Weakness in KraneShares Asia Pacific Hi Inc Bond ETF's Process and People Pillar ratings limits this strategy to a Morningstar Medalist Rating of Negative. The portfolio maintains a cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy earns a Low Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in corporate bonds and an underweight in A rated bonds compared with category peers. The strategy's management team completely turned over less than three years ago, raising concerns. This and other weaknesses earn the strategy a Below Average People Pillar rating. Even though the strategy's parent organization has some investor-friendly attributes like portfolio managers who invest a sizeable amount in their strategy, a bench of limited-tenure portfolio managers holds it back. As a result, the firm obtains a Low Parent Pillar.

Analyst Rating

Morningstar's style-agnostic evaluation of this fund's process seeks to understand whether the strategy has a performance objective and sensible, repeatable execution. KraneShares Asia Pacific Hi Inc Bd ETF earns a Low Process Pillar rating.    The largest detractor from 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 limits the process. The parent firm's five-year risk-adjusted success ratio of 50% further detracts from the process. 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 subpar success ratio suggests that the firm could do better across its fund lineup.

 The investment strategy as stated in the fund's prospectus is as follows: 


The investment seeks to provide a total return that, before fees and expenses, exceeds that of the JP Morgan Asia Credit Index (JACI) Non-Investment Grade Corporate Index (the “underlying index”) over a complete market cycle.  Under normal circumstances, and the fund seeks to achieve its objective by investing at least 80% of its net assets (plus borrowings for investment purposes) in fixed income securities of issuers located in the Asia-Pacific region and other instruments that have economic characteristics similar to such securities. The fund is non-diversified.

 This strategy has a 15.0% 12-month yield, higher than its average peer's 5.9%. Plus, its 30-day SEC yield (a measure similar to yield-to-maturity) sits at 8.9%. Typically, higher yields come at the cost of higher credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been higher than the average yield of its Morningstar Category peers. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated BB.

Process

The fund earns a Below Average People Pillar rating. Although this strategy was incepted on June 2018, its listed management team joined within the past three years. Therefore, the fund’s historical data is not applicable to the current team.

Below Average

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 Asia Pacific High Yield Bond ETF

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