TruSector ETFs: Question and Answer

Our TruSector ETFs are designed to solve one of the most persistent issues in sector investing: the tracking error caused by regulatory diversification limits that force sector funds to underweight the largest companies in their benchmarks. The VanEck Consumer Discretionary TruSector ETF (TRUD), VanEck Technology TruSector ETF (TRUT), VanEck Communications Services TruSector ETF (TRUC), VanEck Financial TruSector ETF (TRUF) and VanEck Healthcare TruSector ETF (TRUH) are designed to give investors full market-cap sector exposure, providing closer alignment with how the market itself defines each sector.

• What are VanEck TruSector ETFs?
• What differentiates TruSector ETFs from other sector ETFs?
• Why are sector weightings so distorted in other ETFs?
• How do TruSector ETFs provide full sector exposure while adhering to regulatory rules?
• What investment needs are TruSector ETFs designed to address?
• Who are these funds designed for?
• How do RIC diversification rules impact traditional S&P 500 ETFs?
• Are TruSector ETFs more expensive than traditional sector ETFs?
• Which sectors are most affected by capped weighting rules?
• Why introduce new sector ETFs when the market already has so many options?
• How does TruSectors determine which ETFs to hold within each sector?

What are VanEck TruSector ETFs?

VanEck TruSector ETFs are a suite of sector-focused exchange-traded funds, actively managed to reflect the full economic composition of each market segment. The current offerings include Information Technology (TRUT), Consumer Discretionary (TRUD), Communications Services (TRUC), Financials (TRUF) and Healthcare (TRUH) sectors. VanEck may consider additional sector exposures over time as part of a broader expansion of this suite.

What differentiates TruSector ETFs from other sector ETFs?

Many existing sector ETFs are built to track indices that are designed to comply with regulatory diversification limits. These rules often reduce exposure to the largest and most influential companies within a sector, leading to allocations and performance that may differ meaningfully from the sector’s actual market composition.

TruSector ETFs are constructed to maintain a closer alignment to the complete market-cap structure of each sector, while still adhering to applicable regulatory requirements. The investment team applies a rules-based quantitative approach to build portfolios that reflect their outlook on the sector’s makeup and performance drivers.

Why are sector weightings so distorted in other ETFs?

Typically, regulatory requirements mandate that an ETF’s allocation to a single company can be no more than 25% or more than 50% total to companies that individually exceed 5%. In concentrated sectors like Information Technology, this leads to forced reductions in industry leaders, which can collectively make up over 40% of the sector.

This misalignment can result in performance deviations compared to uncapped benchmarks and can dilute the actual sector exposure investors are seeking.

How do TruSector ETFs provide full sector exposure while adhering to regulatory rules?

The investment team uses a hybrid portfolio construction process that blends individual equities¹ with ETF exposures. This structure is intended to provide more complete sector representation, reduce tracking error to uncapped sector benchmarks, and limit unintended biases that may arise in traditional sector ETFs.

What investment needs are TruSector ETFs designed to address?

As sectors become more concentrated, particularly in areas like technology, traditional ETF structures may increasingly diverge from actual market realities due to regulatory caps. TruSector ETFs are designed to offer a more comprehensive and adaptable approach to sector investing, while maintaining the operational simplicity and liquidity that ETF investors expect.

Who are these funds designed for?

TruSector ETFs are ideal for:

• Asset allocators seeking benchmark-aligned sector exposure
• Model portfolio builders looking to reduce performance drift and improve attribution
• Investors wanting true sector exposure without hidden biases or overly forced diversification

How do RIC diversification rules impact traditional S&P 500 ETFs?

Most index ETFs, including those tracking the S&P 500, are structured as Regulated Investment Companies (RICs), which must comply with diversification requirements set by the IRS. These rules limit the weight any single company can represent within a fund. While this ensures diversification from a tax perspective, it also prevents ETFs from reflecting true market-cap weightings. As a result, investors in traditional S&P 500 or sector ETFs may not realize that their exposure to the largest market leaders is often reduced due to regulatory capping.

Are TruSector ETFs more expensive than traditional sector ETFs?

TruSector ETFs are designed to remain cost-competitive with traditional sector funds. The objective is not to increase costs but to improve accuracy, giving investors a more authentic view of sector performance through true market-cap representation, all while maintaining low, transparent fees.

Which sectors are most affected by capped weighting rules?

Capped methodologies tend to distort sectors dominated by a few large companies. Technology, communication services, and energy are prime examples, areas where the largest firms drive a significant share of the sector’s market capitalization and earnings power. Capping these companies can dilute exposure and lead to performance differences relative to the true, uncapped market.

Why introduce new sector ETFs when the market already has so many options?

While sector ETFs are well established, most of them rely on capped index methodologies that deviate from actual market-cap representation. TruSectors was developed to offer a more precise alternative, one that tracks each sector as it truly exists in the marketplace. This approach allows investors to align more closely with the real composition and performance of each sector rather than a modified version of it.

How does TruSectors determine which ETFs to hold within each sector?

Each TruSector ETF is constructed to mirror its sector’s true market-cap structure as accurately as possible. When multiple ETFs represent the same sector, the methodology prioritizes those that offer the most representative exposure, typically defined by liquidity, depth of holdings, and alignment with the sector’s overall market capitalization profile.

How Can Investors Buy VanEck’s TruSector ETFs?

VanEcks ETFs can be purchased the same way you would by a stock, through a broker or with your advisor.

¹ The Fund may gain exposure to these companies through holdings in publicly traded common stocks, exchange-traded products that provide exposure to the various segments of the information technology sector and derivative instruments, such as total return swaps on individual securities. The Fund’s exposure to such derivatives will generally not exceed 20% of the notional value of the portfolio.