A. Principal Owners and Firm Background
McElhenny Sheffield Capital Management, LLC (“MSCM” or “Adviser”), a Texas limited liability company,
is majority owned and controlled by its founder, Bruce McElhenny Fraser Jr. and his family. Mr. Fraser (the
“Principal”) is the Managing Member, Managing Partner (func onal tle), and Chief Compliance Officer of
MSCM. MSCM was founded by Mr. Fraser in 2000 and has its principal place of business in Dallas, Texas.
Addi onal informa on rela ng to MSCM’s ownership can be found on Schedule A of MSCM’s Form ADV
Part 1.
B. Types of Advisory Services
The Adviser currently provides investment management services primarily through separately managed
accounts (“Separately Managed Accounts”) for individuals, high net worth individuals, businesses and
other ins tu ons or en es, including as a sub-adviser to other investment advisers (collec vely the
“Clients”). MSCM provides the following tac cal exchange-traded fund (“ETF”) strategies (“Tac cal
Strategies”): (1) Trend Plus, (2) Sector Rota on, (3) TPSR, (4) Trend X, and (5) other customized strategies
based on a rules-based process managed by MSCM in the following styles: trend following, momentum,
or a blend of trend following and momentum. Trend following seeks to par cipate in market upside while
avoiding market downside. Momentum inves ng seeks to capitalize on sectors and market segments with
strong momentum while avoiding markets that exhibit weakness.
MSCM also provides other investment advisory services providing investment advice on equi es, debt,
op ons, futures, ETFs and mutual funds for Separately Managed Accounts. In selec ng investment
opportuni es, MSCM’s representa ves will select what is believed to be the best opportunity for the Client
based on various considera ons which poten ally will not be based on lowest price (e.g., trading volume
and trading history of one ETF over another).
The Tac cal Strategies use proprietary quan ta ve algorithms (“Quan ta ve Models”) that are
momentum or trend based and assist por olio managers in determining what market exposure or which
sectors and/or ETFs to allocate to within each Tac cal Strategy. The Tac cal Strategies seek to achieve their
investment objec ves while adhering to explicit risk controls that allow the por olios to move to defensive
posi ons of cash or non-equity asset classes during periods of elevated risk or market drawdowns. Trading
activity is directed by outputs from the Quantitative Models that are developed and maintained by
portfolio managers Bruce Fraser and Grant Morris ( the “Portfolio Managers”).
The Quantitative Models are updated each day with the relevant market data and recalculated with the
new data set. The Quantitative Model output is the market exposure and allocation that each Tactical
Strategy should have each day. The spreadsheets are maintained for error-checking of the input data,
model calculations, and output signals. Changes in allocations necessitate trades that are executed by the
portfolio managers through block trading, which ensures that each Separately Managed Account assigned
to the Quantitative Model receives the same execution at each Custodian.
The trades indicated by the models are overridden only when extraordinary circumstances demand
human intervention. The Portfolio Managers are the only persons that have the authority to override the
Quantitative Models’ recommendations, but they would only exercise this authority in a time of extreme
market duress, or if a trade indicated by the Quantitative Models appears erroneous. The ongoing process
includes constant monitoring of market and economic conditions as well as aggregate portfolio risks. To
the extent recommendations are overridden or changes are made to the Quantitative Models, the
Portfolio Managers will document such modifications and actions taken.
MSCM’s trading strategies and Quantitative Models are revised from time to time as a result of ongoing
research and development. The strategies and systems used by us in the future can differ significantly
from those presently used, due to changes resulting from this research. In any event, the Firm will
document when major changes are made to strategies and systems utilized.
The Tactical Strategies that we deploy on behalf of Clients are highly complex. The successful deployment
of the Tactical Strategies requires sophisticated mathematical calculations and complex computer
programs. Although we intend to use good faith efforts to carry out such calculations and programs
correctly and to use them effectively, there can be no assurance that we will successfully do so. Errors can
occur in designing, writing, testing, monitoring, and/or implementing such calculations and programs,
including errors in the manner in which such calculations and programs function together. Any such error
can be difficult to detect, will potentially not be detected for a significant period of time, and can have a
material adverse effect on Clients. This risk can be exacerbated by the fact that the Tactical Strategies
deployed by us is expected to include executing multiple trades over a particular time period, which can
result in many trades being affected by any such error before it can be detected and corrected. In addition,
such calculations and programs are dependent upon accurate market and other data, and inaccuracies in
or any corruption of such data (or errors in incorporating such data) can have a material adverse effect on
the results of such calculations
and programs. Moreover, the effectiveness of such calculations and
programs can diminish over time, including as a result of market changes and changes in the behavior of
other market participants. In the event we determine that there is diminishing effectiveness, the Portfolio
Managers will review the data and make certain changes to the program and/or the manner in which it is
implemented. Any such changes can also increase the likelihood of the errors described above.
The complexity of the components of the Tactical Strategies that apply to such calculations and programs,
and the interactions among such components, can make it difficult or impossible to detect the source of
any weakness or failure in such components and/or such calculations and programs before material losses
are incurred. For example, it can be difficult or impossible to distinguish unexpected trading results caused
by market activity from unexpected trading results caused by an error in the applicable calculations or
programs. The mathematical calculations and computer programs utilized by us are subject to inherent
limitations and can potentially be improved upon as experience is gained, strategies are refined, and
markets change. However, there can be no assurances that we would be able to or will make any such
improvements, and our inability or failure to do so can have a material adverse effect on Clients.
We carry out our investment process and risk control procedures, in part, by applying Quantitative Models
developed by the Portfolio Managers. Because our trading methods are proprietary, an investor will not
be able to determine specific details of our methods or whether Quantitative Models are being followed.
As a result, the Portfolio Managers will monitor the program daily, and back test the equations as needed.
MSCM is the discre onary sub-adviser of the ac vely managed McElhenny Sheffield Managed Risk ETF
(“MSMR Fund” or “Fund”), an ETF organized to invest in shares of other ETFs (“Underlying Investments”)
that reflect MSCM’s trend following and momentum strategies. MSCM will generally allocate
approximately 50% of the Fund’s assets to each of its Trend Plus and Sector Rota on strategies, although
such alloca ons can poten ally vary over me in response to market movements. Please see the Fund’s
Prospectus and Statement of Addi onal Informa on (“SAI”) for addi onal informa on about the Tac cal
Strategies and disclosures rela ng to the Fund. Prior to making any investment in the Fund, Clients should
carefully review these documents for a comprehensive understanding of the terms and condi ons
applicable for investment. Because investments in the Fund involve certain addi onal degrees of risk, they
will only be implemented or recommended when consistent with the Client's stated investment objec ves,
tolerance for risk, liquidity, and suitability. The Fund assets are managed on a discre onary basis with
MSCM, as subadvisor providing supervisory management services and assis ng the Fund adviser in the
coordina on of trade orders. The Fund’s investment adviser is responsible for trade execu on.
MSCM also offers model por olio services to third par es (“Model Por olios”) that use the Model
Por olios to provide investment advisory services to their clients on an investment pla orm or through
other arrangements supervised by the third party. For the Model Por olios, MSCM delivers the Model
Por olios and is not responsible for the coordina on of trade orders or execu on.
Addi onally, the Adviser provides financial planning services for Clients. Clients receive a wri en or an
electronic report, providing the Client with a financial plan designed to achieve their stated financial goals
and objec ves. The Client and Adviser will work together to select the specific areas to cover. In general,
the financial plan will generally address any or all of the following areas of concern: business planning,
cash flow and debt management, college savings, employee benefits op miza on, estate planning,
re rement planning, and investment analysis.
C. Tailoring of Advisory Services
The investment strategy of each account is tailored to the objec ves of the respec ve Client. Pursuant to
the respec ve investment management agreements between the Adviser and the Clients (“IMA”), the
Adviser is generally granted investment discre on with respect to the Separately Managed Accounts.
However, such discre on is limited based on the par cular investment objec ves, preferences, guidelines
and restric ons outlined in each Client’s IMA and for certain Clients, MSCM does not have discre on or
involvement with trade placement and execu on, as discussed above.
With respect to the financial planning services, specific Client financial plans and their implementa on are
dependent upon the Client Investment Policy Statement which outlines each Client’s current situa on
(income, tax levels and risk tolerance levels) and is used to construct a Client-specific plan to aid in the
selec on of a por olio that matches restric ons, needs and targets.
D. Wrap Fee Programs
The Adviser does not par cipate in wrap fee programs.
E. Assets Under Management
As of December 31, 2024, the Adviser had $439.0 million in assets under management represen ng $419.4
million in regulatory assets under management managed on a discre onary basis, subject to limita ons
set forth in each Client’s IMA, and $19.6 million of assets managed for Model Por olios that are not
included in regulatory assets under management.