KraneShares Bosera MSCIChinaA50CntIdETF earns a Morningstar Medalist Rating of Neutral with strength in areas such as Process offset by weaker spots such as People. 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's sensible investment philosophy earns an Above 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. Even though the strategy's parent organization has some investor-friendly attributes like portfolio managers who invest a notable amount in their strategy, a relatively inexperienced portfolio management team holds it back. As a result, the firm obtains a Low Parent Pillar.

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. KraneShares Bosera MSCIChina A50CntIdETF earns an Above Average Process Pillar rating. The most substantial contributor to the rating is the fund's impressive long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category average, which suggests that the process was successful over that period. This fund tracks an index, which also increases its process rating. Historical data, such as Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Lastly, the process is limited by the parent firm's five-year retention rate of 54%, which suggests it could do more to hold onto its portfolio managers.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to provide investment results that track the price and yield performance of the MSCI China A 50 Connect Index (USD).  Under normal circumstances, the fund will invest at least 80% of its net assets in securities of the underlying index and other instruments that have economic characteristics similar to such securities, and including depositary receipts. The underlying index reflects the large- and mid-cap Chinese renminbi (“RMB”)-denominated equity securities listed on the Shenzhen or Shanghai Stock Exchanges (“A-Shares”) that are accessible through the Shanghai-Hong Kong Stock Connect or Shenzhen-Hong Kong Stock Connect programs. 

 The portfolio is overweight in industrials and basic materials relative to the category average by 8.7 and 8.1 percentage points, respectively. The sectors with low exposure compared to category peers are consumer cyclical and communication services, underweight the average by 17.5 and 15.2 percentage points of assets, respectively. The portfolio is composed of 54 holdings and is relatively top-heavy. Of the strategy's assets, 45.9% are concentrated within the top 10 holdings, as opposed to the typical peer's 36.9%. And in closing, in terms of portfolio turnover, on a year-over-year basis, 68% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Above Average

Process

Kraneshares’s team earns a Low People Pillar rating. The primary detractor from the rating is the instability of management across its parent firm. The firm's asset-weighted manager tenure of five years suggests it could do more to retain portfolio managers. The managers' failure to consistently outperform peers at the funds they run, as measured by their combined three-year manager excess returns, also holds the rating back. The parent firm's five-year success ratio of 50% further 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 subpar success ratio suggests that the firm could do better across its fund lineup.

People

Kraneshares has a ways to go to become an industry-standard steward, resulting in a Low Parent Pillar rating. Despite the negative rating, an area of strength of the firm is manager investment.  Over 29% of the firm's assets are covered by invested managers, in an effort to align portfolio manager and shareholder interests. Kraneshares's longest-tenured managers do not possess the same experience as management teams at other firms, a detractor from its rating. Specifically, average asset-weighted tenure within the firm is only five years.

Parent

KraneShares Bosera MSCI China A Share ETF

KBA tracks a subset of market cap-weighted large- and mid-cap Chinese equities listed in Shanghai and Shenzhen.

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