Annual Report

KraneShares Global Carbon Transformation ETF

KraneShares Global Carbon Strategy ETF

KraneShares European Carbon Allowance Strategy ETF

KraneShares California Carbon Allowance Strategy ETF

KraneShares Global Carbon Offset Strategy ETF

KraneShares Electrification Metals Strategy ETF 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2023

   

 

 

 

 

Table of Contents

 

Shareholder Letter   1
Management Discussion of Fund Performance   3
Schedule of Investments/Consolidated Schedules of Investments    
KraneShares Global Carbon Transformation ETF   17
KraneShares Global Carbon Strategy ETF   21
KraneShares European Carbon Allowance Strategy ETF   22
KraneShares California Carbon Allowance Strategy ETF   23
KraneShares Global Carbon Offset Strategy ETF   24
KraneShares Electrification Metals Strategy ETF   25
Glossary   26
Statement of Assets and Liabilities/Consolidated Statements of Assets and Liabilities   27
Statements of Operations/Consolidated Statements of Operations   29
Statements of Changes in Net Assets/Consolidated Statements of Changes in Net Assets   31
Financial Highlights/Consolidated Financial Highlights   37
Notes to Financial Statements/Notes to Consolidated Financial Statements   39
Report of Independent Registered Public Accounting Firm   57
Trustees and Officers of the Trust   59
Approval of Advisory Agreement   62
Disclosure of Fund Expenses   65
Notice To Shareholders   67
Supplemental Information   69

 

 

 

 

 

The Funds file their complete schedules of Fund holdings with the Securities and Exchange Commission (the “Commission”) for the first and third quarters of each fiscal year as an exhibit to their reports on Form N-PORT. The Funds’ Form N-PORT reports are available on the Commission’s website at http://www.sec.gov.

 

A description of the policies and procedures that KraneShares Trust uses to determine how to vote proxies relating to Fund securities, as well as information relating to how the Funds voted proxies relating to Fund securities during the most recent 12-month year ended June 30, are available (i) without charge, upon request, by calling 855-857-2638; and (ii) on the Commission’s website at http://www.sec.gov.

 

Fund shares may only be purchased or redeemed from a Fund in Creation Unit aggregations. Investors who cannot transact in Creation Units of a Fund’s shares must buy or sell Fund shares in the secondary market at their market price, which may be at a premium or discount to a Fund’s net asset value, with the assistance of a broker. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying Fund shares and receive less than net asset value when selling Fund shares.

 

 

 

 

Shareholder Letter (Unaudited)

 

Dear Shareholders:

 

We are pleased to send you the Annual Report for the climate-related series of the KraneShares Trust exchange-traded funds (ETFs), the KraneShares Global Carbon Strategy ETF (KRBN), KraneShares California Carbon Allowance Strategy ETF (KCCA), KraneShares European Carbon Allowance Strategy ETF (KEUA), KraneShares Electrification Metals Strategy ETF (KMET), KraneShares Global Carbon Transformation ETF (KGHG) and KraneShares Global Carbon Offset Strategy ETF (KSET), for the 12-month period ended March 31, 2023 (Period).

 

For the Period, the ETFs delivered the following returns:

 


Fund
 
 
 
 

Fund
Return*
 
 
 
 
 
 
 
 

Underlying
Index
Return**
 
 
 
 
 
 
 
 
Morningstar
Peer Group
Median
Return
 
 
 
 
KraneShares Global Carbon Transformation ETF (KGHG)     -7.14 %     N/A       N/A  
KraneShares Global Carbon Strategy ETF (KRBN)     4.43 %     5.90 %(a)     N/A  
KraneShares European Carbon Allowance Strategy ETF (KEUA)     18.08 %     13.51 %(b)     N/A  
KraneShares California Carbon Allowance Strategy ETF (KCCA)     -6.83 %     -5.43 %(c)     N/A  
KraneShares Global Carbon Offset Strategy ETF (KSET)     -76.74 %^     -68.00 %(d)     N/A  
KraneShares Electrification Metals Strategy ETF (KMET)     3.33 %^     4.77 %(e)     -4.96 (1) 

 

* Return based on net asset value as of March 31, 2023.
** Return as of March 31, 2023.
^ Return period since Fund inception (less than one-year period).
(a) IHS Markit Global Carbon Index.
(b) IHS Markit Carbon EUA Index.
(c) IHS Markit Carbon CCA Index.
(d) S&P GSCI Global Voluntary Carbon Liquidity Weighted Index.
(e) Bloomberg Electrification Metals Index.

 

Morningstar Peer Group Information

 

  Morningstar Peer Group Median   Morningstar Peer Group Name   Morningstar Peer Group Description
(1) -4.96%   U.S. ETF Commodities Focused   The Morningstar Fund Commodities Focused Category portfolios invest in commodities or raw materials, mainly through futures contracts.

 

Climate issues seem to be clearly on the minds of most investors. Going forward, we believe that the energy transition (from using fossil fuels to renewable energy sources) is not optional. Indeed, we believe the transition is already in progress, regardless of societies’ differing views on appropriate climate action. For these reasons, we see an opportunity in climate-related investment strategies.

 

Climate-related investments also have the potential to provide investors with exposure to an uncorrelated asset class. The challenging macroeconomic environment, including volatility in global equity markets that ensued over the past year, has led many investors to seek uncorrelated sources of return.

 

1

 

 

Shareholder Letter (Unaudited) (concluded)

 

We believe investors should consider adjusting their portfolios now to take advantage of what could be a significant global allocation of capital in favor of climate initiatives, and we offer the ETFs as a means for investors to express their interest in climate-related investments in their portfolio for several reasons:

 

We believe that climate will continue to grow and become an essential element of a well-designed investment portfolio.

 

We believe that investors should have low-cost, transparent tools to invest in and/or hedge against climate-related risks, including climate change.

 

The passing of the Inflation Reduction Act (IRA) in the U.S. and Europe’s response with the Green Deal Industrial Plan may have set the stage for significant public and private capital to be invested in global decarbonization efforts.

 

Several market-specific reforms have been approved or are pending approval, which could further restrict the supply of carbon (pollution) credits within carbon markets and result in an increase in the value of existing credits in which certain of the ETFs invest.

 

We are dedicated to helping investors obtain more complete passive and active market exposures and more balanced investment portfolios.

 

Thank you for investing with us.

 

Jonathan Krane, CEO

March 31, 2023

 

2

 

 

Management Discussion of Fund Performance (Unaudited)

 

KraneShares Global Carbon Transformation ETF

 

The KraneShares Global Carbon Transformation ETF (the Fund) is an actively managed ETF that aims to capture the low-carbon leaders of the future. The Fund focuses on companies in traditionally high emissions industries that are on the cusp of the transition away from fossil fuels to renewable technology.

 

Global Carbon Transformation Review

 

Macroeconomic conditions and policy uncertainty caused ongoing volatility among the companies in the decarbonization space. Additionally, the U.S. dollar strength, which peaked in September 2022, implied some weakness in most other currencies. With a heavier allocation toward Euro-dominated equities, the Fund experienced some negative currency exchange impact on returns. However, by Period-end, the U.S. dollar sold off more than 9%, diminishing some of the distortion created by the foreign exchange effect. Also, towards the end of 2022 and into 2023, we received greater clarity on climate-related policy developments in both the United States and Europe, confirming substantial policy support for a range of activities related to the energy transition. Energy transition companies largely performed in line with global equities, as measured by the MSCI World Index, during the Period.

 

We continue to believe that companies in high-impact industries with a stated commitment and demonstrated action towards decarbonization may see superior growth compared to their peers and their own histories as well as be revalued as their businesses become “greener.”

 

Within the Fund, the best-performing sectors for the period were Utilities and Information Technology. Meanwhile, the worst-performing sectors were Materials and Industrials.

 

For the Period, the NAV of the Fund decreased by -7.14%.

 

3

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Global Carbon Transformation ETF (concluded)

 

Growth of a $10,000 Investment‡

(at Net Asset Value)‡

 

 

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED MARCH 31, 2023*

 

 
 
 
 
One Year
Return
 
 
 
 
Annualized
Inception to Date
 
 
 
 
 
 
 
 
Net
Asset
Value
 
 
 
 
 
 

Market
Price^
 
 
 
 
 
 
Net
Asset
Value
 
 
 
 
 
 

Market
Price^
 
 
 
KraneShares Global Carbon Transformation ETF     -7.14 %     -6.99 %‡     0.14 %‡     -0.17 %‡
MSCI World Index     N/A       -6.54 %‡     N/A       -0.26 %‡

 

* The Fund commenced operations on March 15, 2022.
Unaudited.
^ Beginning December 23, 2020, market price returns are based on the official closing price of an ETF share or, if it more accurately reflects the market value of an ETF share at the time as of which the ETF calculates current NAV per share, the midpoint between the national best bid and national best offer (“NBBO”) as of that time. Prior to that date, market price returns were based on the midpoint between the Bid and Ask price. NAVs are calculated using prices as of 4:00 PM Eastern Time.

 

The performance data quoted herein represents past performance and the return and value of an investment in the Fund will fluctuate so that, when redeemed, shares may be worth less than their original cost. Current performance may be lower or higher than the performance data quoted. Past performance is no guarantee of future performance and should not be considered as a representation of the future results of the Fund. For performance data current to the most recent month end, please call 855-857-2638 or visit www.kraneshares.com. The Fund’s performance assumes the reinvestment of all dividends and all capital gains. Index returns assume reinvestment of dividends and, unlike a Fund’s returns, do not reflect any fees or expenses. If such fees and expenses were included in the index returns, the performance would have been lower. As stated in the Fund’s prospectus, the Fund’s operating expense ratio is 0.89%. Please note that one cannot invest directly in an unmanaged index. There are no assurances that the Fund will meet its stated objectives. The Fund’s holdings and allocations are subject to change and should not be considered recommendations to buy individual securities. For further information on the Fund’s objectives, risks, and strategies, see the Fund’s prospectus. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

4

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Global Carbon Strategy ETF

 

The KraneShares Global Carbon Strategy ETF (Fund) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the IHS Markit Global Carbon Index (Underlying Index).

 

The Underlying Index offers broad coverage of cap-and-trade carbon allowances by tracking the most traded carbon credit futures contracts. The Underlying Index introduces a new measure for investing in and/or hedging risk while supporting environmentally responsible investing.

 

Currently, the Underlying Index covers the major European and North American cap-and-trade programs (Programs): European Union Allowances (EUA), California Carbon Allowances (CCA), the Regional Greenhouse Gas Initiative (RGGI), and United Kingdom Allowances (UKA).

 

Global Carbon Market Review

 

During the 12-month period ended March 31, 2023 (Period), several macroeconomic headwinds impacted the Fund’s performance, including the energy crisis and invasion of Ukraine at the start of the Period to inflation and recessionary concerns later in 2022. At the same time, all four of the Programs are seeing major policy updates, which include several supply tightening measures – meaning, actions that are expected to reduce the supply of carbon credits. During the Period, increased energy costs and a lack of cost-effective abatement technologies supported demand for credits in the Programs, as several European economies accepted a heavier reliance on coal as a short-term solution to weaning themselves off of Russian gas, which became restricted or unavailable as a result of the war in Ukraine.

 

The EUA market, which is 60% of the Underlying Index and Fund, experienced some volatility during the Period amidst the ongoing energy crisis, the invasion of Ukraine and ongoing deliberations by EU member states related to Emissions Trading System (ETS) reforms, which have the potential to impact the value of EUAs. As a result, the Fund experienced some related price volatility early in the Period and rebounded, as discussed below. Fortunately, the start of 2023 welcomed the official approval of a wave of new policy updates to the EU ETS, including several measures that tighten the emissions cap, phase out the distribution by the ETS of free allowances to member states and companies, and impose a tariff on foreign companies that are energy-intensive producers. Such a tariff would compel these producers to pay the EUA price on goods imported into the region to establish a more level playing field across borders. EUA prices increased in the first quarter of 2023 on renewed economic sentiment, appreciating by 9.5%. In February 2023, the market was even testing levels above the key €100 ($110) threshold.

 

The best performing Program within the Fund was the EUA Program. The remaining markets were down or flat for the Period as CCA and RGGI markets absorbed the impact from the economic slowdown and various inflationary pressures. A more muted economic rebound than expected in the UK also weighed on UKAs. However, we expect policy changes to be approved this year for the UKA Program, which should tighten the supply of allowances and improve their price performance going forward.

 

We see three potential positive catalysts for carbon credits markets in the year to come:

 

The European Union’s “Fit for 55” package, which tightens and strengthens the EUA Program through new policy measures to reduce greenhouse gas (GHG) emissions, saw final approval and initial implementation during the Period. The tightening of the EUA supply should go some distance to detaching EUAs from the economic cycle as Europe grapples with energy security concerns stemming from the conflict in Ukraine.

 

5

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Global Carbon Strategy ETF (continued)

 

The California State Assembly effectively passed legislation that instructs the carbon market regulator to start its review of the CCA Program and implement changes by January 1, 2025. The review is expected to result in reforms comparable to the EU’s “Fit for 55” plan and, subsequently, upward price pressure similar to that which occurred after the EU’s “Fit-for-55” package.

 

Both the RGGI and UKA Programs are undergoing market reviews, which are expected to be completed this year and include supply tightening measures to achieve more ambitious carbon emissions reduction targets within the respective regions.

 

Global Carbon Market Overview (April 1, 2022 to March 31, 2023)

 

The Underlying Index returned -8.49% in 2022, with the internal price of carbon in the index falling from $51.45 to $47.89.

 

EUAs ended 2022 at $90 while UKAs came in close at $89. California continued to hold the middle at $30 and RGGI ended just above $14.

 

For the Period, the NAV of the Fund increased by 4.43% while the Underlying Index increased by 5.90%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees and tax diversification requirements.

 

6

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Global Carbon Strategy ETF (concluded)

 

Growth of a $10,000 Investment‡

(at Net Asset Value)‡

 

 

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED MARCH 31, 2023*

 

 
 
 
 
One Year
Return
 
 
 
 
Annualized
Inception to Date
 
 
 
 
 
 
 
 
Net
Asset
Value
 
 
 
 
 
 

Market
Price^
 
 
 
 
 
 
Net
Asset
Value
 
 
 
 
 
 

Market
Price^
 
 
 
KraneShares Global Carbon Strategy ETF     4.43 %     3.90 %‡     39.68 %‡     39.56 %‡
IHS Markit Global Carbon Index     N/A       5.90 %‡     N/A       40.44 %‡

 

* The Fund commenced operations on July 29, 2020.
Unaudited.
^ Beginning December 23, 2020, market price returns are based on the official closing price of an ETF share or, if it more accurately reflects the market value of an ETF share at the time as of which the ETF calculates current NAV per share, the midpoint between the national best bid and national best offer (“NBBO”) as of that time. Prior to that date, market price returns were based on the midpoint between the Bid and Ask price. NAVs are calculated using prices as of 4:00 PM Eastern Time.

 

The performance data quoted herein represents past performance and the return and value of an investment in the Fund will fluctuate so that, when redeemed, shares may be worth less than their original cost. Current performance may be lower or higher than the performance data quoted. Past performance is no guarantee of future performance and should not be considered as a representation of the future results of the Fund. For performance data current to the most recent month end, please call 855-857-2638 or visit www.kraneshares.com. The Fund’s performance assumes the reinvestment of all dividends and all capital gains. Index returns assume reinvestment of dividends and, unlike a Fund’s returns, do not reflect any fees or expenses. If such fees and expenses were included in the index returns, the performance would have been lower. As stated in the Fund’s prospectus, the Fund’s operating expense ratio is 0.78%. Please note that one cannot invest directly in an unmanaged index. There are no assurances that the Fund will meet its stated objectives. The Fund’s holdings and allocations are subject to change and should not be considered recommendations to buy individual securities. For further information on the Fund’s objectives, risks, and strategies, see the Fund’s prospectus. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

7

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares European Carbon Allowance Strategy ETF

 

The KraneShares European Carbon Allowance Strategy ETF (the Fund) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the IHS Markit Carbon EUA Index (the Underlying Index).

 

The Underlying Index tracks the most traded European Union Allowances (EUA) futures contracts. The Fund provides a vehicle for investing in and/or hedging risk while supporting environmentally responsible investing.

 

EUA Market Review

 

During the 12-month period ended March 31, 2023 (Period), the EUA market experienced some volatility during the Period amidst the ongoing energy crisis, and the invasion of Ukraine and the ongoing deliberations by EU member states related to of the Emissions Trading System (ETS) reforms, which have the potential to impact the value of EUAs. As a result, the Fund experienced some related price volatility early in the Period and rebounded, as discussed below. Fortunately, the start of 2023 welcomed the official approval of a wave of new policy updates to the EU ETS, including the Fit for 55 package, which includes several measures that tighten the emissions cap, phase out the distribution by the ETS of free allowances to member states and companies. Another key policy provision is the Carbon Border Adjustment Mechanism (CBAM), which will and may result in act as a tariff on foreign companies by requiring that are energy-intensive producers. Such a tariff would cause these producers to pay the EUA price on goods imported into the region to establish a more level playing field across borders. CBAM also coincides with the phase-out of free allowances.

 

EUA prices were impacted by the energy crisis in 2022 and looming macroeconomic sentiment; however, expectations of a rebound in industrial output provided additional support for EUAs. EUA prices increased in the first quarter of 2023 on renewed economic sentiment, appreciating by 9.5%. In February 2023, the market was even testing levels above the key €100 ($110) threshold.

 

We see three key positive catalysts for EUA market in the year to come:

 

The progression of new market policy surrounding the ETS Program is expected to support EUA prices through both the introduction of several supply tightening measures and by reducing regulatory uncertainty that had been hovering over the market last year.

 

The CBAM carbon levy will indirectly bring more foreign companies into the Program as they could potentially hedge the tariffs in the EUA market, creating greater price discovery dynamics.

 

Expectations of a rebound in industrial output provide additional support for EUAs.

 

EUA Market Overview (April 1, 2022 to March 31, 2023)

 

The Underlying Index returned -6.17% in 2022. Consistent with that, the EUA price declined from $92.88 to $89.94.

 

For the Period, the NAV of the Fund increased by 18.08% while the Underlying Index increased by 13.51%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to tax diversification requirements.

 

8

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares European Carbon Allowance Strategy ETF (continued)

 

Growth of a $10,000 Investment‡

(at Net Asset Value)‡

 

 

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED MARCH 31, 2023*

 

 
 
 
 
One Year
Return
 
 
 
 
Annualized
Inception to Date
 
 
 
 
 
 
 
 
Net
Asset
Value
 
 
 
 
 
 

Market
Price^
 
 
 
 
 
 
Net
Asset
Value
 
 
 
 
 
 

Market
Price^
 
 
 
KraneShares European Carbon Allowance Strategy ETF     18.08 %     17.94 %‡     23.01 %‡     23.11 %‡
IHS Markit Carbon EUA Index     N/A       13.51 %‡     N/A       19.33 %‡

 

* The Fund commenced operations on October 4, 2021.
Unaudited.
^ Beginning December 23, 2020, market price returns are based on the official closing price of an ETF share or, if it more accurately reflects the market value of an ETF share at the time as of which the ETF calculates current NAV per share, the midpoint between the national best bid and national best offer (“NBBO”) as of that time. Prior to that date, market price returns were based on the midpoint between the Bid and Ask price. NAVs are calculated using prices as of 4:00 PM Eastern Time.

 

The performance data quoted herein represents past performance and the return and value of an investment in the Fund will fluctuate so that, when redeemed, shares may be worth less than their original cost. Current performance may be lower or higher than the performance data quoted. Past performance is no guarantee of future performance and should not be considered as a representation of the future results of the Fund. For performance data current to the most recent month end, please call 855-857-2638 or visit www.kraneshares.com. The Fund’s performance assumes the reinvestment of all dividends and all capital gains. Index returns assume reinvestment of dividends and, unlike a Fund’s returns, do not reflect any fees or expenses. If such fees and expenses were included in the index returns, the performance would have been lower. As stated in the Fund’s prospectus, the Fund’s operating expense ratio is 0.78%. Please note that one cannot invest directly in an unmanaged index. There are no assurances that the Fund will meet its stated objectives. The Fund’s holdings and allocations are subject to change and should not be considered recommendations to buy individual securities. For further information on the Fund’s objectives, risks, and strategies, see the Fund’s prospectus. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

9

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares California Carbon Allowance Strategy ETF

 

The KraneShares California Carbon Allowance Strategy ETF (the Fund) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the IHS Markit Carbon CCA Index (the Underlying Index).

 

The Underlying Index tracks the most traded California Carbon Allowances (CCA) futures contracts. The Fund provides a vehicle for participating in the price of carbon and investing in and/or hedging risk while supporting environmentally responsible investing.

 

CCA Market Review

 

California is in the midst of reviewing and updating its Program regulations to ensure the Program is on track to meet the state’s goal of carbon neutrality by 2045 and 48% emission reductions by 2030 versus 1990 under the 2022 Scoping Plan. During the Period, an economic slowdown and inflationary pressures adversely impacted demand for allowances and, as a result, CCA performance.

 

We see two potential positive catalysts for the CCA market in the year to come:

 

The California Air Resources Board (CARB) approved its final 2022 Scoping Plan update on December 15, 2022, raising the emission reductions target to 48% of the 1990 level by 2030 and calls for carbon neutrality by 2045. This could result in further tightening of the annual emissions cap to help meet these goals, which would apply upward price pressure on CCAs, to the benefit of the Fund.

 

Regulators have stressed that the Program will play a critical role in achieving the new target in the 2022 Scoping Plan, with the state Air and Resource Board (ARB) publishing its expectation for the Program to account for at least 40% of the planned carbon emissions reductions.

 

CCA Market Overview (April 1, 2022 to March 31, 2023)

 

The Underlying Index returned -13.99% in 2022, driven by the decline in the price of CCAs from $27.93 to $23.20.

 

The 2023 reserve price, which sets the price floor for CCAs, rose to $22.21, an increase of 12.74% from the last year, computed based on the 5% plus inflation observed in 2022.

 

For the Period, the NAV of the Fund decreased by -6.83% while the Underlying Index decreased by -5.43%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees and the difference between the yield earned by the Fund on its cash collateral and the yield assumed by the index.

 

10

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares California Carbon Allowance Strategy ETF (continued)

 

Growth of a $10,000 Investment‡

(at Net Asset Value)‡

 

 

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED MARCH 31, 2023*

 

 
 
 
 
One Year
Return
 
 
 
 
Annualized
Inception to Date
 
 
 
 
 
 
 
 
Net
Asset
Value
 
 
 
 
 
 

Market
Price^
 
 
 
 
 
 
Net
Asset
Value
 
 
 
 
 
 

Market
Price^
 
 
 
KraneShares California Carbon Allowance Strategy ETF     -6.83 %     -6.83 %‡     -2.68 %‡     -2.98 %‡
IHS Markit Carbon CCA Index     N/A       -5.43 %‡     N/A       -2.19 %‡

 

* The Fund commenced operations on October 4, 2021.
Unaudited.
^ Beginning December 23, 2020, market price returns are based on the official closing price of an ETF share or, if it more accurately reflects the market value of an ETF share at the time as of which the ETF calculates current NAV per share, the midpoint between the national best bid and national best offer (“NBBO”) as of that time. Prior to that date, market price returns were based on the midpoint between the Bid and Ask price. NAVs are calculated using prices as of 4:00 PM Eastern Time.

 

The performance data quoted herein represents past performance and the return and value of an investment in the Fund will fluctuate so that, when redeemed, shares may be worth less than their original cost. Current performance may be lower or higher than the performance data quoted. Past performance is no guarantee of future performance and should not be considered as a representation of the future results of the Fund. For performance data current to the most recent month end, please call 855-857-2638 or visit www.kraneshares.com. The Fund’s performance assumes the reinvestment of all dividends and all capital gains. Index returns assume reinvestment of dividends and, unlike a Fund’s returns, do not reflect any fees or expenses. If such fees and expenses were included in the index returns, the performance would have been lower. As stated in the Fund’s prospectus, the Fund’s operating expense ratio is 0.78%. Please note that one cannot invest directly in an unmanaged index. There are no assurances that the Fund will meet its stated objectives. The Fund’s holdings and allocations are subject to change and should not be considered recommendations to buy individual securities. For further information on the Fund’s objectives, risks, and strategies, see the Fund’s prospectus. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

11

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Global Carbon Offset Strategy ETF

 

The KraneShares Global Carbon Offset Strategy ETF (the Fund) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the S&P GSCI Global Voluntary Carbon Liquidity Weighted Index (the Underlying Index).

 

The Underlying Index provides broad coverage of the voluntary carbon market by tracking carbon offset futures contracts. These futures contracts include Nature-Based Global Emission Offsets (N-GEOs) and Global Emission Offsets (GEOs), which trade through the Chicago Mercantile Exchange (CME) Group, the world’s largest financial derivatives exchange. The Fund is designed to dynamically add additional offset markets as they reach scale.

 

Global Carbon Offset Market Review

 

Concerns over offset quality weighed on the offset market during the 12-month period ended March 31, 2023 (Period), with purchases by companies down 4% in 2022. At the same, there has been a widespread focus on companies improving their sustainability efforts to mitigate their carbon footprint. Currently, more than one-third of the world’s largest companies have declared net zero targets. However, adopting more sustainable operational practices is likely not going to be enough to reach their emissions targets, so buying offset credits has become a key means of filling the gap to stay on track to reach emissions reduction goals. As the market matures and greater regulatory standards are adopted, the offsets market is well positioned to play a central role in global decarbonization efforts.

 

We see three potential positive catalysts for the global carbon offset market in the year to come:

 

Increased interest in offsets by companies globally to reach their net zero and emissions reduction goals.

 

The Integrity Council, an independent governance body for the voluntary carbon market, recently published the Core Carbon Principles and Assessment Framework, which establishes a rigorous standard on disclosure and sustainable development aspects for high-quality carbon credits, which should help address concerns surrounding some offset credits.

 

The market may be shaping up for renewed optimism as some stipulate that last year’s criticism on offset quality has run its course.

 

Global Carbon Offset Market Overview (April 1, 2022 to March 31, 2023)

 

The Underlying Index was down -68.00% for the Period.

 

Nature-based global emissions offset (N-GEO) futures prices declined from $14.52 to $3.47 and global emission offset (GEO) futures prices declined from $7.06 to $2.45 for the reporting period.

 

For the Period, the NAV of the Fund decreased by -76.74% while the Underlying Index decreased by -68.00%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees and tax diversification requirements.

 

12

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Global Carbon Offset Strategy ETF (continued)

 

Growth of a $10,000 Investment‡

(at Net Asset Value)‡

 

 

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED MARCH 31, 2023*

 

 
 
Cumulative
Inception to Date
 
 
 
 
 
Net
Asset
Value
 
 
 
 
 
 

Market
Price^
 
 
 
KraneShares Global Carbon Offset Strategy     -76.74 %     -76.90 %‡
Hybrid KSET Index**     N/A       -68.00 %‡

 

* The Fund commenced operations on April 20, 2022.
** The Hybrid KSET Index consists of the IHS Markit Global Carbon TR Index from the inception of the Fund through July 31, 2022 and the S&P GSCI Global Voluntary Carbon Liquidity Weighted Index going forward.
Unaudited.
^ Beginning December 23, 2020, market price returns are based on the official closing price of an ETF share or, if it more accurately reflects the market value of an ETF share at the time as of which the ETF calculates current NAV per share, the midpoint between the national best bid and national best offer (“NBBO”) as of that time. Prior to that date, market price returns were based on the midpoint between the Bid and Ask price. NAVs are calculated using prices as of 4:00 PM Eastern Time.

 

The performance data quoted herein represents past performance and the return and value of an investment in the Fund will fluctuate so that, when redeemed, shares may be worth less than their original cost. Current performance may be lower or higher than the performance data quoted. Past performance is no guarantee of future performance and should not be considered as a representation of the future results of the Fund. For performance data current to the most recent month end, please call 855-857-2638 or visit www.kraneshares.com. The Fund’s performance assumes the reinvestment of all dividends and all capital gains. Index returns assume reinvestment of dividends and, unlike a Fund’s returns, do not reflect any fees or expenses. If such fees and expenses were included in the index returns, the performance would have been lower. As stated in the Fund’s prospectus, the Fund’s operating expense ratio is 0.79%. Please note that one cannot invest directly in an unmanaged index. There are no assurances that the Fund will meet its stated objectives. The Fund’s holdings and allocations are subject to change and should not be considered recommendations to buy individual securities. For further information on the

 

13

 

 

Management Discussion of Fund Performance (Unaudited) (concluded)

 

KraneShares Global Carbon Offset Strategy ETF (concluded)

 

Fund’s objectives, risks, and strategies, see the Fund’s prospectus. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

14

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Electrification Metals Strategy ETF

 

The KraneShares Electrification Metals Strategy ETF (the Fund) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Bloomberg Electrification Metals Index (the Underlying Index).

 

The Bloomberg Electrification Metals Index seeks to cover the key metals involved in a range of electrification uses. Currently, the Underlying Index is composed of futures contracts on aluminum, copper, nickel, zinc, cobalt, and lithium.

 

Electrification Metals Market Review

 

In the first half of the 12-month period ending March 31, 2023 (Period), metals prices rose sharply following the invasion of Ukraine and the lockdowns in China. Subsequently, most metal prices (including nickel and cobalt) underwent a decline. By contrast, lithium prices reached an all-time high at year-end as electric vehicle (EV) makers trended toward lithium-based chemical compounds over nickel-based battery chemistry.

 

Although some metals are seeing new supply become available through investments in new refineries, others are expected to continue to face supply and demand imbalances for the foreseeable future, which may support favorable prices for metals.

 

We see three potential positive catalysts for the electrification metals in the year to come:

 

Both the domestic Inflation Reduction Act (IRA) and Europe’s Green Deal Industrial Plan are likely to induce significant new investments in clean energy technology, which will require increased amounts of copper, aluminum, nickel, cobalt, and lithium; accordingly, the demand for metals may strengthen.

 

EV battery makers continue to experiment with different battery chemistries, which may exacerbate supply and demand imbalances for the metals to which the Fund has exposure.

 

China’s reopening may revive the country’s construction sector, which in turn could fuel demand for base metals.

 

For the Period, the NAV of the Fund increased by 3.33% while the Underlying Index increased by 4.77%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees and the difference between the yield earned by the Fund on its cash collateral and the yield assumed by the index.

 

15

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Electrification Metals Strategy ETF (concluded)

 

Growth of a $10,000 Investment‡

(at Net Asset Value)‡

 

 

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED MARCH 31, 2023*

 

    Cumulative
Inception to Date
 
    Net
Asset
Value
    Market
Price^
 
KraneShares Electrification Metals Strategy ETF     3.33 %     2.73 %‡
Bloomberg Electrification Metals Index     N/A       4.77 %‡

 

* The Fund commenced operations on October 13, 2022.
Unaudited.
^ Beginning December 23, 2020, market price returns are based on the official closing price of an ETF share or, if it more accurately reflects the market value of an ETF share at the time as of which the ETF calculates current NAV per share, the midpoint between the national best bid and national best offer (“NBBO”) as of that time. Prior to that date, market price returns were based on the midpoint between the Bid and Ask price. NAVs are calculated using prices as of 4:00 PM Eastern Time.

 

The performance data quoted herein represents past performance and the return and value of an investment in the Fund will fluctuate so that, when redeemed, shares may be worth less than their original cost. Current performance may be lower or higher than the performance data quoted. Past performance is no guarantee of future performance and should not be considered as a representation of the future results of the Fund. For performance data current to the most recent month end, please call 855-857-2638 or visit www.kraneshares.com. The Fund’s performance assumes the reinvestment of all dividends and all capital gains. Index returns assume reinvestment of dividends and, unlike a Fund’s returns, do not reflect any fees or expenses. If such fees and expenses were included in the index returns, the performance would have been lower. As stated in the Fund’s prospectus, the Fund’s operating expense ratio is 0.79%, which includes fees and expenses incurred indirectly as a result of investments in underlying Funds. Please note that one cannot invest directly in an unmanaged index. There are no assurances that the Fund will meet its stated objectives. The Fund’s holdings and allocations are subject to change and should not be considered recommendations to buy individual securities. For further information on the Fund’s objectives, risks, and strategies, see the Fund’s prospectus. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

16

 

 

Schedule of Investments March 31, 2023

 

KraneShares Global Carbon Transformation ETF

 

 

    Shares     Value  
COMMON STOCK — 97.2%                
AUSTRALIA — 2.9%                
Materials — 2.9%                
Fortescue Metals Group     4,733     $ 71,292‌  
TOTAL AUSTRALIA             71,292‌  
                 
BRAZIL — 0.9%                
Materials — 0.9%                
Vale ADR, Cl B     1,495‌       23,591‌  
TOTAL BRAZIL             23,591‌  
                 
CANADA — 5.5%                
Energy — 2.2%                
Cameco*     2,111‌       55,245‌  
                 
Industrials — 0.5%                
Ballard Power Systems*     2,046‌       11,396‌  
                 
Materials — 1.8%                
Teck Resources, Cl B     1,234‌       45,041‌  
                 
Utilities — 1.0%                
Atco, Cl I     761‌       24,359‌  
TOTAL CANADA             136,041‌  
                 
FRANCE — 15.4%                
Energy — 3.8%                
TotalEnergies     1,586‌       93,668‌  
                 
Industrials — 7.0%                
Legrand     736‌       67,233‌  
Rexel     4,500‌       107,314‌  
              174,547‌  
Materials — 1.1%                
Air Liquide     171‌       28,614‌  

 

The accompanying notes are an integral part of the financial statements.

 

17

 

 

Schedule of Investments March 31, 2023

 

KraneShares Global Carbon Transformation ETF (continued)

 

    Shares     Value  
COMMON STOCK (continued)                
Utilities — 3.5%                
Engie     5,446     $ 86,231‌  
TOTAL FRANCE             383,060‌  
                 
GERMANY — 9.2%                
Industrials — 3.7%                
Siemens     579‌       93,892‌  
                 
Materials — 1.7%                
thyssenkrupp     5,782‌       41,561‌  
                 
Utilities — 3.8%                
RWE     2,186‌       94,144‌  
TOTAL GERMANY             229,597‌  
                 
GREECE — 1.7%                
Energy — 1.7%                
Motor Oil Hellas Corinth Refineries     1,680‌       43,222‌  
TOTAL GREECE             43,222‌  
                 
INDIA — 3.1%                
Energy — 3.1%                
Reliance Industries GDR     1,377‌       77,594‌  
TOTAL INDIA             77,594‌  
                 
ITALY — 6.4%                
Energy — 3.8%                
Eni     6,854‌       96,105‌  
                 
Industrials — 2.6%                
Industrie De Nora*     3,196‌       64,168‌  
TOTAL ITALY             160,273‌  
                 
LUXEMBOURG — 2.4%                
Materials — 2.4%                
ArcelorMittal     2,011‌       60,892‌  
TOTAL LUXEMBOURG             60,892‌  
                 
NEW ZEALAND — 1.2%                
Utilities — 1.2%                
Contact Energy     6,462‌       31,292‌  
TOTAL NEW ZEALAND             31,292‌  
                 
NORWAY — 6.6%                
Industrials — 2.6%                
Aker, Cl A     499‌       32,018‌  

 

The accompanying notes are an integral part of the financial statements.

 

18

 

 

Schedule of Investments March 31, 2023

 

KraneShares Global Carbon Transformation ETF (continued)

 

    Shares     Value  
COMMON STOCK (continued)            
Industrials (continued)                
NEL*     24,018‌      $ 32,554‌  
              64,572‌  
Materials — 4.0%                
Norsk Hydro     13,558‌       100,716‌  
TOTAL NORWAY             165,288‌  
                 
PORTUGAL — 2.5%                
Utilities — 2.5%                
EDP - Energias de Portugal     11,296‌       61,559‌  
TOTAL PORTUGAL             61,559‌  
                 
SOUTH KOREA — 2.2%                
Energy — 2.2%                
SK Innovation*     401‌       55,229‌  
TOTAL SOUTH KOREA             55,229‌  
                 
SPAIN — 2.2%                
Utilities — 2.2%                
Iberdrola     4,337‌       54,116‌  
TOTAL SPAIN             54,116‌  
                 
UNITED KINGDOM — 6.3%                
Energy — 4.3%                
BP     16,878‌       106,597‌  
                 
Utilities — 2.0%                
SSE PLC     2,233‌       49,781‌  
TOTAL UNITED KINGDOM             156,378‌  
                 
UNITED STATES — 28.7%                
Energy — 9.9%                
Baker Hughes, Cl A     3,349‌       96,652‌  
Cheniere Energy     248‌       39,085‌  
New Fortress Energy, Cl A     746‌       21,955‌  
Schlumberger     1,807‌       88,723‌  
              246,415‌  
Industrials — 11.4%                
Bloom Energy, Cl A*     1,505‌       29,995‌  
Chart Industries*     56‌       7,022‌  
Fluence Energy, Cl A*     2,942‌       59,575‌  
Quanta Services     551‌       91,819‌  
Schneider Electric     567‌       94,670‌  
              283,081‌  

 

The accompanying notes are an integral part of the financial statements.

 

19

 

 

Schedule of Investments March 31, 2023

 

KraneShares Global Carbon Transformation ETF (concluded)

 

    Shares     Value  
COMMON STOCK (continued)            
Information Technology — 1.0%                
SolarEdge Technologies*     80‌     $ 24,316‌  
                 
Materials — 3.0%                
Air Products and Chemicals     161‌       46,241‌  
Linde     84‌       29,578‌  
              75,819‌  
Utilities — 3.4%                
AES     3,524‌       84,858‌  
TOTAL UNITED STATES             714,489‌  
               
TOTAL COMMON STOCK
(Cost $2,239,067)
            2,423,913‌  
               
TOTAL INVESTMENTS — 97.2%
(Cost $2,239,067)
            2,423,913‌  
OTHER ASSETS LESS LIABILITIES – 2.8%             68,805‌  
NET ASSETS - 100%           $ 2,492,718‌  

 

Industries are utilized for compliance purposes, whereas sectors are utilized for reporting.
* Non-income producing security.

 

As of March 31, 2023, all of the Fund’s investments were considered Level 1 of the fair value hierarchy, in accordance with the authoritative guidance under U.S. GAAP.

 

See “Glossary for abbreviations”.

 

The accompanying notes are an integral part of the financial statements.

 

20

 

 

Consolidated Schedule of Investments March 31, 2023

 

KraneShares Global Carbon Strategy ETF

 

 

    Shares     Value  
SHORT-TERM INVESTMENT — 30.1%                
State Street Institutional U.S. Government Money Market Fund, Cl Premier, 4.700%(A)     191,074,584     $ 191,074,584‌  
TOTAL SHORT-TERM INVESTMENT
(Cost $191,074,584)
            191,074,584‌  
                 
TOTAL INVESTMENTS — 30.1%
(Cost $191,074,584)
            191,074,584‌  
OTHER ASSETS LESS LIABILITIES – 69.9%             444,203,333‌  
NET ASSETS - 100%           $ 635,277,917‌  

 

A list of the open futures contracts held by the Fund at March 31, 2023, is as follows:

 

Type of Contract   Number of
Contracts
    Expiration
Date
  Notional
Amount
    Value     Unrealized
Appreciation/
(Depreciation)
 
Long Contracts                                    
CA Carbon Allowance 2024^     962     Dec-2024   $ 29,535,871‌     $ 31,851,820‌     $ 2,315,949  
CA Carbon Allowance 2023^     5,125     Dec-2023     145,621,122‌       159,233,750‌       13,612,628  
Euro FX 2023^     10     Jun-2023     1,327,376‌       1,362,937‌       35,561  
ICE ECX Emission 2023^     3,544     Dec-2023     320,025,655‌       353,964,908‌       17,481,373  
ICE ECX Emission 2024^     307     Dec-2024     29,134,640‌       32,063,177‌       1,402,513  
RGGI Vintage 2023^     2,083     Dec-2023     29,011,181‌       27,974,690‌       (1,036,491 )
UK Emission Allowance 2023^     321     Dec-2023     29,126,458‌       29,342,743‌       (764,035 )
                $ 583,782,303‌     $ 635,794,025‌     $ 33,047,498  

 

^ Security is held by the Fund’s Subsidiary, KFA Global Carbon Subsidiary, Ltd., as of March 31, 2023.
(A) The rate shown is the 7-day effective yield as of March 31, 2023.

 

As of March 31, 2023, all of the Fund’s investments and other financial instruments were considered Level 1 of the fair value hierarchy, in accordance with the authoritative guidance under U.S. GAAP.

 

See “Glossary” for abbreviations.

 

The accompanying notes are an integral part of the financial statements.

 

21

 

 

Consolidated Schedule of Investments March 31, 2023

 

KraneShares European Carbon Allowance Strategy ETF

 

 

 

    Shares     Value  
SHORT-TERM INVESTMENT — 6.4%                
State Street Institutional U.S. Government Money Market Fund, Cl Premier, 4.700%(A)     2,011,311     $ 2,011,311‌  
TOTAL SHORT-TERM INVESTMENT
(Cost $2,011,311)
            2,011,311‌  
                 
TOTAL INVESTMENTS — 6.4%
(Cost $2,011,311)
            2,011,311‌  
OTHER ASSETS LESS LIABILITIES – 93.6%             29,460,819‌  
NET ASSETS - 100%           $ 31,472,130‌  

 

A list of the open futures contracts held by the Fund at March 31, 2023, is as follows:

 

Type of Contract   Number of
Contracts
    Expiration
Date
  Notional
Amount
    Value     Unrealized
Appreciation/
(Depreciation)
 
Long Contracts                                    
Euro^     5     Jun-2023   $ 663,701‌     $ 681,469‌     $ 17,768‌  
ICE ECX Emission 2023^     314     Dec-2023     29,449,326‌       31,361,450‌       831,255‌  
                $ 30,113,027‌     $ 32,042,919‌     $ 849,023‌  

 

^ Security is held by the KraneShares European Carbon Subsidiary, Ltd. as of March 31, 2023.
(A) The rate shown is the 7-day effective yield as of March 31, 2023.

 

As of March 31, 2023, all of the Fund’s investments and other financial instruments were considered Level 1 of the fair value hierarchy, in accordance with the authoritative guidance under U.S. GAAP.

 

See “Glossary” for abbreviations.

 

The accompanying notes are an integral part of the financial statements.

 

22

 

 

Consolidated Schedule of Investments March 31, 2023

 

KraneShares California Carbon Allowance Strategy ETF

 

 

    Shares     Value  
SHORT-TERM INVESTMENT — 71.3%                
State Street Institutional U.S. Government Money Market Fund, Cl Premier, 4.700%(A)     163,500,000     $ 163,500,000‌  
TOTAL SHORT-TERM INVESTMENT
(Cost $163,500,000)
            163,500,000‌  
                 
TOTAL INVESTMENTS — 71.3%
(Cost $163,500,000)
            163,500,000‌  
OTHER ASSETS LESS LIABILITIES – 28.7%             65,809,688‌  
NET ASSETS - 100%           $ 229,309,688‌  

 

A list of the open futures contracts held by the Fund at March 31, 2023, is as follows:

 

Type of Contract   Number of
Contracts
    Expiration
Date
  Notional
Amount
    Value     Unrealized
Appreciation/
(Depreciation)
 
Long Contracts                                    
CA Carbon Allowance 2022^     7,366     Dec-2023   $ 209,222,993‌     $ 228,861,620‌     $ 19,638,627‌  

 

^ Security is held by the KraneShares California Carbon Subsidiary, Ltd. as of March 31, 2023.
(A) The rate shown is the 7-day effective yield as of March 31, 2023.

 

As of March 31, 2023, all of the Fund’s investments and other financial instruments were considered Level 1 of the fair value hierarchy, in accordance with the authoritative guidance under U.S. GAAP.

 

See “Glossary” for abbreviations.

 

The accompanying notes are an integral part of the financial statements.

 

23

 

 

Consolidated Schedule of Investments March 31, 2023

 

KraneShares Global Carbon Offset Strategy ETF

 

 

    Shares     Value  
SHORT-TERM INVESTMENT — 0.1%                
State Street Institutional U.S. Government Money Market Fund,Cl Premier, 4.700%(A)     1,170     $ 1,170‌  
TOTAL SHORT-TERM INVESTMENT
(Cost $1,170)
            1,170‌  
                 
TOTAL INVESTMENTS — 0.1%
(Cost $1,170)
            1,170‌  
OTHER ASSETS LESS LIABILITIES – 99.9%             2,319,521‌  
NET ASSETS - 100%           $ 2,320,691‌  

 

A list of the open futures contracts held by the Fund at March 31, 2023, is as follows:

 

Type of Contract   Number of
Contracts
    Expiration
Date
  Notional
Amount
    Value     Unrealized
Appreciation/
(Depreciation)
 
Long Contracts                                    
CBL Global Emission Offset 2023^     110     Dec-2023   $ 357,747‌     $ 269,500‌     $ (88,247 )
CBL Nature-Based Global Emission Offset 2023^     300     Dec-2023     1,494,456‌       1,041,000‌       (453,456 )
                $ 1,852,203‌     $ 1,310,500‌     $ (541,703 )

 

^ Security is held by the KraneShares Global Carbon Offset Strategy Subsidiary, Ltd. as of March 31, 2023.
(A) The rate shown is the 7-day effective yield as of March 31, 2023.

 

As of March 31, 2023, all of the Fund’s investments and other financial instruments were considered Level 1 of the fair value hierarchy, in accordance with the authoritative guidance under U.S. GAAP.

 

See “Glossary” for abbreviations.

 

The accompanying notes are an integral part of the financial statements.

 

24

 

 

Consolidated Schedule of Investments March 31, 2023

 

KraneShares Electrification Metals Strategy ETF

 

 

    Shares     Value  
SHORT-TERM INVESTMENT — 52.0%                
State Street Institutional U.S. Government Money Market Fund, Cl Premier, 4.700%(A)     12,067,868     $ 12,067,868‌  
TOTAL SHORT-TERM INVESTMENT
(Cost $12,067,868)
            12,067,868‌  
                 
TOTAL INVESTMENTS — 52.0%
(Cost $12,067,868)
            12,067,868‌  
OTHER ASSETS LESS LIABILITIES – 48.0%             11,150,823‌  
NET ASSETS - 100%           $ 23,218,691‌  

 

A list of the open futures contracts held by the Fund at March 31, 2023, is as follows:

 

Type of Contract   Number of
Contracts
    Expiration
Date
  Notional
Amount
    Value     Unrealized
Appreciation/
(Depreciation)
 
Long Contracts                                    
Aluminum Futures 2023^     31     May-2023   $ 1,862,089‌     $ 1,855,156‌     $ (6,933 )
Cobalt Fast Market 2023^     60     May-2023     2,387,234‌       2,281,782‌       (105,452 )
Copper 2023^     62     May-2023     6,327,688‌       6,346,475‌       18,787‌  
Lithium LiOH COME 2023^     14     May-2023     1,046,682‌       805,000‌       (241,682 )
LME Nickel 2023^     36     May-2023     5,681,398‌       5,130,000‌       (551,398 )
LME Primary Aluminum 2023^     53     May-2023     3,182,430‌       3,171,719‌       (10,711 )
LME Zinc 2023^     48     May-2023     3,688,316‌       3,515,700‌       (172,616 )
                $ 24,175,837‌     $ 23,105,832‌     $ (1,070,005 )

 

^ Security is held by the KraneShares Technology Metals Strategy Subsidiary, Ltd. as of March 31, 2023.
(A) The rate shown is the 7-day effective yield as of March 31, 2023.

 

As of March 31, 2023, all of the Fund’s investments and other financial instruments were considered Level 1 of the fair value hierarchy, in accordance with the authoritative guidance under U.S. GAAP.

 

See “Glossary” for abbreviations.

 

The accompanying notes are an integral part of the financial statements.

 

25

 

 

Schedule of Investments/Consolidated Schedules of Investments March 31, 2023

 

Glossary (abbreviations used in preceding Schedule of Investments):

 

Fund Abbreviations

ADR — American Depositary Receipt
Cl — Class

GDR — Global Depositary Receipt

 

26

 

 

Statement of Assets and Liabilities/Consolidated Statements of Assets and Liabilities

March 31, 2023

 

    KraneShares Global Carbon Transformation ETF     KraneShares Global Carbon Strategy ETF(1)     KraneShares European Carbon Allowance Strategy ETF(2)  
Assets:                        
Investments at Value   $ 2,423,913     $ 191,074,584     $ 2,011,311  
Cash and Cash Equivalents     61,102       200,051,485       13,669,904  
Foreign Currency at Value     3,504       110,045,545       9,180,491  
Cash Collateral on Futures Contracts           77,625,821       14,575  
Reclaim Receivable     4,417              
Dividend and Interest Receivable     1,625       731,258       7,697  
Foreign Currency Due from Broker           51,674,193       6,526,280  
Variation Margin Receivable on Future Contracts           4,175,194       49,625  
Unrealized Appreciation on Spot Contracts           343,474       38,704  
Total Assets     2,494,561       635,721,554       31,498,587  
                         
Liabilities:                        
Payable for Management Fees     1,820       430,183       22,896  
Payable for Trustees’ Fee     19       7,080       373  
Unrealized Depreciation on Spot Contracts     4              
Variation Margin Payable on Future Contracts           6,374       3,188  
Total Liabilities     1,843       443,637       26,457  
Net Assets   $ 2,492,718     $ 635,277,917     $ 31,472,130  
                         
Net Assets Consist of:                        
Paid-in Capital   $ 2,500,050     $ 589,178,966     $ 31,332,169  
Total Distributable Earnings/(Loss)     (7,332 )     46,098,951       139,961  
Net Assets   $ 2,492,718     $ 635,277,917     $ 31,472,130  
Outstanding Shares of Beneficial Interest (unlimited authorization - no par value)     100,002       16,000,000       925,006  
Net Asset Value, Offering and Redemption Price Per Share   $ 24.93     $ 39.70     $ 34.02  
Cost of Investments   $ 2,239,067     $ 191,074,584     $ 2,011,311  
Cost of Foreign Currency     3,465       105,434,455       8,680,128  

 

(1) KraneShares Global Carbon Strategy ETF includes the account of the Fund’s Subsidiary, KFA Global Carbon Subsidiary, Ltd.
(2) KraneShares European Carbon Allowance Strategy ETF includes the account of the Fund’s Subsidiary, KraneShares European Carbon Subsidiary, Ltd.

 

Amounts designated as “—” are $0 or have been rounded to $0.

 

The accompanying notes are an integral part of the financial statements.

 

27

 

 

Consolidated Statements of Assets and Liabilities (concluded)

March 31, 2023

 

    KraneShares California Carbon Allowance Strategy ETF(1)     KraneShares Global Carbon Offset Strategy ETF(2)     KraneShares Electrification Metals Strategy ETF(3)  
Assets:                        
Investments at Value   $ 163,500,000     $ 1,170     $ 12,067,868  
Cash Collateral on Futures Contracts     47,318,852       570,996       4,663,439  
Cash and Cash Equivalents     18,015,935       1,750,094       6,456,772  
Dividend and Interest Receivable     627,819       4       46,201  
Total Assets     229,462,606       2,322,264       23,234,280  
                         
Liabilities:                        
Payable for Management Fees     150,827       1,539       15,354  
Payable for Trustees’ Fee     2,091       34       235  
Total Liabilities     152,918       1,573       15,589  
Net Assets   $ 229,309,688     $ 2,320,691     $ 23,218,691  
                         
Net Assets Consist of:                        
Paid-in Capital   $ 252,733,348     $ 10,000,050     $ 22,618,491  
Total Distributable Earnings/(Loss)     (23,423,660 )     (7,679,359 )     600,200  
Net Assets   $ 229,309,688     $ 2,320,691     $ 23,218,691  
Outstanding Shares of Beneficial Interest (unlimited authorization - no par value)     9,575,002       400,002       900,002  
Net Asset Value, Offering and Redemption Price Per Share   $ 23.95     $ 5.80     $ 25.80  
Cost of Investments   $ 163,500,000     $ 1,170     $ 12,067,868  

 

(1) KraneShares California Carbon Allowance Strategy ETF includes the account of the Fund’s Subsidiary, KraneShares California Carbon Subsidiary, Ltd.
(2) KraneShares Global Carbon Offset Strategy ETF includes the account of the Fund’s Subsidiary, KraneShares Global Carbon Offset Strategy Subsidiary, Ltd.
(3) KraneShares Electrification Metals Strategy ETF includes the account of the Fund’s Subsidiary, KraneShares Technology Metals Strategy Subsidiary, Ltd.

 

Amounts designated as “—” are $0 or have been rounded to $0.

 

The accompanying notes are an integral part of the financial statements.

 

28

 

 

Statements of Operations/Consolidated Statements of Operations

For the Year or Period Ended March 31, 2023

 

    KraneShares Global Carbon Transformation ETF     KraneShares Global Carbon Strategy ETF(1)     KraneShares European Carbon Allowance Strategy ETF(2)  
Investment Income:                        
Dividend Income   $ 66,820     $ 301,941     $  
Interest Income     672       5,673,308       69,032  
Less: Foreign Taxes Withheld     (5,076 )            
Total Investment Income     62,416       5,975,249       69,032  
                         
Expenses:                        
Management Fees      21,218       7,127,903       184,462  
Trustees’ Fees     104       41,790       1,190  
Insurance Expense           19,956       400  
Total Expenses     21,322       7,189,649       186,052  
Net Investment Income (Loss)     41,094       (1,214,400 )     (117,020 )
                         
Net Realized Gain (Loss) on:                        
Investments     (207,214 )     (4,206,232 )      
Futures Contracts           57,313,559       (535,756 )
Foreign Currency Translations     (5,620 )     (29,252,866 )     (680,430 )
Net Realized Gain (Loss)     (212,834 )     23,854,461       (1,216,186 )
                         
Net Change in Unrealized Appreciation (Depreciation) on:                        
Investments     (21,622 )     1,741,343        
Futures Contracts           (26,818,949 )     4,060,337  
Foreign Currency Translations     144       3,859,334       488,883  
Net Change in Unrealized Appreciation (Depreciation)     (21,478 )     (21,218,272 )     4,549,220  
Net Realized and Unrealized Gain (Loss)     (234,312 )     2,636,189       3,333,034  
Net Increase (Decrease) in Net Assets Resulting from Operations   $ (193,218 )   $ 1,421,789     $ 3,216,014  

 

See Note 4 in Notes to Financial Statements.
(1) KraneShares Global Carbon Strategy ETF includes the account of the Fund’s Subsidiary, KFA Global Carbon Subsidiary, Ltd.
(2) KraneShares European Carbon Allowance Strategy ETF includes the account of the Fund’s Subsidiary, KraneShares European Carbon Subsidiary, Ltd.

 

Amounts designated as “—” are $0 or have been rounded to $0.

 

The accompanying notes are an integral part of the financial statements.

 

29

 

 

Consolidated Statements of Operations (concluded)

For the Year or Period Ended March 31, 2023

 

    KraneShares California Carbon Allowance Strategy ETF(1)     KraneShares Global Carbon Offset Strategy ETF(2)(3)     KraneShares Electrification Metals Strategy ETF(4)(5)  
Investment Income:                        
Interest Income   $ 4,189,626     $ 37,994     $ 226,100  
Total Investment Income     4,189,626       37,994       226,100  
                         
Expenses:                        
Management Fees     1,723,443       43,019       79,324  
Trustees’ Fees     10,935       323       670  
Insurance Expense     1,338              
Total Expenses     1,735,716       43,342       79,994  
Net Investment Income (Loss)     2,453,910       (5,348 )     146,106  
                         
Net Realized Gain (Loss) on:                        
Futures Contracts     (42,498,467 )     (7,122,300 )     1,551,770  
Net Realized Gain (Loss)     (42,498,467 )     (7,122,300 )     1,551,770  
                         
Net Change in Unrealized Appreciation (Depreciation) on:                        
Futures Contracts     22,137,284       (541,703 )     (1,070,005 )
Net Change in Unrealized Appreciation (Depreciation)     22,137,284       (541,703 )     (1,070,005 )
Net Realized and Unrealized Gain (Loss)     (20,361,183 )     (7,664,003 )     481,765  
Net Increase (Decrease) in Net Assets Resulting from Operations   $ (17,907,273 )   $ (7,669,351 )   $ 627,871  

 

See Note 4 in Notes to Financial Statements.
(1) KraneShares California Carbon Allowance Strategy ETF includes the account of the Fund’s Subsidiary, KraneShares California Carbon Subsidiary, Ltd.
(2) Commenced operations on April 20, 2022.
(3) KraneShares Global Carbon Offset Strategy ETF includes the account of the Fund’s Subsidiary, KraneShares Global Carbon Offset Strategy Subsidiary, Ltd.
(4) Commenced operations on October 13, 2022.
(5) KraneShares Electrification Metals Strategy ETF includes the account of the Fund’s Subsidiary, KraneShares Technology Metals Strategy Subsidiary, Ltd.

 

Amounts designated as “—” are $0 or have been rounded to $0.

 

The accompanying notes are an integral part of the financial statements.

 

30

 

 

Statements of Changes in Net Assets

 

    KraneShares Global Carbon Transformation ETF  
    Year Ended
March 31,
2023
    Period Ended
March 31,
2022(1)
 
Operations:                
Net Investment Income   $ 41,094     $ 2,323  
Net Realized Loss     (212,834 )     (12,921 )
Net Change in Unrealized Appreciation (Depreciation)     (21,478 )     206,475  
Net Increase (Decrease) in Net Assets Resulting from Operations     (193,218 )     195,877  
Distributions     (9,991 )      
                 
Capital Share Transactions:(2)                
Issued           2,500,050  
Increase in Net Assets from Capital Share Transactions           2,500,050  
Total Increase (Decrease) in Net Assets     (203,209 )     2,695,927  
                 
Net Assets:                
Beginning of Year/Period     2,695,927        
End of Year/Period   $ 2,492,718     $ 2,695,927  
                 
Share Transactions:                
Issued           100,002  
Net Increase in Shares Outstanding from Share Transactions           100,002  

 

(1) Commenced operations on March 15, 2022.
(2) Includes transaction costs related to creations and redemptions.

 

Amounts designated as “—” are $0 or have been rounded to $0.

 

The accompanying notes are an integral part of the financial statements.

 

31

 

 

Consolidated Statements of Changes in Net Assets (continued)

 

    ‍KraneShares Global Carbon Strategy ETF(1)  
    Year Ended
March 31,
2023
    Year Ended
March 31,
2022
 
Operations:                
Net Investment Loss   $ (1,214,400 )   $ (8,080,173 )
Net Realized Gain     23,854,461       193,844,669  
Net Change in Unrealized Appreciation (Depreciation)     (21,218,272 )     52,338,033  
Net Increase in Net Assets Resulting from Operations     1,421,789       238,102,529  
Distributions     (132,430,808 )     (7,929,920 )
                 
Capital Share Transactions:(2)                
Issued     44,916,398       1,640,898,191  
Redeemed     (641,881,247 )     (601,519,925 )
Increase (Decrease) in Net Assets from Capital Share Transactions     (596,964,849 )     1,039,378,266  
Total Increase (Decrease) in Net Assets     (727,973,868 )     1,269,550,875  
                 
Net Assets:                
Beginning of Year     1,363,251,785       93,700,910  
End of Year   $ 635,277,917     $ 1,363,251,785  
                 
Share Transactions:                
Issued     1,150,000       40,500,000  
Redeemed     (14,450,000 )     (14,500,000 )
Net Increase (Decrease) in Shares Outstanding from Share Transactions     (13,300,000 )     26,000,000  

 

(1) KraneShares Global Carbon Strategy ETF includes the account of the Fund’s Subsidiary, KFA Global Carbon Subsidiary, Ltd.
(2) Includes transaction costs related to creations and redemptions.

 

The accompanying notes are an integral part of the financial statements.

 

32

 

 

Consolidated Statements of Changes in Net Assets (continued)

 

    ‍KraneShares European Carbon Allowance Strategy ETF(1)  
    Year Ended
March 31,
2023
    Period Ended
March 31,
2022(2)
 
Operations:                
Net Investment Loss   $ (117,020 )   $ (72,530 )
Net Realized Loss     (1,216,186 )     (1,046,086 )
Net Change in Unrealized Appreciation (Depreciation)     4,549,220       (3,020,891 )
Net Increase (Decrease) in Net Assets Resulting from Operations     3,216,014       (4,139,507 )
                 
Capital Share Transactions:(3)                
Issued     20,531,219       37,462,344  
Redeemed     (21,085,266 )     (4,512,674 )
Increase (Decrease) in Net Assets from Capital Share Transactions     (554,047 )     32,949,670  
Total Increase in Net Assets     2,661,967       28,810,163  
                 
Net Assets:                
Beginning of Year/Period     28,810,163        
End of Year/Period   $ 31,472,130     $ 28,810,163  
                 
Share Transactions:                
Issued     600,000       1,150,006  
Redeemed     (675,000 )     (150,000 )
Net Increase (Decrease) in Shares Outstanding from Share Transactions     (75,000 )     1,000,006  

 

(1) KraneShares European Carbon Allowance Strategy ETF includes the account of the Fund’s Subsidiary, KraneShares European Carbon Subsidiary, Ltd.
(2) Commenced operations on October 4, 2021.
(3) Includes transaction costs related to creations and redemptions.

 

Amounts designated as “—” are $0 or have been rounded to $0.

 

The accompanying notes are an integral part of the financial statements.

 

33

 

 

Consolidated Statements of Changes in Net Assets (continued)

 

    ‍KraneShares California Carbon Allowance Strategy ETF(1)  
   

Year Ended

March 31,
2023

    Period Ended
March 31,
2022(2)
 
Operations:                
Net Investment Income (Loss)   $ 2,453,910     $ (400,866 )
Net Realized Loss     (42,498,467 )     (1,831,314 )
Net Change in Unrealized Appreciation (Depreciation)     22,137,284       (2,498,657 )
Net Decrease in Net Assets Resulting from Operations     (17,907,273 )     (4,730,837 )
Distributions     (589,669 )      
                 
Capital Share Transactions:(3)                
Issued     161,770,906       143,880,285  
Redeemed     (53,113,424 )     (300 )
Increase in Net Assets from Capital Share Transactions     108,657,482       143,879,985  
Total Increase in Net Assets     90,160,540       139,149,148  
                 
Net Assets:                
Beginning of Year/Period     139,149,148        
End of Year/Period   $ 229,309,688     $ 139,149,148  
                 
Share Transactions:                
Issued     6,425,000       5,400,002  
Redeemed     (2,250,000 )      
Net Increase in Shares Outstanding from Share Transactions     4,175,000       5,400,002  

 

(1) KraneShares California Carbon Allowance Strategy ETF includes the account of the Fund’s Subsidiary, KraneShares California Carbon Subsidiary, Ltd.
(2) Commenced operations on October 4, 2021.
(3) Includes transaction costs related to creations and redemptions.

 

Amounts designated as “—” are $0 or have been rounded to $0.

 

The accompanying notes are an integral part of the financial statements.

 

34

 

 

Consolidated Statements of Changes in Net Assets (continued)

 

    ‍KraneShares Global Carbon Offset Strategy ETF(1)  
    Period Ended
March 31,
2023(2)
 
Operations:        
Net Investment Loss   $ (5,348 )
Net Realized Loss     (7,122,300 )
Net Change in Unrealized Appreciation (Depreciation)     (541,703 )
Net Decrease in Net Assets Resulting from Operations     (7,669,351 )
Distributions     (10,008 )
         
Capital Share Transactions:(3)        
Issued     10,000,050  
Increase in Net Assets from Capital Share Transactions     10,000,050  
Total Increase in Net Assets     2,320,691  
         
Net Assets:        
Beginning of Period      
End of Period   $ 2,320,691  
         
Share Transactions:        
Issued     400,002  
Net Increase in Shares Outstanding from Share Transactions     400,002  

 

(1) KraneShares Global Carbon Offset Strategy ETF includes the account of the Fund’s Subsidiary, KraneShares Global Carbon Offset Strategy Subsidiary, Ltd.
(2) Commenced operations on April 20, 2022.
(3) Includes transaction costs related to creations and redemptions.

 

Amounts designated as “—” are $0 or have been rounded to $0.

 

The accompanying notes are an integral part of the financial statements.

 

35

 

 

Consolidated Statements of Changes in Net Assets (concluded)

 

    ‍KraneShares Electrification Metals Strategy ETF(1)  
    Period Ended
March 31,
2023(2)
 
Operations:        
Net Investment Income   $ 146,106  
Net Realized Gain     1,551,770  
Net Change in Unrealized Appreciation (Depreciation)     (1,070,005 )
Net Increase in Net Assets Resulting from Operations     627,871  
Distributions     (27,671 )
         
Capital Share Transactions:(3)        
Issued     22,618,491  
Increase in Net Assets from Capital Share Transactions     22,618,491  
Total Increase in Net Assets     23,218,691  
         
Net Assets:        
Beginning of Period      
End of Period   $ 23,218,691  
         
Share Transactions:        
Issued     900,002  
Net Increase in Shares Outstanding from Share Transactions     900,002  

 

(1) KraneShares Electrification Metals Strategy ETF includes the account of the Fund’s Subsidiary, KraneShares Technology Metals Strategy Subsidiary, Ltd.
(2) Commenced operations on October 13, 2022.
(3) Includes transaction costs related to creations and redemptions.

 

Amounts designated as “—” are $0 or have been rounded to $0.

 

The accompanying notes are an integral part of the financial statements.

 

36

 

 

Financial Highlights/Consolidated Financial Highlights

 

Selected Per Share Data & Ratios

For the Years/Periods Ended March 31

For a Share Outstanding Throughout Each Period

 

 
 
 
 
 
  Net Asset
Value,
Beginning of
Period
($)
 
Net Investment
Income (Loss)
($)*
  Net Realized and
Unrealized Gain
(Loss)
on Investments
($)
 
Total
from
Operations
($)
  Distribution
from Net
Investment
Income
($)
 
Return of
Capital
($)
KraneShares Global Carbon Transformation ETF              
2023   26.96   0.41   (2.34)   (1.93)   (0.10)  
2022(1)   25.00   0.02   1.94   1.96    
KraneShares Global Carbon Strategy ETF              
2023(2)   46.53   (0.06)   1.59   1.53   (8.36)  
2022(2)   28.39   (0.38)   18.77   18.39   (0.25)  
2021(2)(3)   20.00   (0.12)   8.51   8.39    
KraneShares European Carbon Allowance Strategy ETF              
2023(4)   28.81   (0.15)   5.36   5.21