Spotlight on PFLD

PFLD

advisors asset management's

The ONLY Low Duration Preferred & Income Securities ETF

What supports our expectations for 2021?

©2023 Advisors Asset Management. Advisors Asset Management, Inc. (AAM) is an SEC-registered investment advisor and member FINRA/SIPC. AAM ETFs are distributed by Quasar Distributors, LLC. Quasar and AAM are not affiliated. 18925 Base Camp Road • Monument, CO 80132 • www.aamlive.com CRN: 2022-0118-9717 R Link 8001

Characteristics

Historically Higher Yield

Income

What is a bond ladder?

Like common stock, preferred and hybrid securities represent ownership in a company and have the potential to appreciate (or decline) in price. Like bonds, they offer a fixed or floating dividend, similar to a bond coupon, and often carry a credit rating from a recognized rating agency. In the capital structure, preferred and hybrid securities fall between debt holders and common stock holders.

TAX-EXEMPT INCOME

Low Correlation

How It Works

Assuming an initial investment of $100,000, an investor purchases five bonds with staggered maturities extending out every two years. The laddered bond portfolio has a combined average annual yield of 3.42% and an average duration of 6 years.

2-Year

4-Year

6-Year

8-Year

10-Year

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

2.05

2.65

3.60

4.15

4.65

At the end of year two, the shortest bond matures and the four remaining bond investments are now two years closer to their maturity date. Proceeds from the maturing bond are reinvested back into the 10-year bond. The combined average annual yield of the new laddered bond portfolio is 4.05% and the average duration would remain at 6 years.

Original Ladder

2-Year

4-Year

6-Year

8-Year

10-Year

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

2.05

2.65

3.60

4.15

4.65

BOND A $20,000

BOND B $20,000

BOND C $20,000

BOND D $20,000

BOND E $20,000

ladder two years later

BOND MATURED

2-Year

4-Year

6-Year

8-Year

10-Year

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

6.00%

0.00

2.65

3.60

4.15

4.65

5.20

BOND A $20,000

BOND B $20,000

BOND C $20,000

BOND D $20,000

BOND E $20,000

ladder two years later

BOND MATURED

2-Year

4-Year

6-Year

8-Year

10-Year

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

6.00%

0.00

2.65

3.60

4.15

4.65

5.20

BOND A $20,000

BOND B $20,000

BOND C $20,000

BOND D $20,000

BOND E $20,000

Ladder Two Years Later >>

<< ORIGINAL LADDER

This hypothetical example is for illustrative purposes only and does not represent the performance of any specific investment. Bond income is not guaranteed and may be subject to call risk as well as default risk, which increases with lower-rated bond securities.

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The investment objectives, risks, charges and expenses must be considered carefully before investing. Each fund’s statutory and summary prospectuses contains this and other important information about the investment company, and may be obtained by calling 800.617.0004 or visiting www.aamlive.com. Read it carefully before investing. Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV) and may trade at a discount or premium to NAV. Shares are not individually redeemable from the Fund and may be only be acquired or redeemed from the fund in creation units. Brokerage commissions will reduce returns. Companies with high yield or payout ratio may underperform other securities in certain market conditions and reduce or discontinue paying dividends entirely while included in the index. The Fund’s return may not match or achieve a high degree of correlation with the return of the underlying Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not assure a profit or protect against a loss in a declining market. The value of a company’s preferred stock will react more strongly than bonds and other debt to actual or perceived changes in the company’s financial condition Preferred stock is subject to the risks that a company may defer or not pay dividends, and, in certain situations, may call or redeem its preferred stock or convert it to common stock. During periods of falling interest rates, an issuer of a callable security held by the Fund may “call” or repay the security before its stated maturity, and the Fund may have to reinvest the proceeds at lower interest rates. Investments in small and mid-cap companies may involve less liquidity and greater volatility than larger companies. Past performance does not guarantee future results. Index performance is not illustrative of fund performance. Please visit www.aamlive.com for fund performance. There is no guarantee that distributions will be made. PFLD expense ratio is 0.45%. Ratings are subject to change. Credit quality distribution is determined by public credit ratings, typically issued by agencies such as Standard & Poor’s Global Ratings and Moody’s Investors Services, who are the two most prevalent credit rating agencies. If more than one credit rating is presented, an average is determined. Ratings apply to the credit worthiness of the issuers of the underlying securities and not to the Fund itself. Bond ratings are grades given to the bonds to indicate their credit quality as determined by rating agencies including, but not limited to, S&P and Moody’s. Ratings are expressed as letters, ranging from AAA, which is the highest grade, to D, which is the lowest grade. When a rating agency has not issued a formal rating, the adviser will classify the security as non-rated. Definitions: In the bond markets, a call is an issuer’s right to redeem bonds it has sold before the date they mature. With preferred stocks, the issuer may call the stock to retire it, or remove it from the marketplace. Correlation is a statistical measure of how two variables move in relation to each other with coefficients ranging from +1 to -1. A correlation coefficient of +1 implies that as one variable moves, the other will move in exact lockstep. Alternatively, a correlation coefficient of -1 implies that if one variable moves, the other moves in the same amount in the opposite direction. If the correlation is 0, the movements of the variables are completely random. A coupon is the annual interest rate paid on a bond expressed as a percentage of the face value. Dividend yield is a stock’s annual dividend relative to the stock price. Duration is a measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates. It measures how long it takes, in years, for an investor to be repaid the bond’s price by the bond’s total cash flows. Option-adjusted duration is duration adjusted to account for the change in cash flows of the bond’s embedded option. Yield to Maturity is the total annual return on a bond investment if held to maturity. The ICE 0-5 Year Duration Exchange-Listed Preferred & Hybrid Securities Index (PHLD) is an unmanaged index that tracks the performance of shorter duration exchange-listed US dollar denominated hybrid debt and preferred stock publicly issued by corporations in the US domestic market. The ICE Exchange-Listed Preferred & Hybrid Securities Index (PHGY) is an unmanaged index that tracks the performance of exchange-listed US dollar denominated hybrid debt, preferred stock and convertible preferred stock publicly issued by corporations in the US domestic market. The ICE BofA US High Yield Index (H0A0) is an unmanaged index that tracks the performance of US dollar denominated below investment grade corporate debt publicly issued in the US domestic market. The ICE US Broad Municipal Index (MUNI) is an unmanaged index that tracks the performance of US dollar denominated investment grade tax-exempt debt publicly issued by US states and territories, and their political subdivisions, in the US domestic market. The ICE BofA 7-10 Year US Treasury Index (G4O2) is an unmanaged index that tracks the performance of US dollar denominated sovereign debt publicly issued by the US government in its domestic market including all securities with a remaining term to final maturity greater than or equal to 7 years and less than 10 years. The ICE BofA 1-5 Year US Corporate Index (CVA0) is an unmanaged index that tracks the performance of US dollar denominated corporate debt publicly issued in the US domestic market with a remaining term to final maturity greater than or equal to 1 year and less than 5 years. Cash flow is the net amount of cash and cash-equivalents moving into and out of a business. Par is the static, face value of a security. A security may trade at par, below par, or above par. Source ICE Data Indices, LLC, is used with permission. ICE® is a registered trademark of ICE Data Indices, LLC or its affiliates and has been licensed, along with the ICE 0-5 Year Duration Exchange-Listed Preferred & Hybrid Securities Index (“Index”) for use by Advisors Asset Management (AAM) in connection with the AAM Low Duration Preferred & Income Securities ETF (the “Product”). Neither AAM, ETF Series Solutions (the “Trust”) nor the Product, as applicable, is sponsored, endorsed, sold or promoted by ICE Data Indices, LLC, its affiliates or its third party suppliers (“ICE Data and its Suppliers”). ICE Data and its Suppliers make no representations or warranties regarding the advisability of investing in securities generally, in the Product particularly, the Trust or the ability of the Index to track general market performance. Past performance of an Index is not an indicator of or a guarantee of future results. ICE DATA AND ITS SUPPLIERS DISCLAIM ANY AND ALL WARRANTIES AND REPRESENTATIONS, EXPRESS AND/OR IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, INCLUDING THE INDICES, INDEX DATA AND ANY INFORMATION INCLUDED IN, RELATED TO, OR DERIVED THEREFROM (“INDEX DATA”). ICE DATA AND ITS SUPPLIERS SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY WITH RESPECT TO THE ADEQUACY, ACCURACY, TIMELINESS OR COMPLETENESS OF THE INDICES AND THE INDEX DATA, WHICH ARE PROVIDED ON AN “AS IS” BASIS AND YOUR USE IS AT YOUR OWN RISK. Not FDIC Insured • No Bank Guarantee • May Lose Value

Chart/Graph Disclosure: The charts/graphs included in this publication do not reflect past or current recommendations made by AAM, “they” should be considered an academic treatment of empirical data and should not be used to predict security prices or market levels. Any suggestion of cause and effect or of the predictability of economic cycles or investment cycles is unintentional. Best of 2021 was created using empirical research and analysis by highly experienced market observers and is designed for educational purposes only. This publication should only be considered as a tool in any financial professional’s investment decision matrix. Investors should consult their financial professional when applying the assumptions of these charts/graphs. Not FDIC Insured. Not Bank Guaranteed. May Lose Value.

The AAM Low Duration Preferred & Income Securities ETF (NYSE: PFLD)

And let us not forget that Harry and Meghan stepped down from the royal family all the way back in January. From an investor’s standpoint, the US equity market experienced its steepest decline with the Dow Jones Industrial Average (DJIA) dropping 37.1% from its peak on February 12 to its trough on March 23, 2020, a total of 27 trading days. By mid-November, sentiment had transitioned to focus on the vaccine, a rebound in unemployment (despite remaining higher than pre-COVID) as well as the benefits of the considerable economic stimulus and quantitative easing. The DJIA more than recovered its losses, closing the year over 30,000, a new all-time high. While this was the fastest rebound by the DJIA in over 30 years, the S&P 500 and Nasdaq Indexes recovered their losses even more quickly, hitting new highs in August and June, respectively.

Characteristics

CHARACTERISTICS of both common stock and bonds

Historically Higher Yield

On an aggregate level, stimulus funds provided in the CARES Act did as expected and helped many households survive. It also had a massively positive impact on disposable income per capita. In fact, households’ level of cash to debt rose to 95%, a level not seen since 1991. An increase in a household’s future relative disposable income can therefore be used to either increase savings (as has been the case since the end of the Great Financial Crisis) or increase consumption, which would bode well for future spending levels. Furthermore, housing has seen a generational boom, helped by the belief that the shift to working from home may be permanent for at least 25% of the workforce. Although combined inventory in both autos and homes are at historic lows, housing affordability stands at a favorable level (though off its highs of 2012-2014) mainly due to low mortgage rates. In fact, according to the Federal Reserve, households’ average mortgage debt service ratio is 3.72%, a historically low level. Please note that the data analyzed is aggregate, and we understand that it overlooks individual situations and experiences.

Overall, large corporations have survived the sudden shock of economic shutdowns, primarily due to the ample liquidity in the capital markets supplied by the Federal Reserve. We do note the substantial number of credit downgrades and select companies’ vulnerability to profits, however for the first time in history we see that corporate liquid assets exceed short-term liabilities.

Low Correlation

Income

The steepening of the yield curve is another metric indicating that growth has been building in the US economy. With the heavy manipulation that quantitative easing has on the curve, we monitor the 30-year and 5-year maturities. From its lows in March 2020 of 51 basis points, the 30-year has risen to a current level of 85 basis points (as of 01/07/2021).

What makes preferred and hybrid securities an attractive asset class?

How does PFLD seek to add value beyond the benefits of preferred and hybrid securities as an asset class?

By adding the AAM Low Duration Preferred & Income Securities ETF (PFLD) to a diversified portfolio, investors gain exposure to an ETF that seeks to generate attractive tax-advantaged income while reducing their exposure to the effects of rising interest rates.

Highlights of the Fund's Investment Approach

1/3

5/6

Sub-advised by Insight Investment, a global specialist asset manager with deep experience and resources in fixed income management

6/6

May work as a standalone investment or as a complement to other active and passive fixed income strategies

What do we see that may finally drive inflation higher?

Key Features of PFLD:

Exposure to U.S. preferred stocks while potentially reducing exposure to the effects of rising rates.

Preferred and hybrid securities have exhibited low correlation to traditional equity and bond strategies.

2/3

Benefits of the ETF wrapper including low-cost, transparency, flexibility and tax-efficiency.

3/3

Potential increases to input prices would drive cost push inflation.

4/4

Attractive Income/Duration Profile

Overweight emerging markets including broad-based Asia, Eastern Europe and South America more specifically China, Russia, Brazil, Argentina, and India.

Increase allocation to value sectors including Materials, Industrials, Financials and Energy. We caution against being overly exposed to sectors whose fundamentals fall outside of historical norms such as “big tech” and social media companies, to name a few.

Increase allocation to mid-and small-cap equities relative to large capitalization.

Increase allocation to commodities. We view this as a once-in-a-generation opportunity driven by:

weakened purchasing power of major world fiat currencies due to record monetary stimulus flooding global economies.

a huge spike in demand due to massive fiscal stimulus prompted by the pandemic.

significant under-investment in replenishing the world’s stock of commodities over the past decade.

Increase vigilance with regard to the impact of higher inflation and a weakening US dollar.

Interest rates move higher due to rising inflation, Central Bank stimulus, supply dynamics and steady economic recovery.

Actively monitor fixed income to navigate the lagging impact of credit ratings and increased sensitivity to Central Bank purchases, which typically amplify the vulnerability of prices to an increase in rates.

As illustrated below, low(er) duration preferred and hybrid securities offered a higher yield than many other fixed income vehicles, even longer-duration investments.

Additional Features of PFLD

We expect uneven economic growth to continue, global Central Banks to maintain their accommodative stances, corporate earnings to recover and an increase in overall consumption, however risks remain.

Record liquidity can be seen in frothy equity pricing. The higher level of optimism may begin to cannibalize future growth at some point. To offset this, we tend to see higher levels of merger and acquisition (M&A) activity that may be cynically masking lower growth metrics. For those that suffer this blessing, massive stock buy backs will likely be needed to help boost the growth needed to support fundamental metrics.

MINIMIZED CALL RISK

Preferred and hybrid securities often have call features which allow the issuing company to redeem shares on-demand before they mature for a price specified in the prospectus. Unfortunately, callable securities are often redeemed by their issuing companies after interest rates are reduced because it is in the best interest of the issuers to lower their interest costs. PFLD attempts to minimize this risk by excluding securities which are priced more than 105% of face value, as we believe these securities are more likely to be called.

REDUCED INTEREST RATE RISK

PFLD targets preferred securities with an option-adjusted duration less than five years in an effort to reduce interest rate risk.

COMPLEMENT TO TRADITIONAL INCOME-FOCUSED EQUITY & FIXED INCOME STRATEGIES

Different sector exposure, particularly versus US High Yield. PFLD has exposure to both investment grade and high yield securities.

Interested in Finding Out More?

PFLD seeks to help investors satisfy their current cash flow needs while potentially minimizing the risk of changes in interest rates. Talk to a financial professional or visit www.aamlive.com/ETF to learn more.

Seeks to:

Generate attractive monthly income

Increase portfolio diversification

Reduce the impact of interest rate changes

Track the total return performance of the ICE 0-5 Year Duration Exchange-Listed Preferred & Hybrid Securities Index (PHLD)

Senior Debt

Subordinated Debt

Hybrid Debt

Preferred Securities

Common Stock

Repayment Priority

Preferreds have tended to offer higher yields than similarly-rated bonds due to their lower claim on a company's assets in the event of liquidation.

HISTORICALLY HIGHER YIELD vs. traditional fixed income classes

Yield to Maturity (%) as of 9/30/22

3.83

U.S. Treasuries

4.19

Municipals

5.75

IG Corporates

9.61

High Yield Corporates

8.35

Preferreds

Preferred and hybrid securities have low historical correlations to traditional stocks and bonds, which may help mitigate downside risk in falling markets.

LOW CORRELATION to traditional fixed income classes

Not only have preferred securities tended to offer higher yields than similarly-rated bonds, but they generally pay qualified dividend income, which is taxed at lower rates than ordinary income.

Tax-Advantaged INCOME

FACT CARD

Past performance does not guarantee future results. It is not possible to invest directly in an index. Index information is not representative of any AAM product. Preferreds represented by ICE Exchange-Listed Preferred & Hybrid Securities Index. High Yield Corporates represented by the ICE BofA US High Yield Index. Investment Grade Corporates represented by the ICE BofA US Corporate Index. US Treasuries represented by ICE BofA 7-10 Year US Treasury Index. Municipal Bonds represented by ICE US Broad Municipal Index. Low Duration Preferreds represented by the ICE 0-5 Year Duration Exchange-Listed Preferred & Hybrid Securities Index. Low Duration Corporates represented by the ICE BofA 1-5 Year US Corporate Index.

Any tax or legal information provided is a summary of our understanding and interpretation of some of the current income tax regulations and is not exhaustive. Investors must consult their tax advisor or legal counsel for advice and information concerning their particular situation. Neither the Fund nor any of its representatives may give legal or tax advice.

Past performance does not guarantee future results. It is not possible to invest directly in an index. Index information is not representative of any AAM product. Asset classes shown may have significantly different features and risk profiles. US Treasury Bills are guaranteed as to the timely payment of principal and interest and are backed by the full faith and credit of the US Government. Yield to Maturity Represented By: US Treasuries represented by ICE BofA 7-10 Year US Treasury Index. Municipal Bonds represented by ICE US Broad Municipal Index. Investment Grade Corporates represented by the ICE BofA US Corporate Index. High Yield Corporates represented by the ICE BofA US High Yield Index. Preferreds represented by ICE Exchange Listed Preferred & Hybrid Securities Index. Please see bottom of page for index descriptions.

John Smith, XYZ Corporation

Low-Duration Preferreds

Low-Duration Corporates

Option-Adjusted Duration (Years)

Yield to Maturity (%)

Yield to Maturity/Option-Adjusted Duration (as of 3/31/22)

High Yield Corporates

Preferreds

Municipal Bonds

7-10 Year Treasuries

Investment Grade Corporates

FACT CARD

pfld sPOTLIGHT

IG = Investment Grade

Yield to Maturity/Option-Adjusted Duration (as of 12/31/21)

Yield to Maturity/Option-Adjusted Duration Profile (as of 12/30/22)

Lance McGray, Managing Director & Head of ETF Product

discusses preferred stocks, their general characteristics and potential benefits. Lance also discusses how PFLD’s design seeks to minimize many of the risks typically associated with preferred securities, and why PFLD is particularly relevant in today's environment. If you are looking for income while minimizing interest rate risk, PFLD may just the solution you need.