Before investing in Caixa ETF Ibovespa Index Fund, it is essential that you read the rules of the fund thoroughly and consider the risks carefully.
The fund is exposed to price variation of the shares that make up its portfolio as well as the liquidity risk of its shares on the secondary market and the risk of non-compliance of the profitability of the Fund with the index of reference.
1. Risk of noncompliance of the fund in relation to the Index of reference
The fund has the aim to attain profitability in compliance with the Bovespa Index; however, its profitability may not fully reflect the profitability of the Bovespa Index, since the investments of the FUND are subject to a number of constraints such as:
• Fees and expenses owed by the ETF.
• Operational Fees, expenses and differences entailed by adjustments of the composition of the ETF portfolio due to changes in the composition of the Index.
• Revenues declared by companies whose shares are in the theoretical portfolio of the Index, but which have not yet been paid or received by the ETF.
• Positions in cash or Permitted Investments, while any Share belonging to the Index is not available or whenever the administrator determines that it is in the best interest of the ETF to hold positions in cash or Permitted Investments.
• In conditions of low liquidity, in the impossibility of purchasing one or more shares of the Index, the ETF Manager, in its sole discretion, may replace such shares of the Index by Amounts in Cash, limited to 05% (five per cent) of the total value of the Basket.
• Operational costs involved to perform the above-mentioned adjustments, if a Share of the Index is not available, which may exceed the expected benefits of such adjustments.
• Impossibility in certain market conditions, of the ETF Manager to make use of derivative instruments, such as futures contracts or options on futures contracts that have a market index as their underlying asset, especially with regard to the protection (hedging) of future receivables of the ETF and the investment of the Revenues declared by the Companies during the periods in which such receivables or Revenues have not been paid to the ETF.
If an adherence error occurs, or an error of difference in profitability exceeding the allowed by the bylaws, the administrator has the duty to convene, at its own expense, a general meeting of shareholders, that will comprise explanations, by the administrator, of the reasons that, in its opinion, motivated the adhesion error or the difference in profitability and the deliberation about the possibility of liquidation of the fund or the substitution of the administrator.
2. Liquidity risk of the Fund Shares
There is no guarantee that a minimum volume of trading of the ETF Shares will be maintained, and there's no possibility to foresee the price levels at which the ETF Shares may be negotiated. There is also no guarantee that the ETF Shares have a standard negotiation or price similar of the stocks negotiated in the stock market, issued by funds or by investment companies, in Brazil or in other jurisdictions, or that they have other market indexes as a benchmark, other than the FUND Reference Index. In addition, the ETF Shares can be sold on the secondary market, but are not redeemable in cash. The redemptions will only be made through the delivery of a Basket by ETF to the shareholder that has requested the redemption; the composition of the Basket pursues the rules contained in the ETF's bylaws.
3. Investment risk in variable income
Investment in stocks is considered of high risk due to the high variations in profitability to which this market is prone, and there is also the risk of loss of part of the investment due to a worsening financial and economic situation of the stocks-issuing companies whose shares composes the Fund.
4. Market Risks
ETF shares are subject to fluctuations due to the oscillations in prices and market prices of the assets allocated in its portfolio, and their value, at any time, may be less than that originally paid by the shareholder.
5. Systemic Risk
The prices of the ETF assets may be affected by exogenous reasons, such as moratorium, the partial or total closing of markets, due to any event, changes in monetary policy or in the national and/or international economic scenarios, interference by market regulating agencies, as well as changes in the bylaws and/or regulations applicable to ETFs, including taxation laws. The occurrence of such events can have an impact on the results of the positions taken by ETF, and therefore, in the value of its shares and in its conditions of operation.
6. Risk From the Use of Derivatives
This risk is related to the possibility of the derivative instruments not to produce the desired effects, as well as lead to losses for the shareholders, at the time of the realization or maturity of operations, due to the variation of the cash prices of the assets related to them, expectations of future prices, market liquidity and credit risk of the counterpart. In addition, they may increase the volatility of the ETF and curb or extend the possibilities of profitability. Even though the derivative instruments aim to protect the ETF positions, this protection may not be perfect or sufficient to prevent losses.
7. Credit Risk
The fixed income assets that may compose the portfolio of the Fund are subject to the possibility of their issuers not to meet their payment obligations of the principal and of the corresponding interests on their debts, on the occasion of final and/ or anticipated maturity. Events that affect the financial conditions of the securities issuers or changes in the perception of the quality of the issuers' credits, even that not substantiated, as well as changes in the economic, legal and politic conditions that may impair their ability to pay, may bring significant impacts in the price of securities, compromising also its liquidity.
In addition, the derivative contracts may be subject to the non fulfillment of the counterpart and to the possibility of the guarantor institution to be unable to honor its liquidation.
8. Lack of assurance of the assets and of the investment performance of the Fund
Neither the fund nor the assets of the fund or the performance of the fund is assured, by the administrator, by the Authorized Agents, by the FGC or any other person or entity.
9. Shares may be traded on BM&F Bovespa with premium or discount in relation to their Assets Value
The Asset Value of the ETF is calculated only once in each trading day and reflects the market value of the portfolio of the fund, but the trading price of the ETF shares may be higher or lower than their respective Assets Value over the course of each trading day. It is hoped that the trading price of the ETF shares fluctuates mainly according to the Asset Value of the ETF and to the supply and demand of shares, which will vary on the basis of market conditions and other factors, such as the Brazilian economic situation investor confidence and investor's expectations related to the Brazilian capitals market, but there is no guarantee that this will happen.
10. Minimum Batches for Creation and Redemption of Shares
The creation and redemption of the ETF shares may only be carried out by the administrator through Authorized Agents in Minimum Batches of Shares or full multiples of these. Except in the case of liquidation of the fund, shareholders who do not have enough shares to compose a Minimum Batch may only redeem their shares through their divestiture on the BM&F Bovespa or through the purchase of additional shares to form a Minimum Batch.
11. The FUND shares can only be created or redeemed by Authorized Agents that may not be in sufficient quantity
The Minimum Batch of Shares can only be created and redeemed by a Creation or Redemption Order duly submitted by an Authorized Agent. The administrator signs an Authorized Agent agreement with broker-dealers previously approved, wishing to act as intermediaries of shareholders in the creation and redemption of shares directly with the FUND; on a given moment this number of Authorized Agents may be limited, and they are not obliged to accept instructions from investors to create or redeem shares. In addition, the Authorized Agents may not create or redeem shares whenever (I) prohibited by the administrator to do so; (II) the shares negotiations are restricted or suspended; (III) the payment or the compensation of shares is restricted or suspended by the CBLC; or (iv) the index is not calculated or disclosed by BM&F Bovespa. Therefore, the shareholders may not be able to create or redeem their shares at the moment in which they wish to do so or when it is more favorable, and the shares may present a significant difference between their value of trading and their Asset Values.
12. The shares redemption may not be done by a Basket of Assets exclusively composed of Index Shares or in the same proportion of the Index
Authorized Agents that redeem ETF shares will receive a Basket of Assets composed of at least 95% of Index Shares in any proportion, and at the most 05% of Permitted Investments and/or national currency. In spite of the fact that all the Index Shares are listed at the BM&F Bovespa, there is no guarantee that there will be active negotiation of them, therefore, shareholders who redeem shares may not be able to liquidate the Index Shares delivered upon redemption, nor receive any value by rights on shares or Permitted Investments, as the case may be, that are part of the Basket upon redemption.
13. Both the CVM and BM&F Bovespa may suspend the trading of ETF shares
Both the CVM and BM&F Bovespa may suspend the trading of the ETF shares whenever they deem it appropriate in order to protect investors. In these cases, the investors may not buy or sell ETF shares on the BM&F Bovespa during any period in which the shares negotiation is suspended.
Besides, due to the restrictions imposed on the shares redemption, it is possible that the shareholder, if trading on ETF shares is suspended, may incur financial losses resulting from lower liquidity in his or her investment.
14. The listing of the shares at the BM&F Bovespa may be cancelled
For the shares to be listed at the BM&F Bovespa, their issuers are required to meet several requirements, and if these requirements are not fulfilled, the listing of shares at BM&F Bovespa may be cancelled. There is no guarantee that the FUND will keep the fulfillment of the requirements to maintain the listing of the shares at the BM&F Bovespa.
If the shares list at the BM&F Bovespa is cancelled the administrator may convene a General Meeting of Shareholders to deliberate about the shares listing in another stock exchange market, in an over-the-counter market, or about the liquidation of the fund. If the shares are listed in another stock exchange market or in an over-the-count market, the negotiation of the shares may present a lower liquidity in relation to BM&F Bovespa, presenting a greater difference between their value of trading and their Asset Value.
If the administrator cannot list the Shares of the fund in another stock exchange market or in an over-the-count market, the fund may be liquidated.
15. The BM&F Bovespa may cease to manage or to maintain the Index, which could lead to the ETF liquidation
BM&F Bovespa manages, calculates, discloses and maintains the ETF Index. However, BM&F Bovespa has no obligation to do so and it cannot be guaranteed that BM&F Bovespa will continue to manage, calculate, disclose and maintain this Index during the ETF existence. According to the Fund's Bylaws, if BM&F Bovespa ceases to manage, calculate, disclose or maintain the ETF Index, the administrator shall disclose this fact, in the form of the applicable bylaws, and mandatorily convene a General Meeting of Shareholders to deliberate on a change in the objective of the investments of the fund or, as the case may be, on the ETF liquidation. If the Meeting does not approve the amendment to the objective of investment for the ETF or the ETF liquidation, the admininstrator is authorized to immediately promote the ETF liquidation, as provided in the Fund's Bylaws, which may adversely affect the Asset Value of the ETF and its shares.
16. License for the use of the names and brands of BM&F Bovespa and of the Index may be cancelled
BM&F Bovespa and ETF administrator sign a License Agreement to Use of the Brand by which BM&F Bovespa grants the Administrator a license for the use of the trademarks "BM&F Bovespa" and "Index", owned by BM&F Bovespa. The License Agreement may be terminated or cancelled in various hypotheses defined therein or it may not be extended. In this case, the administrator shall convene a General Meeting of Shareholders to determine how to address the impact of this event on the ETF under the terms set out in the Bylaws.
17. Risk of errors, failures, delays in the provision or availability of the Index
Errors, failures and delays may occur in the provision or availability of the Index. Neither the administrator nor any other ETF service provider works in the calculation, provision or availability of the Index, nor have the means to prevent the occurrence of these events and, therefore, none of them have any obligation or responsibility regarding such events. In terms of the License Agreement, BM&F Bovespa is expressly exempted of any responsibility for errors or delays in providing or making the Index available or of any decisions made based on it.
18. Liquidity Risk of Fund Assets
The assets that comprise the FUND's portfolio are subject to the liquidity risk of the markets in which they are traded and, although all the index stocks are listed on the BMF& Bovespa, it is impossible to guarantee that there will be active trading in them. Thus, it is possible that investors who redeem their Fund shares may not be able to trade and settle the index stocks delivered for redemption purposes, nor receive any sum for Stock Rights or Permitted Investments, as applicable, that comprise the redemption basket.
