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 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 effective investment approach earns an Above Average 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 quality exposure compared with category peers. 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 considerable personal investments from managers but could focus on portfolio managers with limited tenures at the firm. 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 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 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 92.2 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 communication services, underweight the average by 22.7 and 17.4 percentage points of assets, respectively. The portfolio is positioned across 73 holdings and is relatively concentrated. Specifically, 42.3% of the fund’s assets are housed within the top 10 holdings, compared with the category’s 36.3% average.

Above Average

Process

Kraneshares’s team receives a Low People Pillar rating. The primary factor behind 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 holds the rating back. The parent firm's five-year success ratio of 33% further holds the team 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 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 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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