A share split occurs when an ETF increases the number of its outstanding shares at a specified ratio (such as 2-for-1) and reduces the net asset value (NAV) per share by the corresponding inverse ratio. Although the number of shares increases and the share price decreases proportionally, the total value of an investor’s holdings remains unchanged.
· Before split: 100 shares at $20 NAV = $2,000 value
· After split: 200 shares at $10 NAV = $2,000 value
A 2:1 split means each share is split into two shares, while the NAV per share is divided by two.
Share splits are considered when an ETF’s market price increases to where it becomes increasingly difficult to trade board lots. Splitting shares helps investors trade standard 100-share board lots more easily and may help support stronger trading volumes.
A share consolidation is the opposite of a split. It reduces the number of outstanding shares and increases the NAV per share by the same ratio. While the number of shares decreases and the share price increases, the total value of an investor’s holdings stays the same.
· Before consolidation: 1,000 shares at $2 NAV = $2,000 value
· After consolidation: 200 shares at $10 NAV = $2,000 value
A 1:5 consolidation means every 5 shares are consolidated into one share, while the NAV per share is multiply by a factor of 5.
Share consolidations are considered when an ETF’s market price decreases to where per share trading commissions are high and margin requirements become an issue.
LongPoint ETFs works closely with the reorganization departments of major brokerage firms to provide all required information promptly. However, brokerage systems typically need 3–5 business days to process and reflect these corporate actions in client accounts. For specific questions about your account, please contact your brokerage directly.
Disclaimer
This article is intended for active, high-conviction investors. Always read the full prospectus and disclaimers before investing. Visit www.longpointetfs.com for more information.
LongPoint’s Proprietary ETFs, which include the Mega ETFs, Savvy ETFs and Geared ETFs (the “Proprietary ETFs”), are all alternative mutual funds, and as such, are permitted to invest in asset classes or use investment strategies that are not permitted for other types of mutual funds. The Proprietary ETFs are highly speculative and use a significant amount of leverage which magnifies gains and losses.
The Proprietary ETFs are intended for use in daily or short-term trading strategies by very knowledgeable, sophisticated investors. If you hold a Proprietary ETF for more than one day, your return could vary considerably from that ETF's daily target return. The Proprietary ETFs are not suitable for investors who do not intend to actively monitor and manage their investments.
The Proprietary ETFs, through the use of leverage, may experience amplified losses and should not be expected to deliver their daily return objective over any period of time other than daily. The returns of the Proprietary ETFs over periods longer than one day will likely differ in amount and possibly direction from the performance or inverse performance, as applicable, of their daily target for the same period. This effect is more pronounced for the Proprietary ETFs as the volatility of the daily target and/or the period of time increases. An investor in a Proprietary ETF could lose their entire investment within a single day if the daily target experiences a significant gain or loss, as applicable, that day. This material is for informational purposes only. This material is not intended to be relied upon as research, investment, or tax advice and is not an implied or express recommendation, offer or solicitation to buy or sell any security or to adopt any particular investment or portfolio strategy. Any views and opinions expressed do not take into account the particular investment objectives, needs, restrictions and circumstances of a specific investor and, thus, should not be used as the basis of any specific investment recommendation. Investors should consult a financial and/or tax advisor for financial and/or tax information applicable to their specific situation. All ETFs, including those that seek to track an index are subject to risk, including the possible loss of principal. Diversification does not ensure a profit or protect against a loss in a declining market. While the LongPoint ETFs are designed to be as diversified as the original indices they seek to track and may provide greater diversification than an individual investor may achieve independently, any given ETF may not be a diversified investment. Before investing in shares of the ETFs, investors should consider their ongoing obligations with respect to insider trading, insider reporting, and take-overbids under the Securities Act (Ontario) or other relevant securities legislation (including National Instruments) and as explained in National Policies. Securities regulators may take the view that these provisions extend to the purchase and sale of Shares of the ETFs as they invest in securities of a single issuer, including on a look-through basis.
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