KraneShares CICC China Ldrs 100 Ind ETF retains its Morningstar Medalist Rating of Bronze. The portfolio maintains a cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The strategy's investment process inspires confidence and earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in quality exposure and an overweight in yield exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. The team managing this passive strategy earns a Low People Pillar rating. Although this strategy's parent firm still has a way to go to be a high-quality steward, it has bright spots like portfolio managers who invest a substantial amount in their strategy but could focus on a bench of limited-tenure portfolio managers. As a result, the firm earns a Below Average 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 CICC China Ldrs 100 Ind ETF earns an Above Average Process Pillar rating. 

The main driver of 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. Noteworthy risk-adjusted performance also bolsters the rating. This can be seen in the fund's five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. Lastly, the process is limited by the parent firm's five-year retention rate of 50%, which suggests it could do more to retain its portfolio managers.

 This strategy leans toward smaller, more undervalued companies than its average peer in the China Region Morningstar Category. Looking at additional factor exposure, this strategy has consistently favored low-quality stocks compared with Morningstar Category peers over the past few years. Such positions do not tend to provide much ballast for a portfolio. In the latest month, the strategy was also less exposed to the Quality factor compared with Morningstar Category peers. The managers have also tended to overweight yield during recent years, shown by the portfolio's high exposure to dividends or buybacks. High-yield stocks tend to be connected to more mature companies earning enough cash to return some to shareholders. At times, however, extreme market pressure can force them to cut their dividends, which hurts stock performance. Compared with category peers, the strategy also had more exposure to the Yield factor in the most recent month. Additionally, this strategy has exhibited a tilt toward low-volatility stocks in these years, meaning companies with a lower historical standard deviation of returns over its peers. Such holdings can limit a strategy's downside, but cause it to lag in bull markets. In recent months, the strategy also had less Volatility factor exposure than its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in financial services and industrials relative to the category average by 19.7 and 10.2 percentage points, respectively. The sectors with low exposure compared to category peers are communication services and technology, underweight the average by 16.6 and 11.4 percentage points of assets, respectively. The strategy owns 105 securities and is relatively concentrated. In particular, 43.9% of the strategy's assets are housed within the top 10 holdings, compared with the category’s 36.8% average. And in closing, in terms of portfolio turnover, this fund trades more frequently than its average peer, potentially racking up additional expenses for investors and creating a drag on performance.

Above Average

Process

Kraneshares’s team earns a Low People Pillar rating. The primary factor affecting 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 combined average five-year excess return of each manager also detracts from the team. It suggests that the funds they manage have lagged their respective category's average return. Furthermore, none of the managers have invested $1 million or more in the fund, which would align their interests with fundholders.

People

Kraneshares fails to meet industry-standard stewardship qualities, culminating in a Below Average Parent Pillar rating. Aside from the overall view, portfolio managers at Kraneshares have made a notable effort to align their interests with shareholders' by taking a personal stake and investing alongside them. Nearly 30% of the firm’s assets are represented by a manager who invests in their respective product. A notable weakness of Kraneshares is the inexperience of its longest-tenured managers compared with other asset managers. Managing capital through a full market cycle is a challenging prospect for seasoned managers, but with only five years of average asset-weighted tenure, there's cause for concern.

Below Average

Parent

KraneShares CICC China Leaders 100 Index ETF

KFYP tracks a market-cap-weighted index of 100 China A-shares selected by fundamental metrics.

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