Weakness in KraneShares MSCI One Belt One Road ETF's People and Process 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 team managing the passive strategy earns a Low People Pillar. The strategy gets a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in quality exposure and has an overweight in volatility exposure compared with category peers. High quality exposure is attributed to stocks with low financial leverage and strong returns on equity. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. Although this strategy's parent firm still has a way to go to be a high-quality steward, it has bright spots like significant personal investments from managers but could focus on a relatively inexperienced portfolio management team. As a result, the firm obtains a Below Average Parent Pillar.

Analyst Rating

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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 One Belt One Road ETF earns a Below Average Process Pillar rating. The process is bolstered by tracking 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. However, the rating is limited by the fund's weak 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 50% also detracts from the process.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to track the price and yield performance of the MSCI Global China Infrastructure Exposure 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 designed to measure the equity market performance of listed companies with high revenue exposure to the Chinese government's "One Belt, One Road" initiative, and as determined by the provider of the underlying index. 

 The portfolio is overweight in financial services and basic materials relative to the category average by 19.7 and 16.5 percentage points, respectively. The sectors with low exposure compared to category peers are utilities and real estate, underweight the average by 30.4 and 4.1 percentage points of assets, respectively. The portfolio is composed of 159 holdings and is relatively top-heavy. Of the strategy's assets, 38.0% are concentrated within the top 10 holdings, as opposed to the typical peer's 27.9%. 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.

Below Average

Process

Kraneshares’s team remains inferior, compared with better-resourced rivals, resulting in a Low People Pillar rating. There are two managers listed on the fund: James Maund, Jonathan Shelon. The team is well equipped, with an average of 12 years of portfolio management experience. Together, they manage a total of 20 strategies, with an asset-weighted average Morningstar Medalist Rating of Neutral. This means, in aggregate, the team falls short and will struggle to produce positive alpha relative to the category median.

People

In an increasingly competitive industry, Kraneshares falls behind on a number of key metrics, resulting in a Below Average Parent Pillar rating. Despite the negative rating, an area of strength of the firm is manager investment.  Over 31% 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 One Belt One Road Index ETF

OBOR tracks a market-cap-selected, tier-weighted index of companies likely to benefit from China's One Belt, One Road initiative.

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