Weakness in KraneShares Em Mkts Cnsmr Tech ETF's People and Process Pillar ratings limits this strategy to a Morningstar Medalist Rating of Negative. The portfolio maintains a cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The team managing the passive strategy earns a Low People Pillar. The strategy gets a Low Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a substantial overweight position in liquidity exposure and volatility exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. Even though the strategy's parent organization has some investor-friendly attributes like portfolio managers who invest a sizeable amount in their strategy, a cohort of unseasoned portfolio managers holds it back. As a result, the firm obtains a Low Parent Pillar.

Analyst Rating

Mastercard

Coupang

Nuvn PA Mun Val Shs of Benef Interest

MercadoLibre

dLocal Ltd

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 FTSE Em Mkts Cnsmr Tech ETF earns a Low Process Pillar rating. The main driver of the rating is the fund's mediocre long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the process has struggled over that period. The parent firm's five-year retention rate of 54% also holds the rating back. 

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 Solactive Emerging Market Consumer Technology Index.  The fund will invest at least 80% of its net assets (plus borrowings for investment purposes) in instruments in its underlying index or in instruments that have economic characteristics similar to those in the underlying index. The underlying index is composed of the equity securities of the 50 largest companies by market capitalization that derive the most revenue from an Emerging and Frontier Market and classified as in the consumer or technology sector. 

 The portfolio is overweight in communication services and consumer cyclical relative to the category average by 25.9 and 21.4 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and industrials, underweight the average by 22.0 and 6.8 percentage points of assets, respectively. The portfolio is positioned across 62 holdings and is quite concentrated. Specifically, 36.9% of the portfolio's assets are housed within the top 10 holdings, compared to the typical peer's 25.3%. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 87% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Process

Kraneshares’s team receives a Low People Pillar rating. The largest detractor from the rating is the turnover 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 combined average five-year excess return of each manager also weakens the team. It suggests that the funds they manage have fallen short of their respective category's average return. The parent firm's five-year success ratio of 50% further holds the rating back. 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.

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 Emerging Markets Consumer Technology Index ETF

KEMQ tracks a committee-selected, tier-weighted index of 50 emerging market technology companies.

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