Item 1. Reports to Stockholders.
Arrow
QVM Equity Factor ETF
QVM
Annual
Report
January
31, 2020
1-877-277-6933
1-877-ARROW-FD
www.ArrowFunds.com
Beginning
on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Funds
shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports.
Instead, the reports will be made available on the Funds website www.ArrowFunds.com, and you will be notified by mail each
time a report is posted and provided with a website link to access the report.
If
you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take
any action. You may elect to receive shareholder reports and other communications from the Fund electronically by contacting your
financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by following the instructions included
with paper Fund documents that have been mailed to you.
Dear
Shareholder:
We
are pleased to present this annual report for the Arrow QVM Equity Factor ETF (QVM or the Fund)
for the one-year period ended January 31, 2020.
QVM seeks investment results that correspond generally to the performance, before
fees and expenses, of the A.I. Quality Value Momentum Index.
The Funds portfolio is managed to closely replicate the holdings
of the A.I. Quality Value Momentum Index (AIQVM, the Index or the Benchmark), which is comprised of
50 domestic equities. As of January 31, 2020, the Fund held all 50 of the Index constituents. As of the January 31, 2020 semi-annual
Index reconstitution, the Benchmark portfolio consisted of 69% large-cap, 20% mid-cap and 11% small-cap stocks.
Managements
Discussion of Fund Performance
All
Fund performance herein is based on net asset value (NAV) and assumes the reinvestment of distributions, without
regard to individual taxes or withholdings. Index returns assume reinvestment of distributions, but do not include fees. Individual
performance will vary due to a number of factors, including, but not limited to, trading commissions, bid/ask spreads, premium/discounts
relative to the NAV, time of trading and other potential market factors—please refer to the Funds prospectus for
more information.
For
the one-year period ended January 31, 2020, using daily data, the Fund has tracked the Indexs performance with 98.6% correlation.
Timing of trades, portfolio replication, cost of trade execution, management fees and other market factors may lead to performance
tracking discrepancies from the Benchmark.
For
the one-year period ended January 31, 2020, the performance of QVM was up 10.39%, while the AIQVM Index was up 10.19%. For a broad
market comparison, the U.S. stock market was also down for the same one-year period, with the S&P 500 Index returning 21.68%.
From the inception (first trade date) of the Fund on February 27, 2015 through January 31, 2020, performance of QVM was up 5.38%
(annualized), while the benchmark A.I. Quality Value Momentum Index was up 5.32% (annualized). The S&P 500 Index was up an
annualized 11.30% over this same period. With a mix of value-slanting stocks with a focus on quality, the Fund performed well,
but did underperform the broad market from inception to January 31, 2020. Generally speaking, the stock market was positive across
most styles and sectors. Over the last rolling 12-month period. However, the combination of quality, value and momentum stock
selection criteria employed by the Fund underperformed the broad market, which continued to favor the growth style over the Funds
value-oriented style.
The top three positively contributing stocks held by the portfolio in the past year were Apple Inc, Lam
Research Corp. and Aircastle Limited. The three that detracted the most, all with negative performance contributions, were Allliance
Resource Partners, L.P., Arch Coal, Inc., and Walgreens Boots Alliance, Inc.
Although income is not a primary investment objective,
the Index methodology does screen for stocks with above-average dividends. The Fund generally pays distributions on a quarterly
basis, or as needed if special distributions are required. As of the last distribution made during the reporting period on December
27, 2019 the Funds 30-day SEC yield was 3.00% and the 12-month distribution rate was 3.5%.
For more information about current
performance, holdings, or historical premiums/discounts, please visit our website at www.arrowfunds.com. We are grateful for your
continued confidence in our company.
Sincerely,
Joseph
J. Barrato
Chief
Executive Officer
Arrow Investment Advisors, LLC
March 2020
AD-031820
Arrow
QVM Equity Factor ETF
|
PORTFOLIO
REVIEW (Unaudited)
|
January
31, 2020
|
The
Funds performance figures* for the years ended January 31, 2020, as compared to its benchmarks:
|
|
|
Annualized
|
|
|
Annualized
|
Since
Inception** -
|
|
One
Year
|
Three
Year
|
January
31, 2020
|
Arrow
QVM Equity Factor ETF - NAV
|
10.39%
|
8.95%
|
5.38%
|
Arrow
QVM Equity Factor ETF - Market Price
|
10.48%
|
8.94%
|
5.30%
|
AI
Quality Value Momentum Index
|
10.19%
|
8.81%
|
5.32%
|
S&P
500 Total Return Index
|
21.68%
|
14.54%
|
11.30%
|
|
*
|
The
Funds past performance does not guarantee future results. The investment return and principal value of an investment in
the Fund will fluctuate so that an investors shares, when redeemed, may be worth more or less than their original cost.
The returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund
shares. Current performance of the Fund may be lower or higher than the performance quoted. Returns are calculated using the traded
Net Asset Value (NAV) on January 31, 2020. Performance data current to the most recent month end may be obtained by
visiting www.arrowfunds.com or by calling 1-877-277-6933.
|
The
Funds per share NAV is the value of one share of the Fund as calculated in accordance with the standard formula for valuing
shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund.
The price used to calculate market return (Market Price) is determined by using the midpoint between the highest
bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that
the Funds NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested
in the Fund at Market Price and NAV, respectively. Information detailing the number of days the Market Price of the Fund was greater
than the Funds NAV and the number of days it was less than the Funds NAV can be obtained at www.arrowfunds.com.
The Funds total annual operating expenses, before fee waivers and/or expense reimbursements, are 2.49% per the June 1,
2019 prospectus. After fee waivers and/or expense reimbursements, the Funds total annual operating expenses are 0.65%.
Please see the Financial Highlights for a more recent expense ratio.
|
**
|
As
of the close of business on the day of commencement of trading on February 27, 2015.
|
AI
Quality Value Momentum Index (AIQVM) is a US based index, composed of quality rankings that measure profitability, consistency
of earnings, and management confidence. The combined models aim to reduce volatility and are combined with value and long term
momentum rankings to enhance performance.
The
S&P 500 Total Return Index is a widely accepted, unmanaged index of U.S. stock market performance which does not take into
account charges, fees and other expenses.
Comparison
of the Change in Value of a $10,000 Investment
The
Funds holdings by sector are as follows:
Sector
|
|
% of Net Assets
|
|
Financials
|
|
|
40.1
|
%
|
Consumer Discretionary
|
|
|
29.7
|
%
|
Industrials
|
|
|
10.0
|
%
|
Technology
|
|
|
9.9
|
%
|
Materials
|
|
|
5.8
|
%
|
Communications
|
|
|
2.0
|
%
|
Consumer Staples
|
|
|
2.0
|
%
|
Other Assets Less Liabilities
|
|
|
0.5
|
%
|
|
|
|
100.0
|
%
|
Please
refer to the Portfolio of Investments in this Annual Report for a detailed listing of the Funds holdings.
Arrow
QVM Equity Factor ETF
|
PORTFOLIO
OF INVESTMENTS
|
January
31, 2020
|
Shares
|
|
|
|
|
Value
|
|
|
|
|
|
COMMON STOCKS - 99.5%
|
|
|
|
|
|
|
|
|
AEROSPACE & DEFENSE - 4.0%
|
|
|
|
|
|
199
|
|
|
Lockheed Martin Corp.
|
|
$
|
85,196
|
|
|
225
|
|
|
Northrop Grumman Corp.
|
|
|
84,278
|
|
|
|
|
|
|
|
|
169,474
|
|
|
|
|
|
APPAREL & TEXTILE PRODUCTS - 2.0%
|
|
|
|
|
|
782
|
|
|
Carters, Inc.
|
|
|
82,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSET MANAGEMENT - 7.9%
|
|
|
|
|
|
508
|
|
|
Ameriprise Financial, Inc.
|
|
|
84,028
|
|
|
1,846
|
|
|
Eaton Vance Corp.
|
|
|
84,455
|
|
|
906
|
|
|
LPL Financial Holdings, Inc.
|
|
|
83,470
|
|
|
634
|
|
|
T Rowe Price Group, Inc.
|
|
|
84,658
|
|
|
|
|
|
|
|
|
336,611
|
|
|
|
|
|
AUTOMOTIVE - 4.0%
|
|
|
|
|
|
2,799
|
|
|
Gentex Corp.
|
|
|
83,326
|
|
|
1,680
|
|
|
Magna International, Inc.
|
|
|
85,159
|
|
|
|
|
|
|
|
|
168,485
|
|
|
|
|
|
BANKING - 20.1%
|
|
|
|
|
|
947
|
|
|
Bank of Hawaii Corp.
|
|
|
84,851
|
|
|
1,572
|
|
|
Bank of Nova Scotia
|
|
|
85,863
|
|
|
2,285
|
|
|
Citizens Financial Group, Inc.
|
|
|
85,185
|
|
|
6,299
|
|
|
Huntington Bancshares, Inc.
|
|
|
85,477
|
|
|
637
|
|
|
JPMorgan Chase & Co.
|
|
|
84,313
|
|
|
4,540
|
|
|
KeyCorp
|
|
|
84,943
|
|
|
1,081
|
|
|
Royal Bank of Canada
|
|
|
85,356
|
|
|
1,597
|
|
|
US Bancorp
|
|
|
84,992
|
|
|
1,808
|
|
|
Wells Fargo & Co.
|
|
|
84,868
|
|
|
1,528
|
|
|
Western Alliance Bancorp *
|
|
|
84,392
|
|
|
|
|
|
|
|
|
850,240
|
|
|
|
|
|
CHEMICALS - 3.8%
|
|
|
|
|
|
786
|
|
|
Celanese Corp.
|
|
|
81,351
|
|
|
1,038
|
|
|
LyondellBasell Industries NV
|
|
|
80,819
|
|
|
|
|
|
|
|
|
162,170
|
|
|
|
|
|
COMMERCIAL SERVICES - 2.0%
|
|
|
|
|
|
922
|
|
|
ManpowerGroup, Inc.
|
|
|
84,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAMING, LODGING & RESTAURANTS - 2.0%
|
|
|
|
|
|
1,709
|
|
|
Wyndham Destinations, Inc.
|
|
|
82,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HARDWARE - 5.9%
|
|
|
|
|
|
267
|
|
|
Apple, Inc.
|
|
|
82,639
|
|
|
1,484
|
|
|
Seagate Technology PLC
|
|
|
84,573
|
|
|
2,342
|
|
|
Xerox Holdings Corporation
|
|
|
83,305
|
|
|
|
|
|
|
|
|
250,517
|
|
|
|
|
|
HOME & OFFICE PRODUCTS - 5.9%
|
|
|
|
|
|
9,592
|
|
|
ACCO Brands Corp.
|
|
|
82,875
|
|
|
1,655
|
|
|
Patrick Industries, Inc. *
|
|
|
85,861
|
|
|
567
|
|
|
Whirlpool Corp.
|
|
|
82,878
|
|
|
|
|
|
|
|
|
251,614
|
|
See
accompanying notes to financial statements.
Arrow
QVM Equity Factor ETF
|
PORTFOLIO
OF INVESTMENTS(Continued)
|
January
31, 2020
|
Shares
|
|
|
|
|
Value
|
|
|
|
|
|
INDUSTRIAL SERVICES - 2.0%
|
|
|
|
|
|
2,253
|
|
|
Triton International Limited
|
|
$
|
84,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRON & STEEL - 2.0%
|
|
|
|
|
|
736
|
|
|
Reliance Steel & Aluminum Co.
|
|
|
84,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MACHINERY - 2.0%
|
|
|
|
|
|
992
|
|
|
Oshkosh Corp.
|
|
|
85,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEDIA - 2.0%
|
|
|
|
|
|
1,140
|
|
|
Omnicom Group, Inc.
|
|
|
85,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REAL ESTATE - 2.0%
|
|
|
|
|
|
5,912
|
|
|
iStar, Inc.
|
|
|
86,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAIL - CONSUMER STAPLES - 2.0%
|
|
|
|
|
|
755
|
|
|
Target Corp.
|
|
|
83,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAIL - DISCRETIONARY - 13.9%
|
|
|
|
|
|
994
|
|
|
Best Buy Co., Inc.
|
|
|
84,182
|
|
|
1,907
|
|
|
Dicks Sporting Goods, Inc.
|
|
|
84,347
|
|
|
831
|
|
|
Group 1 Automotive, Inc.
|
|
|
83,740
|
|
|
372
|
|
|
Home Depot, Inc.
|
|
|
84,853
|
|
|
606
|
|
|
Lithia Motors, Inc.
|
|
|
82,198
|
|
|
1,799
|
|
|
Penske Automotive Group, Inc.
|
|
|
84,499
|
|
|
1,191
|
|
|
Williams-Sonoma, Inc.
|
|
|
83,465
|
|
|
|
|
|
|
|
|
587,284
|
|
|
|
|
|
SEMICONDUCTOR - 2.0%
|
|
|
|
|
|
279
|
|
|
Lam Research Corp.
|
|
|
83,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SPECIALTY FINANCE - 10.0%
|
|
|
|
|
|
1,134
|
|
|
Discover Financial Services
|
|
|
85,197
|
|
|
5,813
|
|
|
Navient Corp.
|
|
|
83,591
|
|
|
3,242
|
|
|
Santander Consumer USA Holdings, Inc.
|
|
|
86,302
|
|
|
2,615
|
|
|
Synchrony Financial
|
|
|
84,752
|
|
|
3,138
|
|
|
Western Union Co.
|
|
|
84,412
|
|
|
|
|
|
|
|
|
424,254
|
|
|
|
|
|
TECHNOLOGY SERVICES - 2.0%
|
|
|
|
|
|
647
|
|
|
CDW Corp.
|
|
|
84,401
|
|
See
accompanying notes to financial statements.
Arrow
QVM Equity Factor ETF
|
PORTFOLIO
OF INVESTMENTS(Continued)
|
January
31, 2020
|
Shares
|
|
|
|
|
Value
|
|
|
|
|
|
TRANSPORTATION EQUIPMENT - 2.0%
|
|
|
|
|
|
521
|
|
|
Cummins, Inc.
|
|
$
|
83,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL COMMON STOCKS (Cost - $3,886,304)
|
|
|
4,211,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL INVESTMENTS - 99.5% (Cost $3,886,304)
|
|
$
|
4,211,820
|
|
|
|
|
|
OTHER ASSETS LESS LIABILITIES - 0.5%
|
|
|
22,229
|
|
|
|
|
|
NET ASSETS - 100.0%
|
|
$
|
4,234,049
|
|
|
*
|
Non-income
producing security.
|
NV
- Naamloze Vennootschap
PLC
- Public Limited Company
See
accompanying notes to financial statements.
Arrow
QVM Equity Factor ETF
|
STATEMENT
OF ASSETS AND LIABILITIES
|
January
31, 2020
|
ASSETS
|
|
|
|
|
Investment securities:
|
|
|
|
|
At cost
|
|
$
|
3,886,304
|
|
At value
|
|
$
|
4,211,820
|
|
Cash
|
|
|
2,232
|
|
Due from Advisor
|
|
|
10,820
|
|
Receivable for investments sold
|
|
|
3,580,705
|
|
Receivable for Fund shares sold
|
|
|
1,445,536
|
|
Dividends and interest receivable
|
|
|
8,033
|
|
Prepaid Expense
|
|
|
305
|
|
TOTAL ASSETS
|
|
|
9,259,451
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Payable for investments purchased
|
|
|
3,570,910
|
|
Payable for Fund shares repurchased
|
|
|
1,411,282
|
|
Payable to Related Parties
|
|
|
3,276
|
|
Accrued expenses and other liabilities
|
|
|
39,934
|
|
TOTAL LIABILITIES
|
|
|
5,025,402
|
|
NET ASSETS
|
|
$
|
4,234,049
|
|
|
|
|
|
|
Net Assets Consist Of:
|
|
|
|
|
Paid in capital
|
|
$
|
4,959,185
|
|
Accumulated deficit
|
|
|
(725,136
|
)
|
NET ASSETS
|
|
$
|
4,234,049
|
|
|
|
|
|
|
Net Asset Value Per Share:
|
|
|
|
|
Net Assets
|
|
$
|
4,234,049
|
|
Shares of beneficial interest outstanding ($0 par value, unlimited shares authorized)
|
|
|
150,000
|
|
Net asset value (Net Assets ÷ Shares Outstanding)
|
|
$
|
28.23
|
|
See
accompanying notes to financial statements.
Arrow
QVM Equity Factor ETF
|
STATEMENT
OF OPERATIONS
|
For
the Year Ended January 31, 2020
|
INVESTMENT INCOME
|
|
|
|
|
Dividends (Foreign tax withholdings $2,416)
|
|
$
|
141,471
|
|
Interest
|
|
|
132
|
|
TOTAL INVESTMENT INCOME
|
|
|
141,603
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
Investment advisory fees
|
|
|
26,127
|
|
Audit fees
|
|
|
13,239
|
|
Custodian fees
|
|
|
11,671
|
|
Transfer agent fees
|
|
|
10,800
|
|
Administrative services
|
|
|
10,654
|
|
Printing and postage expenses
|
|
|
7,842
|
|
Legal fees
|
|
|
7,815
|
|
Trustees fees and expenses
|
|
|
6,794
|
|
Listing expenses
|
|
|
5,192
|
|
Professional fees
|
|
|
280
|
|
Insurance expense
|
|
|
172
|
|
TOTAL EXPENSES
|
|
|
100,586
|
|
Less: Fees waived/ expenses reimbursed by the Advisor
|
|
|
(72,264
|
)
|
NET EXPENSES
|
|
|
28,322
|
|
|
|
|
|
|
NET INVESTMENT INCOME
|
|
|
113,281
|
|
|
|
|
|
|
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
|
|
|
|
|
Net realized gain/(loss) on:
|
|
|
|
|
In-kind redemptions
|
|
|
416,747
|
|
Investments
|
|
|
(320,076
|
)
|
Foreign currency transactions
|
|
|
(32
|
)
|
|
|
|
96,639
|
|
Net change in unrealized appreciation (depreciation) on:
|
|
|
|
|
Investments
|
|
|
190,446
|
|
Foreign currency translations
|
|
|
(24
|
)
|
|
|
|
190,422
|
|
|
|
|
|
|
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
|
|
|
287,061
|
|
|
|
|
|
|
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
$
|
400,342
|
|
See
accompanying notes to financial statements.
Arrow
QVM Equity Factor ETF
|
STATEMENTS
OF CHANGES IN NET ASSETS
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
January 31, 2020
|
|
|
January 31, 2019
|
|
FROM OPERATIONS
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
113,281
|
|
|
$
|
96,215
|
|
Net realized gain (loss) on investments and foreign currency transactions
|
|
|
96,639
|
|
|
|
(4,760
|
)
|
Net change in unrealized appreciation (depreciation) on investments and foreign currency translations
|
|
|
190,422
|
|
|
|
(292,266
|
)
|
Net increase (decrease) in net assets resulting from operations
|
|
|
400,342
|
|
|
|
(200,811
|
)
|
|
|
|
|
|
|
|
|
|
DISTRIBUTIONS TO SHAREHOLDERS
|
|
|
|
|
|
|
|
|
From return of capital
|
|
|
(14,397
|
)
|
|
|
(31,118
|
)
|
Total other distributions paid
|
|
|
(126,008
|
)
|
|
|
(93,010
|
)
|
Net decrease in net assets resulting from distributions to shareholders
|
|
|
(140,405
|
)
|
|
|
(124,128
|
)
|
|
|
|
|
|
|
|
|
|
FROM SHARES OF BENEFICIAL INTEREST
|
|
|
|
|
|
|
|
|
Proceeds from shares sold
|
|
|
2,851,610
|
|
|
|
2,666,766
|
|
Cost of shares redeemed
|
|
|
(4,158,127
|
)
|
|
|
(1,429,003
|
)
|
Net increase (decrease) in net assets resulting from shares of beneficial interest
|
|
|
(1,306,517
|
)
|
|
|
1,237,763
|
|
|
|
|
|
|
|
|
|
|
TOTAL INCREASE (DECREASE) IN NET ASSETS
|
|
|
(1,046,580
|
)
|
|
|
912,824
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
|
|
|
|
|
|
Beginning of Year
|
|
|
5,280,629
|
|
|
|
4,367,805
|
|
End of Year
|
|
$
|
4,234,049
|
|
|
$
|
5,280,629
|
|
|
|
|
|
|
|
|
|
|
SHARE ACTIVITY
|
|
|
|
|
|
|
|
|
Shares Sold
|
|
|
100,000
|
|
|
|
100,000
|
|
Shares Redeemed
|
|
|
(150,000
|
)
|
|
|
(50,000
|
)
|
Net increase (decrease) in shares of beneficial interest outstanding
|
|
|
(50,000
|
)
|
|
|
50,000
|
|
See
accompanying notes to financial statements.
Arrow
QVM Equity Factor ETF
|
FINANCIAL
HIGHLIGHTS
|
Per
Share Data and Ratios for a Share of Beneficial Interest Outstanding Throughout Each Period
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Period Ended
|
|
|
|
January 31, 2020
|
|
|
January 31, 2019
|
|
|
January 31, 2018
|
|
|
January 31, 2017
|
|
|
January 31, 2016 (1)
|
|
Net asset value, beginning of period
|
|
$
|
26.40
|
|
|
$
|
29.12
|
|
|
$
|
23.78
|
|
|
$
|
21.50
|
|
|
$
|
25.00
|
|
Activity from investment operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (2)
|
|
|
0.72
|
|
|
|
0.62
|
|
|
|
0.50
|
|
|
|
0.52
|
|
|
|
0.30
|
|
Net realized and unrealized gain (loss) on investments
|
|
|
2.02
|
|
|
|
(2.62
|
)
|
|
|
5.55
|
|
|
|
2.57
|
|
|
|
(3.50
|
)
|
Total from investment operations
|
|
|
2.74
|
|
|
|
(2.00
|
)
|
|
|
6.05
|
|
|
|
3.09
|
|
|
|
(3.20
|
)
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.81
|
)
|
|
|
(0.56
|
)
|
|
|
(0.44
|
)
|
|
|
(0.54
|
)
|
|
|
(0.30
|
)
|
Return of capital
|
|
|
(0.10
|
)
|
|
|
(0.16
|
)
|
|
|
(0.27
|
)
|
|
|
(0.27
|
)
|
|
|
—
|
|
Total distributions
|
|
|
(0.91
|
)
|
|
|
(0.72
|
)
|
|
|
(0.71
|
)
|
|
|
(0.81
|
)
|
|
|
(0.30
|
)
|
Net asset value, end of period
|
|
$
|
28.23
|
|
|
$
|
26.40
|
|
|
$
|
29.12
|
|
|
$
|
23.78
|
|
|
$
|
21.50
|
|
Total return (6)(8)
|
|
|
10.39
|
%
|
|
|
(6.85
|
)%
|
|
|
25.77
|
%
|
|
|
14.52
|
%
|
|
|
(12.90
|
)% (4)(7)
|
Net assets, at end of period (000s)
|
|
$
|
4,234
|
|
|
$
|
5,281
|
|
|
$
|
4,368
|
|
|
$
|
3,567
|
|
|
$
|
5,375
|
|
Ratio of gross expenses to average net assets (9)
|
|
|
2.31
|
%
|
|
|
2.49
|
%
|
|
|
2.51
|
%
|
|
|
2.02
|
%
|
|
|
2.40
|
% (3)
|
Ratio of net expenses to average net assets
|
|
|
0.65
|
%
|
|
|
0.65
|
%
|
|
|
0.65
|
%
|
|
|
0.65
|
%
|
|
|
0.65
|
% (3)
|
Ratio of net investment income to average net assets
|
|
|
2.60
|
%
|
|
|
2.24
|
%
|
|
|
1.96
|
%
|
|
|
2.31
|
%
|
|
|
1.63
|
% (3)
|
Portfolio Turnover Rate (5)
|
|
|
97
|
%
|
|
|
123
|
%
|
|
|
127
|
%
|
|
|
114
|
%
|
|
|
62
|
% (4)
|
|
(1)
|
The
Arrow QVM Equity Factor ETF shares commenced operations on February 24, 2015.
|
|
(2)
|
Per
share amounts calculated using the average shares method, which more appropriately presents the per share data for the period.
|
|
(5)
|
Portfolio
turnover rate excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation
Units.
|
|
(6)
|
Total
return is calculated assuming a purchase of shares at net asset value on the first day and a sale at net asset value on the last
day of the period. Distributions are assumed, for the purpose of this calculation, to be reinvested at the ex-dividend date net
asset value per share on their respective payment dates.
|
|
(7)
|
Represents
total return based on net asset values per share from commencement of investment operations on February 24, 2015 through January
31, 2016. Total return based on net asset value per share, as of the close of business on the day of commencement of trading on
the NYSE Arca on February 27, 2015 to January 31, 2016 was (12.64)%.
|
|
(8)
|
Includes
adjustments in accordance with accounting principles generally accepted in the United States and, consequently, the net asset
values for financial reporting purposes and the returns based upon those net asset values may differ from the net asset values
and returns for shareholder transactions.
|
|
(9)
|
Represents
the ratio of expenses to average net assets absent of fee waivers and/or expense reimbursements by Arrow Investment Advisors,
LLC.
|
See
accompanying notes to financial statements.
ARROW
QVM EQUITY FACTOR ETF
|
NOTES
TO FINANCIAL STATEMENTS
|
January
31, 2020
|
|
The
Arrow QVM Equity Factor ETF (the Fund) is a diversified series of Arrow Investments Trust (the Trust),
a statutory trust organized under the laws of the State of Delaware on August 2, 2011, and is registered under the Investment
Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company. The Funds investment
objective seeks to replicate the investment results that generally correspond, before fees and expenses, to the price and yield
performance of the AI Quality Value Momentum Index. The investment objective is non-fundamental. The Fund commenced operations
on February 24, 2015.
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
|
The
following is a summary of significant accounting policies followed by the Fund in preparation of its financial statements. These
policies are in conformity with accounting principles generally accepted in the United States of America (GAAP).
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of income and expenses for the period. Actual results could differ from those estimates. The Fund is an investment
company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards
Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies
including FASB Accounting Standards Update (ASU) 2013-08.
Securities
valuation – Securities listed on an exchange are valued at the last reported sale price at the close of the regular
trading session of the exchange on the business day the value is being determined, or in the case of securities listed on
NASDAQ at the NASDAQ Official Closing Price (NOCP). In the absence of a sale, such securities shall be valued at
the last bid price on the day of valuation. Debt securities (other than short-term obligations) are valued each day by an
independent pricing service approved by the Board of Trustees of the Trust (the Board) using methods which
include current market quotations from a major market maker in the securities and based on methods which include the
consideration of yields or prices of securities of comparable quality, coupon, maturity and type. Investments valued in
currencies other than the U.S. dollar are converted to U.S. dollars using exchange rates obtained from pricing services. If
market quotations are not readily available or if Arrow Investment Advisors, LLC (the Advisor) believes the
market quotations are not reflective of market value, securities will be valued at their fair value as determined in good
faith by the Advisor and in accordance with the Trusts Portfolio Securities Valuation Procedures (the
Procedures), subject to review by the Board. The Board will review the fair value method in use for securities
requiring a fair market value determination and supporting documentation from the Advisor at least quarterly for consistency
with the Procedures. The Procedures consider, among others, the following factors to determine a securitys fair value:
the nature and pricing history (if any) of the security; whether any dealer quotations for the security are available; and
possible valuation methodologies that could be used to determine the fair value of the security. Fair value may also be used
by the Board if extraordinary events occur after the close of the relevant world market but prior to the NYSE close,
generally 4:00pm Eastern Time. Short-term debt obligations having 60 days or less remaining until maturity, at time of
purchase, may
be valued at amortized cost.
ARROW
QVM EQUITY FACTOR ETF
|
NOTES
TO FINANCIAL STATEMENTS (Continued)
|
January
31, 2020
|
|
The
Fund utilizes various methods to measure the fair value of all of its investments on a recurring basis.
GAAP
establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of input are:
Level
1 – Unadjusted quoted prices in active markets for identical assets and liabilities that the Fund has the ability to access.
Level
2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either
directly or indirectly. These inputs may include quoted prices for the identical instrument in an inactive market, prices for
similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
Level
3 – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing
the Funds own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would
be based on the best information available.
The
availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including,
for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets,
and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less
observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment
exercised in determining fair value is greatest for instruments categorized in Level 3.
The
inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes,
the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the
lowest level input that is significant to the fair value measurement in its entirety.
The
inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those
securities. The following tables summarize the inputs used as of January 31, 2020 for the Funds assets measured at fair
value:
Assets *
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Common Stocks
|
|
$
|
4,211,820
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,211,820
|
|
Total
|
|
$
|
4,211,820
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,211,820
|
|
The
Fund did not hold any Level 3 securities during the year.
|
*
|
See
Portfolio of Investments for industry classification.
|
ARROW
QVM EQUITY FACTOR ETF
|
NOTES
TO FINANCIAL STATEMENTS (Continued)
|
January
31, 2020
|
|
Security
transactions and related income – Security transactions are accounted for on the trade date. Interest income is recognized
on an accrual basis. Dividend income is recorded on the ex-dividend date. Realized gains or losses from sales of securities are
determined by comparing the identified cost of the security lot sold with the net sales proceeds.
Master
Limited Partnerships – The Fund invests in master limited partnerships (MLPs) which are publicly traded
partnerships engaged in, among other things, the transportation, storage and processing of minerals and natural resources, and
are treated as partnerships for U.S. federal income tax purposes. By confining their operations to these specific activities,
their interests, or units, are able to trade on public securities exchanges exactly like the shares of a corporation, without
entity level taxation. Of the roughly ninety MLPs in existence, fifty are eligible for inclusion in the Alerian MLP Index, approximately
two-thirds trade on the NYSE and the rest trade on the NASDAQ. To qualify as a MLP and to not be taxed as a corporation, a partnership
must receive at least 90% of its income from qualifying sources as set forth in Section 7704(d) of the Internal Revenue Code of
1986, as amended. These qualifying sources include natural resource based activities such as the processing, transportation and
storage of mineral or natural resources. MLPs generally have two classes of owners, the general partner and limited partners.
The general partner of an MLP is typically owned by a major energy company, an investment fund, the direct management of the MLP,
or is an entity owned by one or more of such parties. The general partner may be structured as a private or publicly traded corporation
or other entity. The general partner typically controls the operations and management of the MLP through an up to 2% equity interest
in the MLP plus, in many cases, ownership of common units and subordinated units. Limited partners typically own the remainder
of the partnership, through ownership of common units, and have a limited role in the partnerships operations and management.
MLPs
are typically structured such that common units and general partner interests have first priority to receive quarterly cash distributions
up to an established minimum amount (minimum quarterly distributions or MQD). Common and general partner
interests also accrue arrearages in distributions to the extent the MQD is not paid. Once common and general partner interests
have been paid, subordinated units receive distributions of up to the MQD; however, subordinated units do not accrue arrearages.
Distributable cash in excess of the MQD is paid to both common and subordinated units and is distributed to both common and subordinated
units generally on a pro rata basis. The general partner is also eligible to receive incentive distributions if the general partner
operates the business in a manner which results in distributions paid per common unit surpassing specified target levels. As the
general partner increases cash distributions to the limited partners, the general partner receives an increasingly higher percentage
of the incremental cash distributions.
Dividends
and distributions to shareholders – Dividends from net investment income, if any, are declared and paid quarterly. Distributable
net realized capital gains, if any, are declared and distributed annually. Dividends from net investment income and distributions
from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These book/tax
differences are considered either temporary (e.g., deferred losses) or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the composition of net
ARROW
QVM EQUITY FACTOR ETF
|
NOTES
TO FINANCIAL STATEMENTS (Continued)
|
January
31, 2020
|
|
assets
based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and
distributions to shareholders are recorded on the ex-dividend date.
Federal
Income Taxes – The Fund intends to continue to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its taxable income to its shareholders. Therefore, no provision for
federal income tax is required. The Fund recognizes the tax benefits of uncertain tax positions only where the position is more
likely than not to be sustained assuming examination by tax authorities. Management has analyzed the Funds tax positions,
and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken
on returns filed for open tax years (2017 -2019) or expected to be taken in the Funds 2020 tax returns. The Fund identified
its major tax jurisdictions as U.S. Federal and foreign jurisdictions where the Fund makes significant investments. The Fund is
not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change
materially in the next twelve months.
Expenses
– Expenses of the Trust that are directly identifiable to a specific fund are charged to that fund. Expenses, which
are not readily identifiable to a specific fund, are allocated in such a manner as deemed equitable (as determined by the Board),
taking into consideration the nature and type of expense and the relative sizes of the funds in the Trust.
Foreign
Currency – The accounting records of the Fund are maintained in U.S. dollars. Investment securities and other assets
and liabilities denominated in a foreign currency, and income receipts and expense payments are translated into U.S. dollars using
the prevailing exchange rate at the London market close. Purchases and sales of securities are translated into U.S. dollars at
the contractual currency rates established at the approximate time of the trade. Net realized gains and losses on foreign currency
transactions represent net gains and losses from currency realized between the trade and settlement dates on securities transactions,
gains and losses on the purchase and sale of foreign currencies and the difference between income accrued versus income received.
The effects of changes in foreign currency exchange rates on investments in securities are included with the net realized and
unrealized gain or loss on investment securities.
Indemnification
– The Trust indemnifies its officers and Trustees for certain liabilities that may arise from the performance of their
duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of
representations and warranties and which provide general indemnities. The Funds maximum exposure under these arrangements
is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on
experience, the risk of loss due to these warranties and indemnities appears to be remote.
Time
Deposits – Time deposits are issued by a depository institution in exchange for the deposit of funds. The issuer agrees
to pay the amount deposited plus interest to the depositor on the date specified with respect to the deposit. Time deposits do
not trade in the secondary market prior to maturity. However, some time deposits may be redeemable prior to maturity and may be
subject to withdrawal penalties.
ARROW
QVM EQUITY FACTOR ETF
|
NOTES
TO FINANCIAL STATEMENTS (Continued)
|
January
31, 2020
|
|
|
3.
|
INVESTMENT
TRANSACTIONS
|
For
the year ended January 31, 2020, cost of purchases and proceeds from sales of portfolio securities (excluding in-kind transactions
and short-term investments), amounted to $4,323,559 and $ 4,873,227 respectively.
For
the year ended January 31, 2020, cost of purchases and proceeds from sales of portfolio securities for in-kind transactions, amounted
to $2,867,042 and $3,679,264 respectively.
|
4.
|
INVESTMENT
ADVISORY AGREEMENT AND TRANSACTIONS WITH RELATED PARTIES
|
The
business activities of the Fund are overseen by the Board, which is responsible for the overall management of the Fund. The Advisor
serves as the Funds investment advisor pursuant to an investment advisory agreement with the Trust on behalf of the Fund
(the Advisory Agreement). The Trust has entered into a Global Custody Agreement with Brown Brothers Harriman &
Co. (the Custodian) to serve as Custodian and to act as transfer and shareholder services agent. The Trust has also
entered into an ETF Distribution Agreement (the Distribution Agreement) with Northern Lights Distributors, LLC (NLD
or the Distributor) to serve as the distributor for the Fund. Archer Distributors, LLC (Archer), an
affiliate of the Advisor is also a party to the Distribution Agreement and provides marketing services to the Fund, including
responsibility for all the Funds marketing and advertising materials.
Pursuant
to the Advisory Agreement, the Advisor, under the oversight of the Board, directs the daily operations of the Fund and supervises
the performance of administrative and professional services provided by others. As compensation for its services and the related
expenses borne by the Advisor, the Fund pays the Advisor a fee, computed and accrued daily and paid monthly, at an annual rate
of 0.60% of the Funds average daily net assets.
Pursuant
to a written contract (the Waiver Agreement), the Advisor has agreed, at least until May 31, 2020 to waive a portion
of its advisory fee and has agreed to reimburse the Fund for other expenses to the extent necessary so that total expenses incurred
(exclusive of taxes, leverage interest, brokerage commissions, expenses incurred in connection with any merger or reorganization,
dividend expense on securities sold short, underlying fund fees and expenses, foreign custody transaction costs and foreign account
set up fees and extraordinary expenses such as litigation) will not exceed 0.65% of the Funds average daily net assets,
herein referred to as the Expense Limitation.
If
the Advisor waives any fee or reimburses any expenses pursuant to the Waiver Agreement, and the Funds operating expenses
are subsequently lower than its Expense Limitation, the Advisor, on a rolling three year basis (within three years after the fees
have been waived or reimbursed), shall be entitled to reimbursement by the Fund provided that such reimbursement does not cause
the Funds operating expense to exceed the Expense Limitation or an expense limitation in place at the time of recapture, whichever
is less. If the Funds operating expenses subsequently exceed the Expense Limitation, the reimbursements for the Fund shall be
suspended. For the year ended January 31, 2020, the Advisor waived fees and reimbursed expenses in the amount of $72,264 pursuant
to the Waiver Agreement.
ARROW
QVM EQUITY FACTOR ETF
|
NOTES
TO FINANCIAL STATEMENTS (Continued)
|
January
31, 2020
|
|
The
following amounts are subject to recapture by the Advisor through the following dates:
1/31/2021
|
1/31/2022
|
1/31/2023
|
$ 72,313
|
$ 78,821
|
$ 72,264
|
The
Advisor may seek reimbursement only for expenses that were waived or paid after the effective date of the Waiver Agreement (or
any similar agreement). The Board may terminate this expense reimbursement arrangement at any time.
The
Trust, with respect to the Fund, has adopted a distribution and service plan (Plan) pursuant to Rule 12b-1 under
the 1940 Act. Under the Plan, the Fund is authorized to pay distribution fees to the Distributor and other firms that provide
distribution and shareholder services (Service Providers). If a Service Provider provides these services, the Fund
may pay fees at an annual rate not to exceed 0.25% of average daily net assets, pursuant to Rule 12b-1 under the 1940 Act.
No
distribution or service fees are currently paid by the Fund and there are no current plans to impose these fees. In the event
Rule 12b-1 fees were charged, over time they would increase the cost of an investment in the Fund.
Gemini
Fund Services, LLC (GFS) – GFS, an affiliate of the Distributor, provides administration and fund
accounting services to the Trust. Pursuant to separate servicing agreements with GFS, the Fund pays GFS customary fees for providing
administration and fund accounting services to the Fund. Certain officers of the Trust are also officers of GFS, and are not paid
any fees directly by the Trust for serving in such capacities.
Blu
Giant, LLC (Blu Giant) – Blu Giant, an affiliate of GFS and the Distributor, provides
EDGAR conversion and filing services as well as print management services for the Fund on an ad-hoc basis. For the provision of
these services, Blu Giant receives customary fees from the Fund.
Effective
February 1, 2019, NorthStar Financial Services Group, LLC, the parent company of GFS and its affiliated companies including NLD
and Northern Lights Compliance Services, LLC (collectively, the Gemini Companies), sold its interest in the Gemini
Companies to a third party private equity firm that contemporaneously acquired Ultimus Fund Solutions, LLC (an independent mutual
fund administration firm) and its affiliates (collectively, the Ultimus Companies). As a result of these separate
transactions, the Gemini Companies and the Ultimus Companies are now indirectly owned through a common parent entity, The Ultimus
Group, LLC.
|
5.
|
CAPITAL
SHARE TRANSACTIONS
|
Shares
are not individually redeemable and may be redeemed by the Fund at NAV only in large blocks known as Creation Units.
Shares are created and redeemed by the Fund only in Creation Unit size aggregations of 50,000 shares. Only Authorized Participants
or transactions done through an Authorized Participant are permitted to purchase or redeem Creation Units from the Fund. An Authorized
Participant is either (i) a broker-dealer or other participant in the clearing process through the
ARROW
QVM EQUITY FACTOR ETF
|
NOTES
TO FINANCIAL STATEMENTS (Continued)
|
January
31, 2020
|
|
Continuous
Net Settlement System of the National Securities Clearing Corporation or (ii) a DTC participant and, in each case, must have executed
a Participant Agreement with the Distributor. Such transactions are generally permitted on an in-kind basis, with a balancing
cash component to equate the transaction to the NAV per share of the Fund on the transaction date. Cash may be substituted equivalent
to the value of certain securities generally when they are not available in sufficient quantity for delivery, not eligible for
trading by the Authorized Participant or as a result of other market circumstances. In addition, the Fund may impose transaction
fees on purchases and redemptions of Fund shares to cover the custodial and other costs incurred by the Fund in effecting trades.
A fixed fee payable to the Custodian may be imposed on each creation and redemption transaction regardless of the number of Creation
Units involved in the transaction (Fixed Fee). Purchases and redemptions of Creation Units for cash or involving
cash-in-lieu are required to pay an additional variable charge to compensate the Fund and its ongoing shareholders for brokerage
and market impact expenses relating to Creation Unit transactions (Variable Charge, and together with the Fixed
Fee, the Transaction Fees). Transactions in capital shares for the Fund are disclosed in the Statements of Changes
in Net Assets. For the year ended January 31, 2020, the Fund received $2,500 and $0 in fixed fees and variable fees, respectively.
The
Transaction Fees for the Fund are listed in the table below:
Fixed
Fee
|
Variable
Charge
|
$500
|
2.00%*
|
* The maximum Transaction Fee may be up to 2.00% of the amount invested.
|
6.
|
DISTRIBUTIONS
TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
|
The
tax character of Fund distributions paid for the year ended January 31, 2020 and January 31, 2019 was as follows:
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
|
January 31, 2020
|
|
|
January 31, 2019
|
|
Ordinary Income
|
|
$
|
126,008
|
|
|
$
|
93,010
|
|
Long-Term Capital Gain
|
|
|
—
|
|
|
|
—
|
|
Return of Capital
|
|
|
14,397
|
|
|
|
31,118
|
|
|
|
$
|
140,405
|
|
|
$
|
124,128
|
|
|
|
|
|
|
|
|
|
|
As
of January 31, 2020, the components of accumulated earnings/ (deficit) on a tax basis were as follows:
Undistributed
|
|
|
Undistributed
|
|
|
Post October Loss
|
|
|
Capital Loss
|
|
|
Other
|
|
|
Unrealized
|
|
|
Total
|
|
Ordinary
|
|
|
Long-Term
|
|
|
and
|
|
|
Carry
|
|
|
Book/Tax
|
|
|
Appreciation/
|
|
|
Accumulated
|
|
Income
|
|
|
Gains
|
|
|
Late Year Loss
|
|
|
Forwards
|
|
|
Differences
|
|
|
(Depreciation)
|
|
|
Earnings/(Deficits)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(237,617
|
)
|
|
$
|
(819,260
|
)
|
|
$
|
—
|
|
|
$
|
331,741
|
|
|
$
|
(725,136
|
)
|
ARROW
QVM EQUITY FACTOR ETF
|
NOTES
TO FINANCIAL STATEMENTS (Continued)
|
January
31, 2020
|
|
The
differences between book basis and tax basis, accumulated net investment income/(loss), accumulated net realized loss, and unrealized
appreciation from investments is primarily attributable to the tax deferral of losses on wash sales and adjustments for partnerships.
Late
year losses incurred after December 31 within the fiscal year are deemed to arise on the first business day of the following fiscal
year for tax purposes. The Fund incurred and elected to defer such late year losses of $16,261.
Capital
losses incurred after October 31 within the fiscal year are deemed to arise on the first business day of the following fiscal
year for tax purposes. The Fund incurred and elected to defer such capital losses of $221,356.
At
January 31, 2020, the Fund had capital loss carry forwards for federal income tax purposes available to offset future capital
gains as follows:
|
|
|
Non-Expiring
|
|
|
Non-Expiring
|
|
|
|
|
|
|
|
Expiring
|
|
|
Short-Term
|
|
|
Long-Term
|
|
|
Total
|
|
|
CLCF Utilized
|
|
$
|
—
|
|
|
$
|
743,033
|
|
|
$
|
76,227
|
|
|
$
|
819,260
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent
book and tax differences, primarily attributable to the book/tax basis treatment of non-deductible expenses, tax adjustments for
realized gain (loss) on in-kind redemptions, and return of capital distributions resulted in reclassification for the year ended
January 31, 2020 as follows:
Paid
|
|
|
|
|
In
|
|
|
Accumulated
|
|
Capital
|
|
|
Earnings (Losses)
|
|
$
|
392,125
|
|
|
$
|
(392,125
|
)
|
|
|
|
|
|
|
|
|
7.
|
AGGREGATE
UNREALIZED APPRECIATION AND DEPRECIATION – TAX BASIS
|
|
|
|
|
|
|
|
|
|
Net Unrealized
|
|
|
|
|
Gross Unrealized
|
|
|
Gross Unrealized
|
|
|
Appreciation/
|
|
Tax Cost
|
|
|
Appreciation
|
|
|
Depreciation
|
|
|
(Depreciation)
|
|
$
|
3,880,062
|
|
|
$
|
366,930
|
|
|
$
|
(35,172
|
)
|
|
$
|
331,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
RECENT
ACCOUNTING PRONOUNCEMENTS AND REPORTING UPDATES
|
In
August 2018, the FASB issued ASU No. 2018-13, which changes certain fair value measurement disclosure requirements. The ASU, in
addition to other modifications and additions, removes the requirement to disclose the amount and reasons for transfers between
Level 1 and Level 2 of the fair value hierarchy, and the policy for the timing of transfers between levels. For investment companies,
the
ARROW
QVM EQUITY FACTOR ETF
|
NOTES
TO FINANCIAL STATEMENTS (Continued)
|
January
31, 2020
|
|
amendments
are effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those
fiscal years. Early adoption is allowed. These amendments have been adopted with these financial statements.
Subsequent
events after the date of the Statement of Assets and Liabilities have been evaluated through the date the financial statements
were issued.
Management
has determined that no events or transactions occurred requiring adjustment or disclosure in the financial statements, other than
the following:
The
Board declared the following distributions after January 31, 2020:
Distribution
Per Share
|
Record
Date
|
Payable
Date
|
$0.0851
|
3/16/2020
|
3/23/2020
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Trustees of Arrow Investments Trust
and the Shareholders of Arrow QVM Equity Factor ETF
Opinion
on the Financial Statements
We
have audited the accompanying statement of assets and liabilities of Arrow QVM Equity Factor ETF, a series of shares of beneficial
interest in Arrow Investments Trust (the Fund), including the portfolio of investments, as of January 31,
2020, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended and the financial highlights for each of the years in the four-year period then ended,
and for the period from February 24, 2015 (commencement of operations) through January 31, 2016, and the related notes (collectively
referred to as the financial statements ). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Fund as of January 31, 2020, and the results of its operations for the year then
ended, the changes in its net assets for each of the years in the two-year period then ended and its financial highlights for
each of the years in the four-year period then ended and for the period from February 24, 2015 through January 31, 2016, in conformity
with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Funds management. Our responsibility is to express an opinion on the
Funds financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance
with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Funds internal control over financial reporting. Accordingly,
we express no such opinion.
Our
audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as
of January 31, 2020 by correspondence with the custodian and brokers. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
BBD,
LLP
We
have served as the auditor of one or more of the Funds in the Arrow Investments Trust since 2012. We also served as the auditor
of one or more of the Funds in the Funds former trust from 2006 through 2012.
Philadelphia,
Pennsylvania
March 26, 2020
Arrow
QVM Equity Factor ETF
|
EXPENSE
EXAMPLES (Unaudited)
|
January
31, 2020
|
|
As
a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and
sales of Fund shares; (2) ongoing costs, including management fees and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing
in other mutual funds.
The
example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from August
1, 2019 through January 31, 2020.
Actual
Expenses
The
Actual line in the table below provides information about actual account values and actual expenses. You may use
the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide
your account value by $ 1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number in the table under the heading entitled Expenses Paid During Period to estimate the expenses you paid on
your account during this period.
Hypothetical
Example for Comparison Purposes
The
Hypothetical line in the table below provides information about hypothetical account values and hypothetical expenses
based on the Funds actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the
Funds actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account
balances or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please
note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional
costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the table is useful in comparing ongoing
costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional
costs were included, your costs would have been higher.
|
Beginning
|
Ending
|
Expenses
Paid During
|
Expenses
Paid
|
|
Account
Value
|
Account
Value
|
Period*
|
During
Period**
|
|
8/1/19
|
1/31/20
|
8/1/19
- 1/31/20
|
8/1/19
- 1/31/20
|
Actual
|
$1,000.00
|
$1,031.70
|
$3.33
|
0.65%
|
|
|
|
|
|
Hypothetical
|
|
|
|
|
(5%
return before expenses)
|
$1,000.00
|
$1,021.93
|
$3.31
|
0.65%
|
|
*
|
Actual
expense information for the Fund is for the period from August 1, 2019 to January 31, 2020. Actual expenses are equal to the Funds
annualized net expense ratio multiplied by 184/365 (to reflect the period from August 1, 2019 to January 31, 2020). Hypothetical
expense information for the Fund is presented on the basis of the full one-half year period to enable comparison to other funds.
It is based on assuming the same net expense ratio and average account value over the period, but it is multiplied by 184/365
(to reflect the full half-year period).
|
ARROW
QVM EQUITY FACTOR ETF
|
SUPPLEMENTAL
INFORMATION (Unaudited)
|
January
31, 2020
|
|
FACTORS
CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE INVESTMENT ADVISORY AGREEMENT
At
an in person meeting held September 19, 2019 (the Meeting), the Board of Trustees (the Board) including
the Trustees who are not interested persons, as such term is defined under Section 2(a)(19) of the Investment Company
Act of 1940, as amended (the Independent Trustees), considered the renewal of the investment advisory agreement (the
Advisory Agreement) between the Arrow Investments Trust (the Trust), and Arrow Investment Advisors, LLC
(the Adviser) with respect to the Arrow QVM Equity Factor ETF (Equity Factor ETF or the Fund).
The
Board, including the Independent Trustees, unanimously approved continuance of the Advisory Agreement based upon its review of
the written materials provided at the Meeting, the reports provided at each quarterly meeting of the Board and the Boards
discussions with key personnel of the Adviser. In their deliberations, the Trustees did not identify any particular information
that was all-important or controlling, and individual Trustees may have attributed different weights to the various factors. Below
is a summary of the Boards conclusions regarding various factors relevant to approval of continuance of the Advisory Agreement:
Nature,
Extent and Quality of Services. In considering the renewal of the Advisory Agreement, the Board considered the nature,
extent, and quality of services that the Adviser provided to the Fund, including the Advisers personnel and resources, a
description of the manner in which investment decisions are made and executed, and a review of the financial condition of Arrow.
The Board reviewed the services the Adviser provided, including the backgrounds of the personnel that provided the investment
management and related services. They also reviewed information provided regarding risk management and compliance and regulatory
matters. The Board also considered the Advisers management of service provider relationships and oversight of sub-advisers.
The
Board found that the Adviser had a strong culture of research and compliance at the firm and had demonstrated an ongoing commitment
to analyzing various investment strategies in an effort to enhance returns to shareholders. Further, the Board considered the
consistency of the Advisers team, which provided the Adviser with tremendous experience and intellectual capital. The Board
concluded that the Adviser had sufficient quality and depth of personnel, resources, investment methodologies and compliance policies
and procedures to perform its duties under the Advisory Agreement and that the nature, overall quality and extent of the management
services provided by the Adviser to the Fund was satisfactory.
Performance.
The Board reviewed the Funds total return compared to the total returns of a group of funds selected by the Adviser
that employed similar investment strategies as the Fund (the peer group), benchmark index, and Morningstar category
average.
Equity
Factor ETF: The Board reviewed the Funds average total return compared to the average total returns of its peer group,
Morningstar category average (Morningstar U.S. Large Blend) and benchmark index (A.I. Quality Value Momentum Index). The Board
noted that the Fund outperformed the Morningstar category average over the year-to-date period and the Benchmark Index over the
one-year period. The Board also noted that the Funds total return underperformed the Morningstar category average and peer
group over the one-year period and since the Funds inception. The Board considered the Advisers observation that the
equity market generally favored growth over value and the Funds
ARROW
QVM EQUITY FACTOR ETF
|
SUPPLEMENTAL
INFORMATION (Unaudited)(Continued)
|
January
31, 2020
|
|
strategy
of prioritizing value, quality, and momentum participated in the markets advance but lagged strategies that prioritized
growth factors. The Board considered that the Fund had historically performed in-line with the benchmark index and had a three-star
Morningstar ranking. The Board concluded that the performance of the Fund was satisfactory.
Advisory
Fee. The Board reviewed the Funds advisory fee and expense ratio, taking into account the Funds average net
assets, and reviewed information comparing the advisory fee and expense ratio to those of the Funds peer group and Morningstar
category average. The Board discussed their duties to evaluate whether the advisory fee was not unreasonable. The Board noted
that the Advisers fees are reasonably applied based on the nature of the Funds investment strategy. The Board noted
that alternative strategies may generally require enhanced oversight compared to more traditional asset classes and
that such additional cost may be evident in the level of the advisory fee. The Board discussed the level of work involved in the
Advisers oversight of the Fund.
The
Board noted that with respect to the Equity Factor Fund, the advisory fee was lower than the average of its peer group. The Board
also noted that the Funds advisory fee was above the average of its Morningstar category, and the overall expense ratio
was in a reasonable range.
In
light of the nature, quality and extent of services the Adviser provided, the Board concluded that the Funds advisory fee
was not unreasonable.
Economies
of Scale. The Board considered the extent to which economies of scale would be realized as the Fund grows and whether
fee levels reflect a reasonable sharing of economies of scale for the benefit of Fund investors. The Board noted the Fund had
yet reached an asset level where the Adviser could realize meaningful economies of scale. The Board observed that economies of
scale would be considered in the future as Fund asset levels grow.
Profitability. The
Board also reviewed the profitability of the Adviser with respect to the Fund. The Board noted that the Adviser did not
realize a profit in connection with the management of the Fund.
Fallout
Benefits. Because of its relationship with the Fund, the Adviser and its affiliates may receive certain benefits. The
Board reviewed materials provided by the Adviser as to any such benefits.
Conclusion.
Based on all of the information considered and the conclusions reached, the Board determined that the terms of the Advisory
Agreement were fair and reasonable, and that the continuation of the Advisory Agreement was in the best interests of the Fund.
Arrow
QVM Equity Factor ETF
|
SUPPLEMENTAL
INFORMATION (Unaudited)(Continued)
|
January
31, 2020
|
|
This
chart provides information about the Trustees and Officers who oversee the Fund. Officers elected by the Trustees manage the day-to-day
operations of the Fund and execute policies formulated by the Trustees. The address of each Trustee and Officer is 6100 Chevy
Chase Drive, Suite 100, Laurel, Maryland 20707, unless otherwise noted.
Non-Interested
Trustees
Name,
Address, and
Year of Birth
|
Position(s)/Term
of Office*
|
Principal
Occupation(s) During the
Past 5 Years
|
Number
of
Portfolios
in Fund
Complex
Overseen
by Trustee 1
|
Other
Directorships Held
by Trustee
|
Robert
S. Andrialis
Born in 1944
|
Trustee
since 2014
|
Independent
Consultant (2016 – present); Advisor, INDXX, LLC (2014 – 2016); President, Secured Growth Quantitative Research
(2011–2014).
|
10
|
Arrow ETF Trust
|
Paul
Montgomery
Born in 1953
|
Trustee
since 2011
|
Director
of Research, Scotia Partners, LLC (2012-present).
|
10
|
Arrow ETF Trust
|
Thomas
T. Sarkany
Born in 1946
|
Trustee
since 2014
|
Founder
and President, TTS Consultants, LLC (2010 – present).
|
10
|
Arrow ETF Trust, Northern Lights Fund Trust II, Northern Lights Fund Trust IV; Aquila Distributors
|
Arrow
QVM Equity Factor ETF
|
SUPPLEMENTAL
INFORMATION (Unaudited)(Continued)
|
January
31, 2020
|
|
Interested
Trustees and Officers
Name,
Address, and
Year of Birth
|
Position(s)/Term
of Office*
|
Principal
Occupation(s) During the
Past 5 Years
|
Number
of Funds
in the
Fund
Complex
Overseen
by
Trustee 1
|
Other
Directorships Held
by Trustee
|
Joseph
Barrato2
Born in 1965
|
Chairman of the Board, Trustee, President, and Principal Executive Officer since 2011
|
Founder and Chief Executive Officer, Arrow Investment Advisors, LLC (2006-present).
|
10
|
Arrow ETF Trust
|
Sothara
Chin
Born in 1966
|
Chief
Compliance Officer since 2018; Previously from 2011-2015
|
Managing
Partner of Fit Compliance, LLC (2017 - present); Chief Operations Officer and Chief Compliance Officer, Impact Us Marketplace,
LLC (2015-2017); Chief Compliance Officer, Arrow Investment Advisors, LLC (2011-2015).
|
N/A
|
N/A
|
Jake
Griffith
Born in 1978
|
Secretary
since 2011
|
Founder,
President, and Director of Sales, Arrow Investment Advisors, LLC (2006-present).
|
N/A
|
N/A
|
Sam
Singh
80 Arkay Dr.
Hauppauge,
NY 11788
Born in 1976
|
Principal
Financial Officer and Treasurer since 2013
|
Vice
President (2015 - present); Assistant Vice President (2011-2015), Gemini Fund Services, LLC.
|
N/A
|
N/A
|
|
*
|
The
term of office for each Trustee will continue indefinitely until the individual resigns or is removed. Officers of the Trust are
elected annually.
|
|
1
|
The
Fund Complex includes Arrow ETF Trust, a registered management investment company, in addition to the Trust.
|
|
2
|
Joseph
Barrato is considered to be an interested person of the Trust, as that term is defined in the 1940 Act, because he
is a controlling interest holder of the investment advisor to each Fund, Arrow Investment Advisors, LLC.
|
The
Funds Statement of Additional Information includes additional information about the Trustees and is available free of charge,
upon request, by calling toll-free at 1-877-277-6933.
PRIVACY
NOTICE
Arrow Investments Trust
FACTS
|
WHAT DOES ARROW INVESTMENTS TRUST DO WITH YOUR PERSONAL INFORMATION?
|
Why?
|
Financial
companies choose how they share your personal information. Federal law gives consumers the right to limit some,
but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal
information. Please read this notice carefully to understand what we do.
|
What?
|
The
types of personal
information we
collect and share
depends on the
product or service
that you have with
us. This information
can include:
●
Social Security number and wire transfer instructions
●
account transactions and transaction history
●
investment experience and purchase history
When you are no longer our customer, we continue to share your information as
described in this notice.
|
How?
|
All financial companies need to share customers personal information
to run their everyday business. In the section below, we list the
reasons financial companies can share their customers personal
information; the reasons Arrow Investments Trust chooses to share;
and whether you can limit this sharing.
|
Reasons
we can share your
personal information:
|
Does Arrow Investments
Trust share information?
|
Can
you limit this
sharing?
|
For
our everyday business purposes - such as to process your transactions, maintain your account(s), respond to court orders
and legal investigations, or report to credit bureaus.
|
YES
|
NO
|
For
our marketing purposes - to offer our products and services to you.
|
NO
|
We
dont share
|
For
joint marketing with other financial companies.
|
NO
|
We
dont share
|
For
our affiliates everyday business purposes - information about your transactions and records.
|
NO
|
We
dont share
|
For
our affiliates everyday business purposes - information about your credit worthiness.
|
NO
|
We
dont share
|
For
nonaffiliates to market to you
|
NO
|
We
dont share
|
QUESTIONS?
|
Call 1-877-277-6933
|
PRIVACY
NOTICE
Arrow
Investments Trust
What
we do:
|
How
does Arrow Investments Trust protect my personal information?
|
To
protect
your
personal
information
from
unauthorized
access
and
use,
we
use
security
measures
that
comply
with
federal
law.
These
measures
include
computer
safeguards
and
secured
files
and
buildings.
Our
service providers are held accountable for adhering to strict policies and procedures to prevent any misuse of your nonpublic
personal information.
|
How
does Arrow Investments Trust collect my personal information?
|
We
collect
your
personal
information,
for
example,
when
you
●
open an account or deposit money
●
direct us to buy securities or direct us to sell your securities
●
seek advice about your investments
We
also collect your personal information from others, such as credit bureaus, affiliates, or other companies.
|
Why
cant I limit all sharing?
|
Federal
law
gives
you
the
right
to
limit
only:
●
sharing for affiliates everyday business purposes – information about your creditworthiness.
●
affiliates from using your information to market to you.
●
sharing for nonaffiliates to market to you.
State
laws and individual companies may give you additional rights to limit sharing.
|
Definitions
|
Affiliates
|
Companies
related
by
common
ownership
or
control.
They
can
be
financial
and
nonfinancial
companies.
●
Arrow Investments Trust does not share with our affiliates.
|
Nonaffiliates
|
Companies
not
related
by
common
ownership
or
control.
They
can
be
financial
and
nonfinancial
companies.
●
Arrow Investments Trust does not share with nonaffiliates so they can market to you.
|
Joint
marketing
|
A
formal agreement between nonaffiliated financial companies that together market financial products or services to
you.
●
Arrow Investments Trust does not jointly market.
|
PROXY
VOTING POLICY
Information
regarding how the Fund voted proxies relating to portfolio securities for the most recent twelve-month period ended June 30 as
well as a description of the policies and procedures that the Fund uses to determine how to vote proxies is available without
charge, upon request, by calling 1-877-277-6933 or by referring to the Securities and Exchange Commissions (SEC)
website at http://www.sec.gov.
PORTFOLIO
HOLDINGS
The
Fund files its complete schedules of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form
N-Q. Form N-Q is available on the SECs website at http://www.sec.gov. The information on Form N-Q is available without
charge, upon request, by calling 1-877-277-6933.
INVESTMENT
ADVISOR
|
Arrow
Investment Advisors, LLC
|
6100
Chevy Chase Drive
|
Suite
100
|
Laurel,
MD 20707
|
|
ADMINISTRATOR
|
Gemini
Fund Services, LLC
|
4221
North 203rd Street, Suite 100
|
Elkhorn,
NE 68022-3474
|