for greater flexibility to adapt to changing market conditions.

MTUM rebalances semiannually, in May and November, meaning MTUM will not be rebalanced again until May 20231. However, given the market rebound since January of this year, MTUM’s positioning – which made sense in November – is now positioned too defensively in a time when it’s potentially advantageous to take on more risk.

Source: Morningstar Direct. Data as of February 9, 2023. Subject to change.

The defensive nature of MTUM, primarily the result of the large allocation to Health Care and Energy names, has contributed to its weak investment results over the last one month and last three months. Meanwhile, AMOM, which is updated monthly, we believe has benefited from its active management and ability to dynamically shift into and out of individual stocks and sectors based on the changing market dynamics.

While active management can be a feature of both a traditional fundamental (human-led) investment approach and an AI-driven approach, AI algorithms are uniquely positioned to analyze and draw conclusions from financial data from 360 degrees and on multiple planes, allowing the AI-driven investment process to adapt to changing market dynamics at a speed unmatched by humans alone.

AI models thrive in all markets, but truly excel amid volatile, fast-moving markets where AI can provide clear direction and action in nearly real-time and do so devoid of human emotion that can lead to bias in investment decision making. We believe this presents a significant advantage over time and can lead to super investment results.

Returns as of January 31, 2023 (%)

Performance data quoted represents past performance and is no guarantee of 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 may be lower or higher than the original cost. Returns for periods of less than one year are not annualized. For the most recent month-end returns visit *www.qraftaietf.com. Expense Ratio = 0.75%.*
*For standardized performance and performance to the most recent month-end for the iShares MSCI USA Momentum Factor ETF (MTUM), please click* *here*. AMOM is an actively managed ETF, combining targeted momentum factor exposure with security selection, and is designed to outperform a passive momentum exposure. MTUM is the flagship index ETFs tracking a passive momentum exposure. Both ETFs broadly draw from the same universe of large-cap US stocks. Expense Ratio = 0.15%.
All funds are managed differently and do not react the same to economic or market events. The investment objectives, strategies, policies, or restrictions of other funds may differ and more information can be found in their respective prospectuses.
*Please see the Important Information at the end of this document for additional information on AMOM and MTUM.*

Potential Advantages Among AI Active Managers

While still limited in number, there is a small contingent of AI-powered ETFs available to investors today that use AI techniques to select securities for inclusion in their portfolio. One such ETF is the AI Powered Equity ETF (AIEQ), which, since 2017, has been using AI to identify companies with the greatest potential for appreciation over the next twelve months.

Like Qraft’s AI-Enhanced US Large Cap Equity ETF (QRFT), AIEQ seeks long-term capital appreciation. And similar to QRFT, AIEQ focuses on US equities and falls in the Morningstar Large Growth peer group. Also, like all of Qraft’s AI-Enhanced ETFs, AIEQ is actively managed. However, AIEQ trades as frequently as daily, which led to turnover of over 1,700% through AIEQ’s fiscal year ended September 30, 2022. Meanwhile, QRFT, with its monthly rebalancing, had turnover of just 180% through its fiscal year ended April 30, 2022.

Turning to performance, we looked at QRFT relative to AIEQ to see if the elevated turnover appeared to be additive to performance:

Returns as of January 31, 2023(%)

In general, higher turnover can lead to increased fund expenses, which ultimately can reduce a fund's performance and may also have negative tax consequences if the turnover results in capital gains distributions to fundholders. In researching and developing our investment strategies at Qraft, our backtests showed that monthly rebalancing was effective in achieving the theoretical returns we targeted and did so with more moderate turnover, therefore we chose to limit our rebalancing frequency.

In practice, we believe this has also proven true: our AI-driven security selection and portfolio construction have been additive over the longer-term and QRFT has showed strong results since inception in 2019 and over the last three years and the last one year, both on an absolute basis and relative to peers. AIEQ’s results have been less impressive over the longer term, falling in the 77th percentile over the last three years and 88th percentile over the last five years. The last one year has shown some improvement relative to longer-term peer rankings, with AIEQ falling in the 31st percentile.

Peer Rankings as of January 31, 2023 (%)

Source: Morningstar Direct. Morningstar rankings are based on a fund's average annual total return relative to all funds in the same Morningstar category. Fund performance used within the rankings reflects certain fee waivers, without which, returns and Morningstar rankings would have been lower. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100.

Another way to assess how a strategy holds up in different market environments is to look at Capture Ratios. An “upside” capture ratio over 100 indicates a fund has generally outperformed the benchmark during periods of positive returns for the benchmark. Meanwhile, a “downside” capture ratio of less than 100 indicates that a fund has lost less than its benchmark in periods when the benchmark has delivered negative returns. For comparison, we also included the results for the Morningstar Large Growth category, to which QRFT and AIEQ have both been assigned by Morningstar.

Over the last three years, QRFT showed remarkable results: the ideal capture ratio is above 100 for the upside ratio and below 100 for the downside ratio, both of which QRFT demonstrated. As of January 31, 2023, QRFT had generally outperformed the S&P 500 by 4% in bullish markets and, in bearish markets, only captured 98% of the S&P 500’s negative returns – meaning QRFT lost less than the S&P 500 in periods when the S&P 500 delivered negative returns.

AIEQ, however, lagged the ideal scenario on both measures over the last three years. This is concerning as an investor would have been better off investing in an S&P 500 Index fund rather than paying the higher expense ratio for the actively managed AIEQ ETF.

3-Year Capture Ratios as of January 31, 2023

Source: Morningstar Direct. Upside capture ratios for funds are calculated by taking the fund's monthly return during months when the benchmark, the S&P 500 Index, had a positive return and dividing it by the benchmark return during that same month. Downside capture ratios are calculated by taking the fund's monthly return during the periods of negative benchmark performance and dividing it by the benchmark return. An upside capture ratio over 100 indicates a fund has generally outperformed the benchmark index during periods of positive returns for the benchmark. Meanwhile, a downside capture ratio of less than 100 indicates that a fund has lost less than the benchmark index in periods when the benchmark has delivered a negative return.

With an inception date in 2017, AIEQ has a five-year track record, however QRFT, with a 2019 inception date, has not yet reached that milestone. Looking at AIEQ’s five-year Capture Ratios (as of January 31, 2023), the results were challenged similarly to its three-year record, with upside capture of 98 and a downside capture of 112, while the Large Growth category upside was 102 and downside was 106.

While AIEQ does have a longer track record than QRFT, AIEQ’s investment results do not present an overly compelling investment case for investing with AI. QRFT, however, has shown strength over its three-year track record which, we believe, is a testament to the superior AI tools and models Qraft has built in-house by our experienced teams of data and investment experts.

AI Renaissance and What It Means to the Investment Industry

ChatGPT has brought AI to the mainstream, accelerating comfort with AI’s astounding capabilities and opening eyes to AI’s potential. With elevated acceptance and trust in artificial intelligence, we are on the cusp of the AI Renaissance.

As AI may continue to gain broad acceptance, we expect to see increased adoption of AI applications in investment decision making – and at least part of this will be driven by consumer demand to not just invest in AI, but to invest with AI. In investments, trust is a vital element: investors must trust that the products in which they invest can reasonably achieve their stated objectives. We see the AI trend as an indication of trust in this remarkable technology and expect to soon see a follow-on trend of wide-spread adoption of AI-driven investment strategies.

We liken this moment in history to the massive disruption Apple brought to the mobile phone market with the launch of the iPhone in 2007. Prior to this, Nokia was the established dominant player with nearly 50% market share. But Apple’s ability to identify and act upon consumer preferences and embrace new and different technology led to Nokia’s downfall.

At Qraft, we are transforming investment decision making with our innovations in AI that allow humans to harness the power, agility, and speed of AI with the goal of improving investment outcomes. AI’s Renaissance has begun, and we believe traditional fundamental asset managers must now begin incorporating AI technology in security selection and portfolio construction, or risk being left behind.

Important Information

Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about the Fund, please call 1-855-973-7880 or visit our website at www.Qraftaietf.com. Read the prospectus or summary prospectus carefully before investing.

The Funds are distributed by Foreside Fund Services, LLC

Investing involves risk, including loss of principal. The Funds are subject to numerous risks including but not limited to: Equity Risk, Sector Risk, Large Cap Risk, Management Risk, and Trading Risk. The Funds rely heavily on a proprietary artificial intelligence selection model as well as data and information supplied by third parties that are utilized by such model. To the extent the model does not perform as designed or as intended, the Fund’s strategy may not be successfully implemented and the Funds may lose value. Additionally, the funds are non-diversified, which means that they may invest more of their assets in the securities of a single issuer or a smaller number of issuers than if they were a diversified fund. As a result, each Fund may be more exposed to the risks associated with and developments affecting an individual issuer or a smaller number of issuers than a fund that invests more widely. A new or smaller fund's performance may not represent how the fund is expected to or may perform in the long term if and when it becomes larger and has fully implemented its investment strategies. Read the prospectus for additional details regarding risks.

QRAFT AI-Enhanced US Large Cap Momentum ETF (AMOM)

Investment Objective: Capital Appreciation

Costs & Expenses: 0.75%

Liquidity: Because the Fund is an ETF, only a limited number of institutional investors (known as “Authorized Participants”) are authorized to purchase and redeem shares directly from the Fund. In addition, there may be a limited number of market makers and/or liquidity providers in the marketplace. To the extent either of the following events occur, shares of the Fund may trade at a material discount to their net asset value (“NAV”) per share and possibly face delisting: (i) Authorized Participants exit the business or otherwise become unable to process creation and/or redemption orders and no other Authorized Participants step forward to perform these services, or (ii) market makers and/or liquidity providers exit the business or significantly reduce their business activities and no other entities step forward to perform their functions.

Safety: The fund is subject to risks including, but not limited to common stock risk, issuer-specific risk, large capitalization risk, limited authorized participants, market makers, and liquidity providers risk, management risk, market risk, model and data risk, new/smaller fund risk, non-diversification risk, operational risk, portfolio turnover risk, sector focus risk, and trading risk.

Guarantees or Insurance: As with all funds, a shareholder is subject to the risk that his or her investment could lose money.

Fluctuation of Principal or Return: As with all funds, a shareholder is subject to the risk that his or her investment could lose money.

Tax Features: Distributions from ETFs are subject to taxation.

Behavioral Bias: Behavioral biases are irrational beliefs or behaviors that can unconsciously influence our decision-making process. Emotional biases involve taking action based on our feelings rather than concrete facts, or letting our emotions affect our judgment. Cognitive biases are errors in our thinking that arise while processing or interpreting the information that is available to us.

iShares MSCI USA Momentum Factor ETF (MTUM)

Investment Objective: The iShares MSCI USA Momentum Factor ETF (the “Fund”) seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks exhibiting relatively higher price momentum.

Costs & Expenses: 0.15%

Liquidity: Only authorized participants (“APs”) may engage in creation or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs and such APs have no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active trading market for the Shares. This risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized settlement system. In that case, Aps may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other market participants), which only a limited number of APs may be able to do. In addition, to the extent that Aps exit the business or are unable to proceed with creation and/ or redemption orders with respect to the Fund and no other AP is able to step forward to create or redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade at a premium or discount to the Fund’s net asset value (“NAV”) and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading volumes, may increase this risk. The Fund faces numerous market trading risks, including the potential lack of an active market for the Shares, losses from trading in secondary markets, and disruption in the creation/redemption process of the Fund. Any of these factors may lead to the Shares trading at a premium or discount to the Fund’s NAV.

Safety: The fund is subject to risks including, but not limited to, Authorized Participant Concentration risk, equity risk, index risk, industry concentration risk, healthcare sector risk, issuer-specific risk, market risk, market trading risk, momentum investing risk, non-correlation risk, non-diversified fund risk, and operational risk.

Guarantees or Insurance: An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency.

Fluctuation of Principal or Return: As with all funds, a shareholder is subject to the risk that his or her investment could lose money.

Tax Features: The Fund’s distributions generally are taxed as ordinary income, capital gains, or some combination of both, unless you are investing through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account; in which case your distributions may be taxed as ordinary income when withdrawn from such account.

QRAFT AI-Enhanced US Large Cap ETF (QRFT)

Investment Objective: Capital Appreciation

Costs & Expenses: 0.75%

Liquidity: Because the Fund is an ETF, only a limited number of institutional investors (known as “Authorized Participants”) are authorized to purchase and redeem shares directly from the Fund. In addition, there may be a limited number of market makers and/or liquidity providers in the marketplace. To the extent either of the following events occur, shares of the Fund may trade at a material discount to their net asset value (“NAV”) per share and possibly face delisting: (i) Authorized Participants exit the business or otherwise become unable to process creation and/or redemption orders and no other Authorized Participants step forward to perform these services, or (ii) market makers and/or liquidity providers exit the business or significantly reduce their business activities and no other entities step forward to perform their functions.

Safety: The fund is subject to risks including, but not limited to common stock risk, issuer-specific risk, large capitalization risk, limited authorized participants, market makers, and liquidity providers risk, management risk, market risk, model and data risk, new/smaller fund risk, non-diversification risk, operational risk, portfolio turnover risk, sector focus risk, and trading risk.

Guarantees or Insurance: An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency.

Fluctuation of Principal or Return: As with all funds, a shareholder is subject to the risk that his or her investment could lose money.

Tax Features: Distributions from ETFs are subject to taxation.

AI Powered Equity ETF (AIEQ)

Investment Objective: The AI Powered Equity ETF seeks long-term capital appreciation and targets a maximum risk-adjusted return versus the broader U.S. equity market.

Costs & Expenses: 0.75%

Liquidity: The Fund has a limited number of financial institutions that may act as Authorized Participants (APs), none of which are obligated to engage in creation and/or redemption transactions. In addition, there may be a limited number of market makers and/or liquidity providers in the marketplace. To the extent either of the following events occur, there may be a significantly diminished trading market for Fund shares and shares may trade at a material discount to NAV and possibly face delisting: (i) APs exit the business or otherwise become unable to process creation and/or redemption orders and no other APs step forward to perform these services, or (ii) market makers and/or liquidity providers exit the business or significantly reduce their business activities and no other entities step forward to perform their functions. The risks associated with limited APs may be heightened in scenarios where APs have limited or diminished access to the capital required to post collateral.

Safety: The fund is subject to risks including, but not limited to, portfolio turnover risk, REITs investment risk, models and data risk, sector risk, smaller companies risk, associated risks of investments in SPACs, associated risks of SPAC-derived companies, cash and cash equivalents risk, equity market risk, ETF risks, management risk, natural disaster/epidemic risk, and securities lending risk.

Guarantees or Insurance: An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Fluctuation of Principal or Return: As with all funds, a shareholder is subject to the risk that his or her investment could lose money.

Tax Features: Distributions from ETFs are subject to taxation.

The Potential for Advantage from AI in Investments

Monthly Portfolio Update: March 2023

Among the top of their class: ETFs actively managed by artificial intelligence outperformed the majority of peers in 2022