KraneShares MSCI All China Hlth Care ETF 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 sizable 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's investment approach stands out and 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. 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 a relatively inexperienced portfolio management team. As a result, the firm has 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 MSCI All China Hlth Care ETF earns an Above Average Process Pillar rating. The primary contributor to 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. Strong risk-adjusted performance also influences the rating. This can be seen in the fund's five-year alpha calculated relative to the category index, which suggests that the process was successful over that period. 

The investment strategy as stated in the fund's prospectus is:  The investment seeks to provide investment results that, before fees and expenses, track the price and yield performance of the MSCI China All Shares Health Care 10/40 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 a free float adjusted market capitalization weighted index, subject to the 10/40 Constraint, and which is designed to measure the equity market performance of Chinese companies in the healthcare sector. The fund is non-diversified. 

 The portfolio is overweight in healthcare by 92.0 percentage points in terms of assets compared with the category average, and its utilities allocation is similar to the category. The sectors with low exposure compared to category peers are consumer cyclical and financial services, underweight the average by 23.1 and 17.1 percentage points of assets, respectively. The strategy owns 84 securities and is relatively top-heavy. Of the strategy's assets, 40.3% are concentrated within the top 10 holdings, as opposed to the category’s 36.9% average. And finally, in terms of portfolio turnover, looking at year-over-year movements, 32% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Above Average

Process

Kraneshares’s team earns a Low People Pillar rating. The main detractor from the rating is the turnover of talent 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 weakens the team. 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 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 MSCI All China Health Care Index ETF

KURE tracks a market cap-weighted index of large- and mid-cap Chinese stocks in the health care sector.

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