The combination of a middling Process Pillar rating and a Low People Pillar rating limit  Global X China Biotech Innovation ETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The team managing the passive strategy earns a Low People Pillar. The strategy merits an Average Process Pillar rating.  High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a high quality exposure is rooted in holding stocks that are consistently profitable, growing, and have solid balance sheets. The strategy's parent organization earns the firm an Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

Analyst Rating

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term. Global X China Biotech Innovation ETF earns an Average Process Pillar rating. The most significant contributor to the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The size of the portfolio management team also bolsters the process. With four portfolio managers, the fund is reasonably well-resourced. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 30%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's relatively low success ratio suggests that the firm could do better across its fund lineup.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive China Biotech Innovation Index ("underlying index").  The fund invests at least 80% of its total assets, plus borrowings for investments purposes (if any), and in the securities of the underlying index and in American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs") based on the securities in the underlying index. The underlying index is designed to provide exposure to exchange-listed companies that are directly involved in China’s biotechnology industry. It is non-diversified. 

 The portfolio is overweight in healthcare by 92.7 percentage points in terms of assets compared with the category average, and its utilities allocation is similar to the category. The sectors with low exposure compared to category peers are consumer cyclical and communication services, underweight the average by 23.6 and 17.2 percentage points of assets, respectively. The strategy owns 42 securities and is relatively concentrated. In particular, 63.2% of the fund’s assets are housed within the top 10 holdings, as opposed to the typical peer's 37.6%. And in closing, in terms of portfolio turnover, this portfolio trades more frequently than the average peer in its category, which may result in higher trading costs for investors and cause a drag on performance.

Average

Process

Global X’s team earns a Low People Pillar rating. The main detractor from the rating is the instability of talent across its parent firm. The firm's asset-weighted manager tenure of five years suggests it could do more to retain portfolio managers. The parent firm's five-year success ratio of 34% also detracts from the team. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median return for the period. The parent's relatively low success ratio suggests that the firm could do better across its fund lineup. The experience of the management team, which averages four years at this fund, detracts from the rating as well.

People

Mirae Asset Global Investments is a Korean asset manager and a key player in the Asian financial market. It is a wholly owned subsidiary of Mirae Asset Financial Group, founded by Hyeon Joo Park. Park’s leadership and entrepreneurial spirit have been the driving force behind the global rise of Mirae, and he holds a majority stake in the business. 
Mirae Asset has grown significantly over the years (USD 198 billion as of December 2022) across a diversified platform, of which about 60% of assets are managed in South Korea. We believe that Mirae’s core mutual fund business in the Asia-Pac region is relatively strong. It has a collaborative structure, a strong and large investment team, low manager turnover, competitive fees, and a disciplined approach to product-development pointing toward better stewardship practices relative to peers in these markets. However, this is in stark contrast to its exchange-traded fund business, which accounts for 41% of the total assets. 
The firm’s ETF lineup focuses largely on high-risk thematic strategies that seem gimmicky, emphasizing short-term asset-gathering. The firm appears to leverage trending topics such as robotics and artificial intelligence, virtual reality and gaming, and cloud computing. There’s a notable concern regarding the potential liquidation of these funds since they seem to be designed around investment fads. Furthermore, these products are often expensive, especially compared with broadly diversified index funds and ETFs. Unsurprisingly, Mirae's reflexive product-development strategy has led to an increase in fund closures.
Our experience engaging with the MAGI team to gather critical information for the parent assessment has not been as positive. It hasn’t been as transparent in its disclosures, and unlike its peers, its responsiveness has been inadequate. We prefer firms with a more transparent corporate culture. Overall, these actions hold us back, and the firm retains its Parent Pillar rating of Average.

Parent

Global X China Biotech Innovation ETF

CHB tracks a market-cap weighted index of Chinese companies that are involved in the biotechnology industry.

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News for Global X China Biotech Innovation ETF ETF (CHB)