A portfolio can keep yesterday’s decisions long after the evidence supporting them has changed.

CORE16 Best of Breed Premier Index ETF (BOBP) is built to revisit those decisions every two weeks. At each scheduled rebalance, the Fund's tracking Index re-evaluates and ranks its eligible universe of U.S. large-cap stocks. A holding remains only if it is still among the 50 highest-ranking securities under the methodology. If it falls below that cutoff, another eligible security can take its place.

The practical effect is a portfolio that is repeatedly renewed rather than carried forward by default. Securities that no longer meet the Index criteria can be removed. The next portfolio is built from the names that do.

That is the discipline behind BOBP. The ETF seeks to track an Index designed to keep testing its holdings against the same rules, not to assume that a company selected in an earlier period should remain in the portfolio indefinitely.

The process does not predict which stocks will rise next, preserve capital or guarantee favorable results. It defines, in advance, how the Index will revisit the portfolio as the relative standing of eligible securities changes.

The eligible universe and ranking process

The Index begins with a universe of U.S.-listed large-cap companies. Eligible securities include companies with market capitalizations of $5 billion or more and may include common stocks, American Depositary Receipts* and Global Depositary Receipts.**

From that universe, the Index applies its rules-based selection process. The methodology screens, scores and ranks eligible securities using a proprietary indicator operated by Core16, Inc., the index provider. The Index is designed to select 50 securities from the U.S. large-cap universe and maintain a flexible allocation between those selected securities and cash.

The ranking process is not a one-time event.

At each biweekly rebalance, the Index reevaluates the eligible universe using current data. Securities that remain highly ranked can retain their place. Securities that no longer qualify can be removed. New securities can enter if they rank among the highest-scoring names at that rebalance.

The result is a portfolio that is periodically rebuilt rather than left unchanged until an annual or quarterly reset. The index provider has publicly described the Index as rebalanced every two weeks, with both the roster and allocation checked on that recurring schedule.

Every holding must requalify

The Index does not give a holding credit for having qualified once.

At each biweekly rebalance, it reruns its selection process across the eligible universe. The securities that remain among the 50 highest-ranking names continue in the Index. Securities that no longer meet that cutoff can be removed and replaced by higher-ranking candidates.

That reset is not a reaction to one disappointing earnings report, one sharp price move or a portfolio manager’s changing view. It is the same recurring test applied to every eligible security.

Over time, the process is designed to keep the portfolio concentrated in the names that continue to rank highest under the methodology. It does not preserve a security because it was selected earlier, because it has a familiar brand or because someone believes it deserves more time.

A stock can decline before the next scheduled rebalance removes it. A newly selected stock can also decline after it enters the Index. Requalification is a repeatable discipline for reassessing the portfolio—not a guarantee of favorable timing or investment results.

Cash is an allocation rule

The Index makes another decision at the same biweekly rebalance: how much of the portfolio is allocated to equities.

Under normal market conditions, the Index typically holds about 90% in selected equities and about 10% in cash or cash equivalents. When its Gainers-to-Losers Index Indicator signals heightened market stress, the cash allocation can increase to about 20% at the next scheduled rebalance, reducing equity exposure to about 80%.

That cash allocation is not a discretionary decision made because a portfolio manager believes markets are about to decline. It is part of the published Index process.

The Gainers-to-Losers Index Indicator evaluates market momentum by tracking whether more Index constituents have gained or lost value over the trailing 12 months. Its reading helps determine whether the Index maintains its normal allocation or shifts a larger portion of the portfolio to cash or cash equivalents at the next rebalance.

The Index does not shift allocations intraday or in response to every market move. It follows its scheduled rebalance process. A rapid decline may therefore occur before the Index’s allocation changes.

The reverse is also true. If equities rise while the Index holds a larger cash allocation, the strategy will have less exposure to that advance than a fully invested equity strategy. Holding cash may cause the Index and Fund to lag during rising markets.

Cash can reduce equity exposure. It does not ensure a profit and cannot protect against losses in declining markets.

Two decisions at every rebalance

The rebalance process addresses two separate questions:

• Which 50 securities qualify for the Index?

• How much of the Index is allocated to selected equities rather than cash or cash equivalents?

Those decisions can change independently or at the same rebalance.

The Index may maintain its normal equity allocation while replacing one or more holdings. It may increase its cash allocation while retaining many of the same names. It may also change both the allocation and the constituent list at once.

Consider a rebalance in which the Gainers-to-Losers Index Indicator calls for a higher cash allocation. The Index may reduce equity exposure from about 90% to about 80%. At the same time, it continues to evaluate the eligible universe and select the 50 securities that rank highest under the methodology.

If the indicator later returns to normal conditions, the additional cash may be redeployed into the securities selected at that future rebalance. The Index does not automatically return to the exact holdings it owned before the cash allocation increased.

The portfolio is therefore shaped by two recurring decisions: the securities that qualify and the portion of the portfolio allocated to them.

The Index and the Fund serve different roles.

The CORE16 Best of Breed Premier Index determines its constituents and allocation according to its published methodology. BOBP seeks to track the performance of that Index, before fees and expenses.

As a passive ETF, BOBP does not independently adopt a defensive market position based on the Adviser’s view of market conditions. Exchange Traded Concepts, LLC serves as the Fund’s investment adviser, while Core16, Inc. is the Index provider and designed the Index methodology.

The Fund may also use a representative sampling methodology under various circumstances, including when it may not be possible or practicable to purchase all of the securities in the Index. Representative sampling is an indexing strategy that involves investing in a representative sample of an index’s component securities that collectively has an investment profile similar to the relevant index. As a result, BOBP may not match the Index exactly at every point in time, and there is no guarantee that the Fund will achieve a high degree of correlation with the Index.

For due-diligence purposes, that distinction is important. The Index establishes the selection and allocation rules. The Fund seeks to implement exposure to that Index within the operational and investment parameters disclosed in its prospectus.

The advisor due-diligence record

A current holdings list is a snapshot. It shows the securities an ETF owns at a given moment, but it does not always explain what will cause those holdings to change.

BOBP’s Index provides a defined process for revisiting that snapshot every two weeks.

Advisors evaluating the strategy can review three recurring decisions:

• The universe from which securities may be selected

• The process that determines whether current holdings continue to qualify

• The conditions that may increase the Index’s allocation to cash or cash equivalents

Those mechanics do not answer every portfolio-construction question. BOBP is non-diversified and may invest a greater percentage of its assets in a single issuer than a diversified fund. The Fund may also concentrate its investments in an industry or group of industries to approximately the same extent as the Index, which can increase exposure to losses when a particular issuer, industry or market segment performs poorly.

The Fund also has a limited operating history. Investors and advisors should consider the Fund’s investment objective, risks, charges and expenses, as well as a client’s objectives, time horizon, risk tolerance and existing portfolio exposures.

A rules-based process cannot remove uncertainty. It can, however, make the decisions governing the portfolio available for examination before the next rebalance occurs.

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* American Depositary Receipts (ADRs) enable U.S. investors to easily purchase shares in foreign companies by allowing these stocks to be traded on U.S. exchanges, facilitating international investment.

** A Global Depositary Receipt (GDR) is a financial instrument that enables foreign companies to raise capital and allows investors to trade non-domestic shares on local stock exchanges.