The combination of a middling Process Pillar rating and a Low People Pillar rating limit  KraneShares Global Luxury Index ETF to a Morningstar Medalist Rating of Neutral.  The strategy charges fees in line with its similarly distributed peers, priced within the middle quintile.  

 The team managing the passive strategy earns a Low People Pillar. The strategy merits an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a considerable underweight position in liquidity exposure and momentum exposure compared with category peers. Low liquidity risk exposure is attributed to stocks with a low trading volume, limiting managers' flexibility. And low momentum exposure is rooted in holding stocks that are not currently on a winning streak and instead holding those that managers believe are undervalued. Although this strategy's parent firm still has a way to go to be a high-quality steward, it has bright spots like sizeable personal investments from managers but could focus on relatively short-tenured portfolio managers. As a result, the firm obtains a Low Parent Pillar.

Analyst Rating

Moelis

Osisko Gold Royalties

Cullen/Frost Bankers

Estee Lauder

Deckers Outdoor

Ferrari

Tapestry

Vail Resorts

Ralph Lauren

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. Kraneshares Global Luxury Index ETF earns an Average Process Pillar rating. The leading factor in the rating is that this fund tracks an index. Historical data, like Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Low expenses across its parent firm's funds, whose fees, on average, rank in the second-cheapest quintile of their respective category, also influence the rating. The pattern of low fees at the firm indicates that it is focused on delivering strong results for investors. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 33%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's modest 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, before fees and expenses, correspond generally to the price and yield performance of the Solactive Global Luxury Index.  Under normal circumstances, the fund will invest at least 80% of its net assets in instruments in its underlying index or in instruments that have economic characteristics similar to those in the underlying index. The underlying index is a modified, and free float adjusted market capitalization weighted index designed to measure the equity performance of companies in developed markets from global luxury-related sectors. The fund is non-diversified. 

 The portfolio is overweight in consumer defensive and healthcare relative to the category average by 26.1 and 4.6 percentage points, respectively. The sectors with low exposure compared to category peers are consumer cyclical and industrials, underweight the average by 17.8 and 8.3 percentage points of assets, respectively. The portfolio is composed of 52 holdings and is relatively concentrated. Specifically, 63.4% of the strategy's assets are housed within the top 10 holdings, as opposed to the category’s 44.1% average.

Average

Process

Kraneshares’s team receives a Low People Pillar rating. The number one 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 detracts from the team. It shows that the funds they manage have trailed their respective category's average return. The parent firm's five-year success ratio of 33% further limits 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 fails to meet industry-standard stewardship qualities, culminating in a Low 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 33% of the firm’s assets are represented by a manager who invests in their respective product. Longest-tenured managers’ average asset-weighted tenure within the firm is slim, five years, compared with peer firms. This contributes negatively to the rating, as the current managers have limited experience running strategies at the firm.

Parent

Kraneshares Global Luxury Index ETF

KLXY tracks an index comprised of companies in developed markets that offer luxury goods and services. The index selects and weights holdings towards those companies with most business exposure related to the investment theme.

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