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Introduction to the North Shore Dual Share Class ETF (DUAL)

October 4, 2020

Dual share class companies have increased in number in recent years. Companies taking advantage of the equity structure are usually young, innovative companies. The dual-class structure may allow these companies to gain access to the public markets without subjecting them to the short-term pressure of many shareholders.

What Is a Dual Share-Class Company?

A dual-class company is one that issues equity with different voting rights assigned to each share class. Generally, the share class held by the founders will carry the majority of the votes for the company. A typical dual-class structure confers ten votes to the holder of the super-voting shares versus one vote per share for ordinary shares.

Potential Benefits of Dual-Class Companies

The dual-class structure offers potential benefits to the issuing companies, including:

  • Allows visionary founders to gain access to the public markets without giving up control. Reduces pressure from outside investors for short-term performance, such as quarterly EPS growth rather than long-term value creation.
  • Visionary founders can protect their vision and continue to invest for the long run
  • Ability to pursue strategies and goals that may have a longer-term payout.
  • Allows the company to focus on long-term vision rather than short-term goals.

Potential Benefits of Dual-Class Structure over the Firm’s Life Cycle

The potential benefits of the dual-class structure may vary depending on the age of the company. One research study showed that the benefits to dual-class companies is highest at the earliest stages of a company and tend to diminish over time [1]. The researchers used the firm’s equity valuation multiple as a measure of those potential benefits. They found that dual-class firms had higher valuations than single-class companies at the time of their IPO. That valuation differential diminished as the company matured.

The Index Exclusion Issue

Many major index providers are reducing the weight of, or excluding completely, dual-class companies. For example, S&P Dow Jones Indices moved to exclude dual-class companies from many of their most widely used U.S. indices. Both FTSE Russell and MSCI have rules which reduce the weight of dual-class companies in their indices.

Thus, individuals may have limited access to dual-class companies, particularly if they chose to invest in index-tracking funds.

Providing Access to the Potential Benefits of Dual-Class Companies

Introducing the North Shore Dual Share Class ETF (DUAL)

The North Shore Dual Share Class ETF (DUAL) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the North Shore Dual Share Class Index. The index is designed to track the performance of dual-class companies incorporated in the United States.

Why DUAL?

  • DUAL provides access to the shares of dual-class companies.
  • DUAL is designed to mitigate the problem of corporate governance by index exclusion.
  • DUAL addresses lack of effective sunset provisions in dual-class structures and offers dynamic exposure to potential dual-class benefits over the firm’s life cycle.
  • The fund emphasizes younger companies where the potential benefits of the dual-class structure may be the greatest and reduces that emphasis as the company matures.
  • Provides access to dual-class companies that may not be available or may be underweighted in many popular equity indices.

The index is rebalanced annually. Additional constraints are placed on the index in an aim to affect liquidity and portfolio diversification.

DUAL may provide investors with an attractive vehicle for exposure to the potential benefits offered by dual-class companies.


[1] Cremers, Martijn; Lauterbach, Beni & Pajuste, Anete, The Life-Cycle of Dual Class Firm Valuation, December 2018.

Exchange Traded Concepts, LLC serves as the investment advisor. The Fund is distributed by SEI Investments Distribution Co. (1 Freedom Valley Drive, Oaks, PA 19456), which is not affiliated with Exchange Traded Concepts, LLC, North Shore Indices, or any affiliates. Check the background of SIDCO on FINRA’s BrokerCheck.

Carefully consider the Fund’s investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Fund’s full or summary prospectus, which may be obtained by visiting ( dualetf.com). Investors should read it carefully before investing or sending money.

Investing involves risk, including possible loss of principal. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from social, economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Narrowly focused investments, investments in smaller companies, and those in commodities typically exhibit higher volatility. Issuers in energy-related industries can be significantly affected by fluctuations in energy prices and supply and demand of energy fuels.

There is no guarantee the fund will achieve its stated objective. Indices are unmanaged and do not include the effect of fees. One cannot invest directly in an index. The fund is non-diversified.

Shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Market price returns are based upon the midpoint of the bid/ask spread at 4:00 PM Eastern time and do not represent the returns you would receive if you traded shares at other times. The first trading date is typically several days after the fund inception date. Therefore, NAV is used to calculate market returns prior to the first trade date because there is no bid/ask spread until the fund starts trading.

Dual Share Class Companies create unique risks. Dual Share Class Companies allow for a concentration of voting power in the hands of company insiders through a disproportionate allocation of voting rights among stockholders, which may negatively affect common stockholders in a variety of ways. For example, a company’s owners may use such power for personal benefit, while passing on financial risk to common stockholders. Further, Dual Share Class Companies allow entrenchment of management in the company, which may prevent common stockholders from being able to address issues relating to mismanagement of the company, such as share dilution, increased company debt, and financial underperformance relevant to the market. Investing only in a portfolio of Dual Share Class Companies may impact the Fund’s relative investment performance depending on whether such investments are in or out of favor in the market. A portfolio of Dual Share Class Companies may underperform a portfolio that includes companies with traditional ownership structures.