Annual Report

KraneShares CICC China Leaders 100 Index ETF

KraneShares CSI China Internet ETF

KraneShares Bosera MSCI China A 50 Connect Index ETF

KraneShares Bloomberg China Bond Inclusion Index ETF

KraneShares MSCI All China Index ETF

KraneShares MSCI One Belt One Road Index ETF

KraneShares Emerging Markets Consumer Technology Index ETF

KraneShares MSCI China Clean Technology Index ETF

KraneShares Electric Vehicles and Future Mobility Index ETF

KraneShares MSCI All China Health Care Index ETF

KraneShares Asia Pacific High Income Bond ETF

KraneShares Emerging Markets Healthcare Index ETF

KraneShares MSCI Emerging Markets ex China Index ETF

KraneShares MSCI China ESG Leaders Index ETF

KraneShares CICC China 5G & Semiconductor Index ETF

KraneShares CICC China Consumer Leaders Index ETF

KraneShares SSE STAR Market 50 Index ETF

KraneShares Hang Seng TECH Index ETF

KraneShares China Innovation ETF

KraneShares S&P Pan Asia Dividend Aristocrats Index ETF

KraneShares China Internet and Covered Call Strategy ETF

March 31, 2023

   

 

 

 

 

Table of Contents

 

Shareholder Letter   1
Management Discussion of Fund Performance   5
Schedules of Investments    
KraneShares CICC China Leaders 100 Index ETF   67
KraneShares CSI China Internet ETF   72
KraneShares Bosera MSCI China A 50 Connect Index ETF   74
KraneShares Bloomberg China Bond Inclusion Index ETF   77
KraneShares MSCI All China Index ETF   79
KraneShares MSCI One Belt One Road Index ETF.   86
KraneShares Emerging Markets Consumer Technology Index ETF   94
KraneShares MSCI China Clean Technology Index ETF   99
KraneShares Electric Vehicles and Future Mobility Index ETF   102
KraneShares MSCI All China Health Care Index ETF   107
KraneShares Asia Pacific High Income Bond ETF   111
KraneShares Emerging Markets Healthcare Index ETF   117
KraneShares MSCI Emerging Markets ex China Index ETF   122
KraneShares MSCI China ESG Leaders Index ETF   139
KraneShares CICC China 5G & Semiconductor Index ETF   145
KraneShares CICC China Consumer Leaders Index ETF   147
KraneShares SSE STAR Market 50 Index ETF   149
KraneShares Hang Seng TECH Index ETF   151
KraneShares China Innovation ETF   153
KraneShares S&P Pan Asia Dividend Aristocrats Index ETF   154
KraneShares China Internet and Covered Call Strategy ETF   160
Glossary   161
Statements of Assets and Liabilities   162
Statements of Operations   169
Statements of Changes in Net Assets   176
Financial Highlights   196
Notes to Financial Statements   204
Report of Independent Registered Public Accounting Firm   227
Trustees and Officers of the Trust   230
Approval of Advisory Agreement   233
Disclosure of Fund Expenses   236
Notice To Shareholders   239
Supplemental Information   241

 

 

 

 

 

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 KraneShares Trust exchange-traded funds (ETFs) for the 12-month period ended March 31, 2023 (the Period). For the Period, the ETFs delivered the following returns:

 

Fund   Fund
Return*
    Underlying
Index
Return**
    Morningstar
Peer Group
Median
Return
 
KraneShares CICC China Leaders 100 Index ETF (KFYP)     -13.15 %     -12.51 %(a)      -8.11 %(1) 
KraneShares CSI China Internet ETF (KWEB)     5.86 %     6.36 %(b)      -8.11 %(1) 
KraneShares Bosera MSCI China A 50 Connect ETF (KBA)     -12.63 %     -11.57 %(c)      -8.11 %(1) 
KraneShares Bloomberg China Bond Inclusion Index ETF (KBND)     -3.98 %     -4.82 %(d)      -1.42 %(2) 
KraneShares MSCI All China Index ETF (KALL)     -6.44 %     -6.44 %(e)      -8.11 %(1) 
KraneShares MSCI One Belt One Road Index ETF (OBOR)     -14.98 %     -14.69 %(f)      -6.71 %(3) 
KraneShares Emerging Markets Consumer Technology Index ETF (KEMQ)     -15.30 %     -14.47 %(g)      -9.39 %(4) 
KraneShares MSCI China Clean Technology Index ETF (KGRN)     -20.71 %     -21.68 %(h)      -8.11 %(1) 
KraneShares Electric Vehicles and Future Mobility Index ETF (KARS)     -21.78 %     -21.56 %(i)      -5.11 %(5) 
KraneShares MSCI All China Health Care Index ETF (KURE)     -12.65 %     -12.43 %(j)      -8.11 %(1) 
KraneShares Asia Pacific High Income Bond ETF (KHYB)     -0.44 %     N/A       -6.55 %(6) 
KraneShares Emerging Markets Healthcare Index ETF (KMED)     -14.97 %     -14.90 %(k)      -9.39 %(4) 
KraneShares MSCI Emerging Markets ex China Index ETF (KEMX)     -12.12 %     -13.32 %(l)      -9.39 %(4) 
KraneShares MSCI China ESG Leaders Index ETF (KESG)     -10.38 %     -9.62 %(m)      -8.11 %(1) 
KraneShares CICC China 5G & Semiconductor Index ETF (KFVG)     -9.62 %     -9.32 %(n)      -8.11 %(1) 
KraneShares CICC China Consumer Leaders Index ETF (KBUY)     1.64 %     2.32 %(o)      -8.11 %(1) 
KraneShares SSE STAR Market 50 Index ETF (KSTR)     -9.97 %     -8.05 %(p)      -8.11 %(1) 
KraneShares Hang Seng TECH Index ETF (KTEC)     -4.37 %     -5.15 %(q)      -8.11 %(1) 
KraneShares China Innovation ETF (KGRO)     -6.60 %     N/A       -8.11 %(1) 
KraneShares S&P Pan Asia Dividend Aristocrats Index ETF (KDIV)     6.08 %^      6.36 %^(r)      -5.14 %(7) 
KraneShares China Internet and Covered Call Strategy ETF (KLIP)     -3.56 %^     N/A     -8.11 %(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).

 

1

 

 

Shareholder Letter (Unaudited) (continued)

 

(a) The CSI CICC Select 100 Index.
(b) The CSI Overseas China Internet Index.
(c) The MSCI China A 50 Connect Index.
(d) The Bloomberg China Inclusion Focused Bond Index.
(e) The MSCI China All Shares Index.
(f) The MSCI Global China Infrastructure Exposure Index.
(g) The Solactive Emerging Markets Consumer Technology Index.
(h) The MSCI China IMI Environment 10/40 Index.
(i) The Bloomberg Electric Vehicles Index.
(j) The MSCI All Shares Health Care 10/40 Index.
(k) The Solactive Emerging Markets Healthcare Index.
(l) The MSCI Emerging Markets ex China Index.
(m) The MSCI China ESG Leaders 10/40 Index.
(n) The CICC China 5G and Semiconductor Leaders Index.
(o) The CICC China Consumer Leaders Index.
(p) The Shanghai Stock Exchange Science and Technology Innovation Board 50 Index.
(q) The Hang Seng TECH Index.
(r) The S&P Pan Asia Dividend Aristocrats Index.

 

Morningstar Peer Group Information

 

  Morningstar Peer Group Median   Morningstar Peer Group Name   Morningstar Peer Group Description
(1)  -8.11%   U.S. ETF China Region   The Morningstar Fund China Region Category portfolios invest almost exclusively in stocks from China, Taiwan, and Hong Kong. These portfolios invest at least 70% of total assets in equities and invest at least 75% of stock assets in one specific region or a combination of China and/or Taiwan.
           
(2)  -1.42%   U.S. ETF Emerging Markets Local Currency Bond   The Morningstar Fund Emerging Markets Local Currency Bond Category portfolios invest more than 65% of their assets in foreign bonds from developing countries in the local currency. Funds in this category have a mandate to maintain exposure to currencies of emerging markets. The largest portion of the emerging markets bond market comes from Latin America, followed by Eastern Europe, Africa, the Middle East, and Asia.
           
(3)   -6.71%   U.S. ETF Infrastructure   The Morningstar Fund Infrastructure Category portfolios invest more than 60% of their assets in stocks of companies engaged in infrastructure activities. Industries considered to be part of the infrastructure sector include oil & gas midstream; waste management; airports; integrated shipping; railroads; shipping & ports; trucking; engineering & construction; infrastructure operations; and the utilities sector.

 

2

 

 

Shareholder Letter (Unaudited) (continued)

 

  Morningstar Peer Group Median   Morningstar Peer Group Name   Morningstar Peer Group Description 
(4)   -9.39%   U.S. ETF Diversified Emerging Markets   The Morningstar Fund Diversified Emerging Markets Category portfolios tend to divide their assets among 20 or more nations, although they tend to focus on the emerging markets of Asia and Latin America rather than those of the Middle East, Africa, or Europe. These portfolios invest predominantly in emerging market equities, but some funds also invest in both equities and fixed income instruments among emerging markets.
           
(5)   -5.11%   U.S. ETF Industrials   The Morningstar Fund Industrials Category portfolios seek capital appreciation by investing inequity securities of U.S. or non-U.S. companies that are engaged in services related to cyclical industries. This includes and is not limited to companies in aerospace and defense, automotive, chemicals, construction, environmental services, machinery, paper, and transportation.
           
(6)   -6.55%   U.S. ETF Emerging Markets Bond   The Morningstar Fund Emerging Markets Bond portfolios invest more than 65% of their assets in foreign bonds from developing countries. The largest portion of the emerging-markets bond market comes from Latin America, followed by Eastern Europe. Africa, the Middle East, and Asia make up the rest.
           
(7) -5.14%   U.S. ETF Diversified Pacific/Asia   The Morningstar Fund Diversified Pacific/Asia Category portfolios have a wider investment range than other Asia-oriented portfolios. These portfolios can invest throughout the Pacific Rim, including Australia and New Zealand. As a results, country weightings for these portfolios vary tremendously, though most retain some exposure to Japan and Hong Kong. These portfolios invest at least 70% of their total assets in equities and invest at least 75% of assets in Pacific countries, including at least 10% in Japan.

 

We are encouraged by recent developments in China’s capital markets. The challenging macroeconomic environment and resulting volatility in global equity markets that ensued over the past year led many U.S. and global investors to seek diversified sources of return, including China equities.

 

We believe that China’s capital markets 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 obtain exposure to China’s equity and fixed income markets.

 

China’s National Party Congress (NPC), held last year, resulted in positive policy changes including the removal of COVID restrictions and the provision of support for the real estate industry.

 

We believe the further development of China’s capital markets offers a long-term value proposition.

 

3

 

 

Shareholder Letter (Unaudited) (concluded)

 

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

 

Thank you for investing with us.

 

Jonathan Krane, CEO

March 31, 2023

 

4

 

 

Management Discussion of Fund Performance (Unaudited)

 

KraneShares CICC China Leaders 100 Index ETF

 

The KraneShares CICC China Leaders 100 Index ETF (the Fund) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the CSI CICC Select 100 Index (the Underlying Index).

 

The Underlying Index takes a smart-beta approach to systematically investing in companies listed in Mainland China. This quantitative approach reflects CICC’s top down and bottom-up research process, seeking to deliver the 100 leading companies in Mainland China.

 

China A Share Leaders Review

 

During the 12-month period ended March 31, 2023 (the Period), the Fund’s holdings were somewhat skewed towards growth and consumer industries. As a result, they were negatively impacted by China’s pandemic lockdowns at the beginning of the Period. Furthermore, declines in the prices of equities of real estate developers in connection with the government’s campaign to deleverage real estate developers also negatively impacted the Fund’s performance for the Period.

 

Still, during the Period the Fund outperformed the broader China equity market, as represented by the MSCI China Index. Further, we remain confident in the smart-beta approach to investing in China’s onshore (A Share/Mainland) equity market and CICC’s research process as represented in the Underlying Index, including because the Underlying Index generated a return profile that was significantly less volatile than the MSCI China Index during the Period.

 

The best performing sector within the Fund was Communication Services. Meanwhile, companies in the Real Estate sector detracted the most of any single sector from the Fund’s performance.

 

For the Period, the NAV of the Fund decreased by -13.15% while the Underlying Index decreased by -12.51%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees.

 

5

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares CICC China Leaders 100 Index 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
    Three Year
Return
    Five Year
Return
    Annualized
Inception to Date
 
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
 
KraneShares CICC China Leaders 100 Index ETF     -13.15 %     -12.86 %‡     4.78 %‡     5.20 %‡     0.47 %‡     0.67 %‡     7.13 %‡     7.08 %‡
Hybrid KFYP Index (Net)**     N/A       -12.51 %‡     N/A       6.54 %‡     N/A       1.66 %‡     N/A       7.47 %‡
S&P 500 Index     N/A       -7.73 %‡     N/A       18.60 %‡     N/A       11.19 %‡     N/A       11.68 %‡

 

* The Fund commenced operations on July 22, 2013.
** The Hybrid KFYP Index (Net) consists of the CSI China Overseas Five Year Plan Index from the inception of the Fund through May 31, 2016, the Zacks New China Index from June 1, 2016 through November 1, 2018, and the CSI CICC Select 100 Index going forward. From June 1, 2016 to November 1, 2018, the Fund sought to provide investment results that, before fees and expenses, corresponded generally to the price and yield performance of the Zacks New China Index. Prior to June 1, 2016, the Fund was known as the KraneShares CSI New China ETF and sought to provide investment results that, before fees and expenses, corresponded generally to the price and yield performance of the CSI Overseas China Five Year Plan Index. Hybrid KFYP Index (Net) reflects reinvested dividends net of withholding taxes, but reflects no deduction for fees, expenses, or other taxes.
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.

 

6

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares CICC China Leaders 100 Index ETF (concluded)

 

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 0.68%. 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 CSI China Internet ETF

 

The KraneShares CSI China Internet ETF (the Fund) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the CSI Overseas China Internet Index (the Underlying Index).

 

The Underlying Index is designed to measure the performance of the investable universe of publicly traded, China-based companies whose primary business or businesses are in the Internet and Internet-related sectors (China Internet Companies), as defined by the index sponsor, China Securities Index Co., Ltd. (CSI).

 

China Internet Review

 

Although global markets saw declines due to rising global interest rates, U.S. and Hong Kong-listed stocks of Chinese internet issuers saw positive catalysts during the 12-month period ended March 31, 2023 (the Period) as many of the geopolitical and policy-related issues that had been weighing on the sector in prior periods were resolved. We believe that the two most important developments for the sector during the Period were the China government’s removal of pandemic restrictions and the achievement of full access to the audit books of U.S.-listed, China-based firms by the U.S. Public Company Accounting Oversight Board (PCAOB).

 

Following the National Party Congress, held in October of 2022, China’s government removed all domestic, pandemic-related restrictions. This development improved the outlook for China’s consumer market and led to a rebound in the stock price of certain China Internet Companies.

 

On December 15th, 2022, the PCAOB announced that the agency had secured complete access to inspect and investigate China-based firms and their auditors for the first time in history. This announcement was significant for China Internet Companies, many of which are listed publicly in the U.S., because the U.S. Congress in 2022, required U.S.-listed foreign companies to allow the PCAOB to inspect their audit books to remain listed publicly on U.S. exchanges. This development significantly reduced the risk of the American depositary receipts (ADRs) of China Internet Companies being delisted from U.S. exchanges.

 

We see three potential positive catalysts for China Internet Companies in the year to come:

 

We believe that The People’s Bank of China (PBOC) is likely to maintain a dovish monetary policy stance, to the benefit of growth equities.

 

China retail sales increased +10.6% year-over-year (YoY) in March, setting the stage for a potential rebound in consumer spending this year, which we would expect to benefit China Internet Companies.

 

Alibaba’s recent restructuring into six separate business groups, each individually able to raise capital, indicates the company’s focus on generating shareholder value; and a resulting IPO would likely result in at least one new issuer, which would be included in the Fund in the future.

 

China capital market overview (April 1, 2022 to March 31, 2023)

 

China’s equity market, as measured by the MSCI China All Shares Index, was down for the Period, returning -6.44%, while China’s currency, the Renminbi (RMB) depreciated -8.4% against the U.S. dollar.

 

The best-performing sectors across China’s equity markets included Energy (+23.08%), Communication Services (+8.93%), and Utilities (+0.18%).

 

8

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares CSI China Internet ETF (continued)

 

The worst-performing sectors across China’s equity markets included Real Estate (-29.55%), Materials (-18.28%), and Information Technology (-10.98%).

 

For the Period, the NAV of the Fund increased by 5.86%, while the Underlying Index increased by 6.36%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees.

 

9

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares CSI China Internet 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
    Three Year
Return
    Five Year
Return
    Annualized
Inception to Date
 
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
 
KraneShares CSI China Internet ETF     5.86 %     9.40 %‡     -9.30 %‡     -9.38 %‡     -10.61 %‡     -10.67 %‡     3.83 %‡     3.81 %‡
CSI Overseas China Internet     N/A       6.36 %‡     N/A       -8.78 %‡     N/A       -10.18 %‡     N/A       4.04 %‡
S&P 500 Index     N/A       -7.73 %‡     N/A       18.60 %‡     N/A       11.19 %‡     N/A       11.77 %‡

 

* The Fund commenced operations on July 31, 2013.
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 0.69%. 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

 

10

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares CSI China Internet 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.

 

11

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Bosera MSCI China A 50 Connect Index ETF

 

The KraneShares Bosera MSCI China A 50 Connect Index ETF (the Fund) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the MSCI China A 50 Connect Index (the Underlying Index).

 

The Underlying Index is constructed from the MSCI China A Index (the Parent Index), a broad-based benchmark index, which captures large and mid-cap China A shares listed on the Shanghai and Shenzhen exchanges and accessible through the Northbound Stock Connect channel. The Underlying Index aims to reflect the performance of the 50 largest securities representing each Global Industry Classification Standard (GICS®) sector and reflecting the sector weight allocation of the Parent Index.

 

China A Share Review

 

Several macroeconomic headwinds impacted the Fund’s performance during the 12-month period ended March 31, 2023 (the Period), including a slump in consumer demand stemming from pandemic restrictions in China and the strengthening of the U.S. dollar due to the most aggressive interest rate hiking cycle in history from the U.S. Federal Reserve, which weighed on the value of assets denominated in currencies other than the U.S. Dollar, including China’s Renminbi. Although pandemic restrictions were removed during the period, benefiting consumer-oriented holdings, the Fund’s holdings in other sectors, such as Information Technology and Financials, nonetheless detracted from its overall performance for the period.

 

We see three potential positive catalysts for China’s A share equity market in the year to come:

 

We believe that there will be continued government support for key industries that are captured by the Fund’s holdings.

 

The potential relative attractiveness of China A shares due to the dovish monetary policy stance we expect from the People’s Bank of China (PBOC) as compared to other global central banks.

 

China’s retail sales increased +10.6% year-over-year in March, setting the stage for a rebound in consumer spending during the coming year, which should, in turn, lead to increased revenue for some of the companies held by the Fund, which would contribute to Fund performance.

 

China capital market overview (April 1, 2022 to March 31, 2023)

 

China’s equity market, as measured by the MSCI China All Shares Index, was down for the period returning -6.44%, while China’s currency, the renminbi (RMB) depreciated -8.4% against the U.S. dollar.

 

The best-performing sectors across China’s equity markets included Energy (+23.08%), Communication Services (+8.93%), and Utilities (+0.18%).

 

The worst-performing sectors across China’s equity markets included Real Estate (-29.55%), Materials (-18.28%), and Information Technology (-10.98%).

 

The Fund had exposure to Communication Services and Consumer Discretionary, which contributed positively to its performance, and to Real Estate and Information Technology, which detracted from its performance. The Fund’s performance was also negatively impacted by the decline in the value of China’s currency, the Renminbi, compared to the U.S. dollar.

 

For the Period, the NAV of the Fund decreased by -12.63% while the Underlying Index decreased by -11.57%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees and currency translations. 

 

12

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Bosera MSCI China A 50 Connect Index 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
    Three Year
Return
    Five Year
Return
    Annualized
Inception to Date
 
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
 
KraneShares Bosera MSCI China A 50 Connect Index ETF     -12.63 %     -12.10 %‡     6.45 %‡     6.33 %‡     1.71 %‡     1.34 %‡     6.03 %‡     6.00 %‡
Hybrid KBA Index (Net)**     N/A       -11.57 %‡     N/A       7.24 %‡     N/A       1.96 %‡     N/A       7.04 %‡
S&P 500 Index     N/A       -7.73 %‡     N/A       18.60 %‡     N/A       11.19 %‡     N/A       11.13 %‡

 

* The Fund commenced operations on March 4, 2014.
** The Hybrid KBA Index consists of the MSCI China A Index from the inception of the Fund through October 23, 2014, the MSCI China A International Index from October 23, 2014 through December 26, 2017, the MSCI China A Inclusion Index from December 27, 2017 to May 29, 2019, the MSCI China A Index from May 29, 2019 to January 5, 2022, and the MSCI China A 50 Connect Index going forward. From October 23, 2014 through December 26, 2017, the Fund sought investment results that, before fees and expenses, corresponded to the price and yield performance of the MSCI China A International Index. Prior to October 23, 2014, the Fund sought investment results that, before fees and expenses, corresponded to the price and yield performance of the MSCI China A Index.
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

 

13

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Bosera MSCI China A 50 Connect Index ETF (concluded)

 

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, as supplemented, the Fund’s gross operating expense ratio is 0.79% and its net expense ratio is 0.56% due to a Fee Waiver whereby the Fund’s investment manager, Krane Funds Advisors, LLC, has contractually agreed to reduce its management fee by 0.23% of the Fund’s average daily net assets until August 1, 2023. 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.

 

14

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Bloomberg China Bond Inclusion Index ETF

 

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

 

The underlying index is designed to track the performance of China’s onshore, renminbi-denominated bond market.

 

China Investment Grade & Government Bond Market Review

 

China’s high-quality bonds moved lower during the 12-month period ended March 31, 2023 (the Period) primarily due to global central banks hiking interest rates while China kept rates steady, making China’s risk-free rate less attractive to investors. Nonetheless, as the People’s Bank of China’s target rates remain relatively unchanged since the end of 2021, high quality bonds were remarkably stable during the period, especially compared to high quality bonds in the U.S., realized losses on which resulted in the collapse or near-collapse of multiple banks.

 

We see three potential positive catalysts for China’s investment grade and government bond market going forward:

 

Increased demand for China’s currency, the Renminbi, stemming from the recent commitments from multiple countries, especially oil-exporters, to transact in the currency as opposed to the U.S. dollar.

 

The Renminbi may also appreciate as the U.S. dollar comes down from its recent highs and as the U.S. Federal Reserve could pivot on rate hikes in the event of a recession or other market signals.

 

China’s government is currently urging businesses to increase borrowing, which may lead to an increase in issuance in the high-quality corporate bond segment, which is the focus of the Fund.

 

For the Period, the NAV of the Fund decreased by -3.98% while the Underlying Index decreased by -4.82%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees and the Fund sampling the Underlying Index rather than replicating it.

 

15

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Bloomberg China Bond Inclusion Index 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
    Three Year
Return
    Five Year
Return
    Annualized
Inception to Date
 
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
 
KraneShares Bloomberg China Bond Inclusion Index ETF     -3.98 %     -4.04 %‡     3.44 %‡     3.44 %‡     0.97 %‡     0.90 %‡     1.50 %‡     1.42 %‡
Bloomberg China Inclusion Focused Bond Index     N/A       -4.82 %‡     N/A       4.37 %‡     N/A       1.60 %‡     N/A       2.29 %‡
S&P U.S. Treasury Bill 3-6 Month Index**     N/A       2.57 %‡     N/A       0.90 %‡     N/A       1.49 %‡     N/A       1.12 %‡
S&P 500 Index     N/A       -7.73 %‡     N/A       18.60 %‡     N/A       11.19 %‡     N/A       10.67 %‡
Bloomberg Global Aggregate Index     N/A       -8.07 %‡     N/A       -3.43 %‡     N/A       -1.34 %‡     N/A       0.05 %‡

 

* The Fund commenced operations on December 2, 2014.
** Index added to provide a fixed income benchmark for fixed income funds.
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

 

16

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Bloomberg China Bond Inclusion Index ETF (concluded)

 

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 gross operating expense ratio is 0.68% and its net expense ratio is 0.48% due to a Fee Waiver Agreement whereby the Fund’s investment manager, Krane Funds Advisors, LLC, has contractually agreed to reduce its management fee by 0.20% of the Fund’s average daily net assets until August 1, 2023. 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.

 

17

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI All China Index ETF

 

The KraneShares MSCI All China Index ETF (the Fund) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the MSCI China All Shares Index (the Underlying Index).

 

The Underlying Index seeks to track the equity market performance of companies based in China and listed in Mainland China, Hong Kong, and the United States. Companies available for inclusion must be headquartered in China and meet the market capitalization minimums required by the MSCI Global Investable Market Indexes Methodology.

 

Broad China Equity Market Review

 

Offshore China equities outpaced onshore China (Mainland/A Shares) during the 12-month period ended March 31, 2023 (the Period) due to a strong rebound from 2022 lows. Meanwhile, onshore China (Mainland/A Shares) exhibited significantly less volatility, though underperformed. We believe the past 12 months’ performance disparity between onshore China (Mainland/A Shares) and offshore China demonstrates why a balanced allocation to both is important to achieve a well-rounded China allocation.

 

We see three potential positive catalysts for broad China equities in the year to come:

 

Ample liquidity in Mainland China, driven by what we expect to be dovish central bank policy in China, in contrast to the hawkish policy in the U.S. and Europe.

 

The recent resolution of multiple macroeconomic headwinds that had weighed on China’s offshore equity markets in past periods. These headwinds included China’s restrictive COVID policy and the achievement of full access to the audit books of U.S.-listed China-based firms by the Public Company Accounting Oversight Board, significantly lowering the risk that certain ADRs in the Fund’s portfolio may be delisted from U.S. exchanges.

 

China retail sales increased +10.6% year-over-year in March, setting the stage for a rebound in consumer spending this year, which may benefit both onshore China (Mainland/A Shares) and offshore China equities.

 

China capital market overview (April 1, 2022 to March 31, 2023)

 

China’s equity market, as measured by the MSCI China All Shares Index, was down for the period returning -6.44%, while China’s currency, the renminbi (RMB) depreciated -8.4% against the U.S. dollar.

 

The best performing sectors across China’s equity markets included Energy (+23.08%), Communication Services (+8.93%), and Utilities (+0.18%).

 

The worst performing sectors across China’s equity markets included Real Estate (-29.55%), Materials (-18.28%), and Information Technology (-10.98%).

 

Within the Fund, as a result, the best-performing sectors for the Period were Energy and Communication Services. Meanwhile, the worst-performing sectors were Real Estate and Materials.

 

For the Period, the NAV of the Fund decreased by -6.44% while the Underlying Index decreased by -6.44%.

 

18

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI All China Index 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
    Three Year
Return
    Five Year
Return
    Annualized
Inception to Date
 
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
 
KraneShares MSCI All China Index ETF     -6.44 %     -5.01 %‡     1.55 %‡     1.72 %‡     -1.09 %‡     -1.33 %‡     1.44 %‡     1.48 %‡
Hybrid KALL Index (Net)**     N/A       -6.44 %‡     N/A       1.13 %‡     N/A       -1.21 %‡     N/A       1.75 %‡
S&P 500 Index     N/A       -7.73 %‡     N/A       18.60 %‡     N/A       11.19 %‡     N/A       10.74 %‡

 

* The Fund commenced operations on February 12, 2015.
** The Hybrid KALL Index (Net) consists of the FTSE Emerging incl. China Overseas non-R/QFII GDP Weighted Index from the inception of the Fund through July 31, 2018, and the MSCI China All Shares Index going forward. Prior to July 31, 2018, the Fund was known as the KraneShares FTSE Emerging Markets Plus ETF and sought to provide investment results that, before fees and expenses, corresponded generally to the price and yield performance of the FTSE Emerging incl. China Overseas non-R/QFII GDP Weighted Index.
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

 

19

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI All China Index ETF (concluded)

 

expenses were included in the index returns, the performance would have been lower. As stated in the Fund’s prospectus, the Fund’s gross operating expense ratio is 0.68% and its net expense ratio is 0.48% due to an a Fee Waiver whereby the Fund’s investment manager, Krane Funds Advisors, LLC, has contractually agreed to reduce its management fee by 0.20% of the Fund’s average daily net assets until August 1, 2023. 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.

 

20

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI One Belt One Road Index ETF

 

The KraneShares MSCI One Belt One Road Index ETF (the Fund) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the MSCI Global China Infrastructure Exposure Index (the Underlying Index).

 

The Underlying Index aims to identify potential beneficiaries of the “Belt & Road” or “One Belt One Road” (OBOR) initiative based on how their geography, revenue, and sector attributes align with the broad theme. OBOR seeks to capture the economic growth and monetize the potential upside for the companies involved in China’s One Belt One Road initiative.

 

Emerging Markets/Belt & Road Review

 

China launched the “Belt & Road Initiative” or “One Belt One Road” (OBOR) in 2013. The Belt & Road Initiative is an infrastructure development strategy that was designed by the government to allow China to export any excess infrastructure construction capacity to other regions of the world.

 

The emerging markets (EM) economies included in China’s Belt & Road Initiative were adversely impacted by a steady increase in the value of the U.S. dollar during the 12-month period ended March 31, 2023 (the Period). In this regard, their U.S. dollar-denominated debts became more of a burden across the board, although certain commodity-exporting EM countries in the Belt & Road Initiative contemporaneously benefitted from rising oil prices.

 

The challenges faced by Belt & Road Initiative countries and issuers during the Period have included economic crises in Pakistan and Sri Lanka. These crises have threatened ongoing projects in both countries. In response, China’s Export-Import Bank has extended the deadline for repayment of principal and interest on loans to Sri Lanka by two years, and the China Development Bank has extended another $700 million in loans to Pakistan to help the country whether further challenges. Compounding the challenges for Belt & Road Initiative countries, however, has been the unclear status of Italy as a signatory within the Initiative.

 

Nonetheless, OBOR-related projects are likely to continue as various EM economies emerge from economic crises, and Italy’s new center-right ruling coalition may clarify the status of the partnership. Moreover, OBOR-funded energy projects in the Middle East may continue to benefit from China’s reopening and heightened prices for oil and gas.

 

We see three potential positive catalysts for OBOR-related equities in the year to come:

 

The International Monetary Fund has predicted that the growth gap between developed and emerging markets will reverse in favor of EM for the first time in nearly a decade, forecasting growth of 4% for EM in 2023 compared to 1.2% for developed markets.

 

Recent events suggest to us that key state-backed lenders are ready and willing to extend additional credit and restructure debt agreements when necessary to ensure that projects are completed, which could benefit OBOR-related companies.

 

The significant rise in the value of the U.S. dollar over the past year makes borrowing in Renminbi more attractive to developing countries, which may lead to continued demand for China-originated financing for infrastructure projects across the developing world, a key component of the OBOR initiative.

 

Emerging Markets Overview (April 1, 2022 to March 31, 2023)

 

Emerging Market equities, as measured by the MSCI Emerging Markets Index, were down for the period, returning -10.39%.

 

21

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI One Belt One Road Index ETF (continued)

 

The best performing sectors across the Emerging Market equity market included Energy (+4.22%), Consumer Staples (-0.08%), and Consumer Discretionary (-3.86%).

 

The worst performing sectors across the Emerging Market equity market included Health Care (-15.02%), Materials (-15.21%), and Real Estate (-16.16%).

 

Within the Fund, the best-performing sectors for the period were Energy and Industrials. Meanwhile, the worst-performing sectors were Consumer Staples and Materials. At the end of the Period, the top country weights within the Fund were China, Singapore, and Kuwait.

 

For the Period, the NAV of the Fund decreased by -14.98% while the Underlying Index decreased by -14.69%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees.

 

22

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI One Belt One Road Index 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
    Three Year
Return
    Five Year
Return
    Annualized
Inception to Date
 
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
 
KraneShares MSCI One Belt Road Index ETF     -14.98 %     -15.53 %‡     11.71 %‡     12.05 %‡     0.72 %‡     0.32 %‡     1.13 %‡     1.05 %‡
MSCI Global China Infrastructure Exposure Index (Net)     N/A       -14.69 %‡     N/A       12.25 %‡     N/A       1.81 %‡     N/A       2.18 %‡
S&P 500 Index     N/A       -7.73 %‡     N/A       18.60 %‡     N/A       11.19 %‡     N/A       11.58 %‡

 

* The Fund commenced operations on September 7, 2017.
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

 

23

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI One Belt One Road Index ETF (concluded)

 

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.

 

24

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Emerging Markets Consumer Technology Index ETF

 

The KraneShares Emerging Markets Consumer Technology Index ETF (the Fund) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Solactive Emerging Markets Consumer Technology Index (the Underlying Index).

 

The Underlying Index selects companies from 26 eligible countries within emerging markets whose primary business or businesses are internet retail, internet software/services, purchase, payment processing, or software for internet and E-Commerce transactions.

 

Emerging Markets Consumer Technology Review

 

Many emerging markets (EM) countries were adversely impacted by a steady increase in the value of the U.S. dollar during the 12-month period ended March 31, 2023 (the Period), which meant that their U.S. dollar-denominated debts became more of a burden. However, certain commodity-exporting EM countries benefitted from rising oil prices, and e-commerce companies held by the Fund, especially those which derive significant revenues from China, experienced a recovery during the Period when China removed pandemic restrictions.

 

The International Monetary Fund has predicted that the growth gap between developed and emerging markets will favor the latter for the first time in nearly a decade. Developed economies are anticipated to experience a slowdown in growth from 2.7% in 2022 to 1.2% and 1.4% in 2023 and 2024, respectively. On the other hand, EM economies are expected to experience growth, increasing from 3.9% in 2022 to 4.0% in 2023 and 4.3% in 2024.

 

We see three potential positive catalysts for EM consumer technology companies in the year to come:

 

The U.S. dollar may see declines in the year ahead given its current high level versus EM currencies, which may improve the economic outlook for many EM countries.

 

China retail sales increased +10.6% year-over-year (YoY) in March, setting the stage for a rebound in consumer spending this year, which we expect to benefit consumer technology companies, among others.

 

Alibaba’s recent restructuring into six separate business groups, each individually able to raise capital, indicates the company’s focus on generating shareholder value; and a resulting IPO would likely result in a new issuer, which would be included in the Underlying Index and Fund in the future.

 

Emerging Markets Overview (April 1, 2022 to March 31, 2023)

 

Emerging Market equities, as measured by the MSCI Emerging Markets Index, were down for the period, returning -10.39%.

 

The best performing sectors across EM equity markets included Energy (+4.22%), Consumer Staples (-0.08%), and Consumer Discretionary (-3.86%).

 

The worst performing sectors across EM equity markets included Health Care (-15.02%), Materials (-15.21%), and Real Estate (-16.16%).

 

Within the Fund, exposure to the Consumer Discretionary and Consumer Staples sectors contributed positively to performance, while its exposure to the Communication Services and Financials sectors detracted from performance.

 

25

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Emerging Markets Consumer Technology Index ETF (continued)

 

For the Period, the NAV of the Fund decreased by -15.30% while the Underlying Index decreased by -14.47%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees and currency translations.

 

26

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Emerging Markets Consumer Technology Index 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
    Three Year
Return
    Five Year
Return
    Annualized
Inception to Date
 
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
 
KraneShares Emerging Markets Consumer Technology Index ETF     -15.30 %     -14.60 %‡     -7.08 %‡     -7.32 %‡     -9.63 %‡     -9.89 %‡     -7.88 %‡     -7.96 %‡
Solactive Emerging Markets Consumer Technology Index     N/A       -14.47 %‡     N/A       -6.00 %‡     N/A       -8.76 %‡     N/A       -6.73 %‡
S&P 500 Index     N/A       -7.73 %‡     N/A       18.60 %‡     N/A       11.19 %‡     N/A       11.02 %‡

 

* The Fund commenced operations on October 11, 2017.
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 gross operating expense ratio is 0.79% and its net expense ratio

 

27

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Emerging Markets Consumer Technology Index ETF (concluded)

 

is 0.59% due to a Fee Waiver whereby the Fund’s investment manager, Krane Funds Advisors, LLC, has contractually agreed to reduce its management fee by 0.20% of the Fund’s average daily net assets until August 1, 2023.

 

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.

 

28

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI China Clean Technology Index ETF

 

The KraneShares MSCI China Clean Technology Index ETF (the Fund) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the MSCI China IMI Environment 10/40 Index (the Underlying Index).

 

The Underlying Index is comprised of securities that derive at least 50% of their revenues from environmentally beneficial products and services. The Underlying Index is based on five key Clean Technology environmental themes: Alternative Energy, Sustainable Water, Green Building, Pollution Prevention, and Energy Efficiency. The Underlying Index aims to serve as a benchmark for investors seeking exposure to Chinese companies that focus on contributing to a more environmentally sustainable economy by making efficient use of scarce natural resources or by mitigating the impact of environmental degradation. Constituent selection is based on data from MSCI Environment, Social, and Governance (ESG).

 

China Clean Technology Review:

 

Several macroeconomic headwinds impacted the Fund’s performance during the 12-month period ending March 31, 2023 (the Period), including the most aggressive interest rate hiking cycle in history from the U.S. Federal Reserve. On the other hand, the passage of the Inflation Reduction Act (IRA) in the U.S. favors U.S. suppliers of clean energy technologies, such as solar panels, and the clean technology companies generally held by the Fund.

 

The best-performing sector within the Fund was Information Technology, while the worst-performing sectors were Real Estate and Utilities. Information technology company Kingsoft Cloud was one of the best-performing companies in the Fund. Meanwhile, real estate developers YueXiu and Soho saw declines following a slump in China’s real estate sector.

 

We see three potential positive catalysts for China’s clean technology equities in the year to come:

 

Increasing domestic demand for solar panels as China ramps up its efforts to achieve peak carbon emissions by 2030 and net zero emissions by 2060. Solar currently makes up less than 5% of China’s total energy mix, but we believe that sales have the potential to increase.

 

A rebound in China’s real estate development industry, which may uplift sustainable developers as well.

 

China’s continued leadership in the transition to electric vehicles (EVs) as 6 million EVs were sold in the country in 2022 compared to only 2.6 million in Europe and 800,000 in the U.S.

 

For the Period, the NAV of the Fund decreased by -20.71% while the Underlying Index decreased by -21.68%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees and currency translations.

 

29

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI China Clean Technology Index 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
    Three Year
Return
    Five Year
Return
    Annualized
Inception to Date
 
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
 
KraneShares MSCI China Clean Technology Index ETF     -20.71 %     -20.31 %‡     20.76 %‡     20.82 %‡     5.81 %‡     5.53 %‡     4.40 %‡     4.45 %‡
MSCI China IMI Environment 10/40 Index (Net)     N/A       -21.68 %‡     N/A       17.38 %‡     N/A       4.21 %‡     N/A       3.01 %‡
S&P 500 Index     N/A       -7.73 %‡     N/A       18.60 %‡     N/A       11.19 %‡     N/A       11.06 %‡

 

* The Fund commenced operations on October 12, 2017.
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 gross 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

 

30

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI China Clean Technology Index ETF (concluded)

 

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.

 

31

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Electric Vehicles and Future Mobility Index ETF

 

The KraneShares Electric Vehicle and Future Mobility Index ETF (the Fund) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Bloomberg Electric Vehicles Index (the Underlying Index).

 

The Underlying Index seeks to measure the performance of companies that are engaged in the production of electric vehicles, their components, or other initiatives that may change the future of mobility. This includes issuers engaged in electric vehicles, autonomous driving, lithium and/ or copper production, lithium-ion/lead acid battery production, hydrogen fuel cell manufacturing, and/or electric infrastructure businesses.

 

Global Electric Vehicle Market Review:

 

Global electric vehicles equities were mostly flat during the 12-month period ended March 31, 2023 (the Period) as higher U.S. interest rates made growth equities appear less attractive. Nonetheless, sales of electric vehicles (EVs) continued to rise. EV sales increased +60% to reach 10.3 million vehicles in 2022, up from 6.5 million vehicles in 2021. China continued to lead in sales as 6 million EVs were sold in China during 2022. Meanwhile, Europe and the U.S. tracked behind, logging sales of 2.6 million and 800,000 EVs, respectively.

 

We see three potential positive catalysts for EV equities in the year to come:

 

The passage of the Inflation Reduction Act (IRA) in the United States, which includes over $300 billion in investment in the transition from fossil fuels to renewable energy, including incentives for manufacturers and buyers of EVs.

 

At least six provinces in China have launched their own EV subsidy programs following the expiration at the end of 2022 of national subsidies for purchases of new EVs.

 

The potential for a pivot from the U.S. Federal Reserve on interest rate hikes and for new metals supply to come online, both of which would provide support to EV manufacturers on both a fundamental and sentimental level.

 

For the Period, the NAV of the Fund decreased by -21.78% while the Underlying Index decreased by -21.56%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees.

 

Companies involved in battery production were among the best performing of the Fund’s holdings during the Period. Meanwhile, companies involved in hydrogen and fuel cell technologies, charging technologies, and vehicle production detracted the most from the Fund’s performance for the period.

 

32

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Electric Vehicles and Future Mobility Index 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
    Three Year
Return
    Five Year
Return
    Annualized
Inception to Date
 
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
 
KraneShares Electric Vehicles and Future Mobility Index ETF     -21.78 %     -21.35 %‡     20.30 %‡     20.81 %‡     7.97 %‡     7.77 %‡     6.20 %‡     6.26 %‡
Hybrid KARS Index (Net)**     N/A       -21.56 %‡     N/A       21.70 %‡     N/A       8.68 %‡     N/A       6.80 %‡
S&P 500 Index     N/A       -7.73 %‡     N/A       18.60 %‡     N/A       11.19 %‡     N/A       9.59 %‡

 

* The Fund commenced operations on January 18, 2018.
** The Hybrid KARS Index consists of the Solactive Electric Vehicles and Future Mobility Index from the inception of the Fund through June 15, 2021 and the Bloomberg Electric Vehicles Total Return 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 0.70%. Please note that

 

33

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Electric Vehicles and Future Mobility Index ETF (concluded)

 

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.

 

34

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI All China Health Care Index ETF

 

The KraneShares MSCI All China Health Care Index ETF (the Fund) 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 Underlying Index).

 

The Underlying Index is a free float-adjusted market capitalization weighted index designed to track the equity market performance of Chinese companies engaged in the health care sector. The securities in the Index include all types of publicly issued shares of Chinese issuers, which are listed in Mainland China, Hong Kong, and the United States. Issuers eligible for inclusion must be classified under the Global Industry Classification Standard (GICS®) as engaged in the healthcare sector. The issuers included in the Underlying Index may include small-cap, mid-cap, and large-cap companies.

 

China Health Care Review:

 

Several macroeconomic headwinds impacted the Fund’s performance during the 12-month period ended March 31, 2023 (the Period), including an aggressive rate hiking cycle pursued by global central banks, which made growth equities appear less attractive due to the resulting increase in the risk-free rates in many countries, the placement of some China-based pharmaceutical companies on the U.S. “unverified list,” indicating that the end-use of imported materials could not be verified by U.S. inspectors due to COVID restrictions, and regulatory changes to China’s central procurement program, especially the inclusion of medical devices in the program.

 

We see three potential positive catalysts for China’s healthcare equities in the year to come:

 

Wuxi Biologics has been removed from the U.S. “unverified list,” which is a list of companies that import sensitive materials from the U.S. and are unable to submit to inspections. Wuxi Biologics was removed from the unverified list following the end of China’s pandemic restrictions, which enabled U.S. inspectors to gain access to Wuxi’s facilities. We believe that this means that being added to the unverified list is no longer a material risk to China’s pharmaceutical companies as COVID restrictions were the only reason for the companies’ inclusion on the list.

 

On December 15th, 2022, the Public Company Accounting Oversight Board (PCAOB) announced that the agency had secured complete access to inspect and investigate China-based firms and their auditors for the first time in history. This announcement was significant for China healthcare companies, many of which are listed publicly in the U.S., because the U.S. Congress in 2022 required U.S.-listed foreign companies to allow the PCAOB to inspect their audit books to remain listed publicly on U.S. exchanges. Thus, the achievement of full access to the audit books of U.S.-listed China-based firms by the PCAOB significantly lowers the risk that certain ADRs in the Fund’s portfolio may be delisted from U.S. exchanges.

 

According to a paper published by Lancet Public Health this year, life expectancy in China is likely to increase to over 80 by 2035 and to potentially as high as 90 for women in certain areas. This could create long-term, steadily growing demand for healthcare in China for the foreseeable future.

 

The best-performing industries within the Fund were medical/nursing services and medical distributors. Meanwhile, pharmaceuticals and biotechnology were the worst-performing industries within the Fund.

 

35

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI All China Health Care Index ETF (continued)

 

For the Period, the NAV of the Fund decreased by -12.65% while the Underlying Index decreased by -12.43%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees.

 

36

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI All China Health Care Index 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
    Three Year
Return
    Five Year
Return
    Annualized
Inception to Date
 
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
 
KraneShares MSCI All China Health Care Index ETF     -12.65 %     -11.85 %‡     0.02 %‡     -0.35 %‡     -2.11 %‡     -2.69 %‡     -0.82 %‡     -1.04 %‡
MSCI China All Shares Health Care 10/40 Index     N/A       -12.43 %‡     N/A       1.00 %‡     N/A       -1.54 %‡     N/A       -0.11 %‡
S&P 500 Index     N/A       -7.73 %‡     N/A       18.60 %‡     N/A       11.19 %‡     N/A       9.46 %‡

 

* The Fund commenced operations on January 31, 2018.
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 gross operating expense ratio is 0.79% and its net expense ratio is 0.65% due to a Fee Waiver whereby the Fund’s investment manager, Krane Funds Advisors, LLC, has contractually agreed to reduce its management fee by 0.14% of the Fund’s average daily

 

37

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI All China Health Care Index ETF (concluded)

 

net assets until August 1, 2023. 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.

 

38

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Asia Pacific High Income Bond ETF

 

The KraneShares Asia Pacific High Income Bond ETF (the Fund) seeks to provide a total return that, before fees and expenses, exceeds that of the JP Morgan Asia Credit Index (JACI) Non-Investment Grade Corporate Index (the Benchmark Index) over a complete market cycle.

 

The Benchmark Index is comprised of liquid U.S. dollar denominated debt instruments issued out of Asia ex-Japan. It is based on the composition and established methodology of the J.P. Morgan Asia Credit Index (JACI), which is market capitalization weighted. The Benchmark Index is limited to issuers classified as non-investment grade based on the middle rating among Moody’s, Fitch, and S&P.

 

Asia High Yield Bond Market Review:

 

Asia’s high yield bond market was relatively unchanged from the prior year during the 12-month period ended March 31, 2023 (the Period) as the slump in China’s real estate market, stemming from tightening government policies that were introduced in 2021 and included the “three red lines” policy limiting developer leverage, continued to weigh on the performance of Asia’s high yield bond market. However, positive signs of a recovery emerged in the first quarter of 2023, including the stabilization of home prices in January following 16 consecutive months of price declines.

 

Portfolio manager Wai Hoong Leong and his Singapore-based team reversed from their high cash position of 18% in the second quarter of 2022 to under 10% by the end of the Period due to improving credit conditions. The team also reversed its underweights versus the benchmark to the Real Estate and Consumer Discretionary sectors from the beginning of the Period, while keeping duration lower than the Benchmark Index.

 

We see three potential positive catalysts for the Asia high yield bond market going forward:

 

The potential for a recession in the U.S. or other market changes that cause the U.S. Federal Reserve to end its rate hike cycle, the most aggressive in history, making high yield securities more attractive. This may also cause emerging Asian economies to appear relatively more attractive sources of growth compared to the U.S. and developed economies. Both of these developments should benefit the Fund.

 

The potential for a sustained recovery in China’s real estate sector as the government has become more supportive of the sector in recent months.

 

Issuance may increase in Asia’s high yield bond market following a slump over the past 12 months as market participants gain confidence in the outlooks for their businesses, especially in the Consumer [Staples] [Discretionary] sector following China’s removal of pandemic restrictions, which dampened Chinese consumer activity.

 

For the Period, the NAV of the Fund decreased by -0.44% while the Benchmark Index decreased by -0.62%.

 

39

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Asia Pacific High Income Bond 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
    Three Year
Return
    Annualized
Inception to Date
 
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
 
KraneShares Asia Pacific High Income Bond ETF     -0.44 %     -0.66 %‡     -3.54 %‡     -3.99 %‡     -1.88 %‡     -1.85 %‡
J.P. Morgan Asia Credit (JACI) Non-Investment Grade Corporates Index     N/A       -0.62 %‡     N/A       -4.26 %‡     N/A       -1.65 %‡
Lipper China Region Funds Classification     N/A       -8.18 %‡     N/A       3.39 %‡     N/A       N/A  
Bloomberg Global Aggregate Index     N/A       -8.06 %‡     N/A       -3.43 %‡     N/A       -0.79 %‡

 

* The Fund commenced operations on June 26, 2018.
Prior to August 1, 2021, the Fund previously sought to track the performance of the Solactive USD China Corporate High Yield Bond Index, before fees and expenses. Its performance prior to that date would have been different if the current goal and principal investment strategies had been in effect.
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.

 

40

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Asia Pacific High Income Bond ETF (concluded)

 

As stated in the Fund’s prospectus, the Fund’s operating expense ratio is 0.69%. 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.

 

41

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Emerging Markets Healthcare Index ETF

 

The KraneShares Emerging Markets Healthcare Index ETF (the Fund) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Solactive Emerging Markets Healthcare Index (the Underlying Index).

 

The Underlying Index seeks to track the equity market performance of companies engaged in the health care sector in various emerging markets. The issuers include small-cap, mid-cap, and large-cap companies involved in hospital management, healthcare management, pharmaceutical manufacturing, and biotechnology, among other sub-industries.

 

Emerging Markets Healthcare Review:

 

During the 12-month period ended March 31, 2023 (the Period), emerging market (EM) healthcare companies continued to build on the progress made in response to the pandemic. They continued to rapidly expand their virtual health services for patients and establish partnerships with developed market companies to produce and/or acquire vaccines, treatments, and equipment. Within the Fund, the best-performing holdings were mainly involved in the healthcare technology and medical devices industries. Meanwhile, the worst-performing holdings were mainly those involved in healthcare facilities management and biotechnology industries.

 

The Fund was down for the Period as a strong U.S. dollar and rising U.S. interest rates continued to weigh on EM and growth equities. Meanwhile, waning demand for COVID vaccines and concerns over future funding both had a negative impact on the global biotechnology industry. Brazil’s private healthcare industry was particularly hard-hit as provider Hapvida has had to grapple with tightening credit conditions and newly elected President Lula da Silva’s plans to make public healthcare more competitive with private alternatives.

 

We see three potential positive catalysts for EM healthcare equities in the year to come:

 

The International Monetary Fund has predicted that the growth gap between developed and emerging markets will reverse in favor of EM for the first time in nearly a decade, forecasting growth of 4% for EM in 2023 compared to 1.2% for developed markets.

 

Wuxi Biologics has been removed from the U.S. “unverified list,” which is a list of companies that import sensitive materials from the U.S. and are unable to submit to inspections. Wuxi Biologics was removed from the unverified list following the end of China’s pandemic restrictions, which enabled U.S. inspectors to gain access to Wuxi’s facilities. We believe that this means that being added to the unverified list is no longer a material risk to China’s pharmaceutical companies as COVID restrictions were the only reason for the companies’ inclusion on the list.

 

The achievement of full access to the audit books of U.S.-listed China-based firms by the U.S. Public Company Accounting Oversight Board (PCAOB) significantly lowers the risk of the ADRs issued by companies in the Fund from being removed from U.S. exchanges.

 

Emerging Markets Overview (March 31, 2022 to March 31, 2023)

 

Emerging Market equities, as measured by the MSCI Emerging Markets Index, were down for the period, returning -10.39%.

 

The best performing sectors across the Emerging Market equity market included Consumer Staples (+0.08%), Consumer Discretionary (-3.86%), and Energy (+4.22%).

 

42

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Emerging Markets Healthcare Index ETF (continued)

 

The worst performing sectors across the Emerging Market equity market included Health Care (-15.02%), Materials (-15.21%), and Real Estate (-16.16%).

 

For the Period, the NAV of the Fund decreased by -14.97% while the Underlying Index decreased by -14.90%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees.

 

43

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Emerging Markets Healthcare Index 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
    Three Year
Return
    Annualized
Inception to Date
 
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
 
KraneShares Emerging Markets Healthcare Index ETF     -14.97 %     -14.19 %‡     0.37 %‡     0.42 %‡     -3.29 %‡     -3.26 %‡
Solactive Emerging Markets Healthcare Index     N/A       -14.90 %‡     N/A       0.88 %‡     N/A       -2.76 %‡
S&P 500 Index     N/A       -7.73 %‡     N/A       18.60 %‡     N/A       9.68 %‡

 

* The Fund commenced operations on August 29, 2018.
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

 

44

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Emerging Markets Healthcare Index 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.

 

45

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI Emerging Markets ex China Index ETF

 

The KraneShares MSCI Emerging Markets ex China Index ETF (the Fund) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the MSCI Emerging Markets ex China Index (the Underlying Index).

 

The Underlying Index is a free float-adjusted market capitalization weighted index designed to track the equity market performance of mid- and large-cap companies of emerging market countries, excluding China. The Underlying Index is based on the MSCI Emerging Markets Index (universe) but excludes the securities of Chinese issuers.

 

Emerging Markets ex China Review:

 

Emerging markets (EM) excluding China (EM ex China) were adversely impacted by a steady increase in the value of the U.S. Dollar during the 12-month period ended March 31, 2023 (the Period), which meant that their U.S. Dollar-denominated debts became more of a burden. However, many commodity-exporting EM countries benefitted from heightened oil prices; and consumer-oriented stocks recovered somewhat. Meanwhile, South Korea and Taiwan lagged due to slowing global demand for their semiconductor exports. Due to the latter’s higher weight in the Fund’s Underlying Index, these opposing forces negatively impacted the Fund’s performance.

 

We see three potential positive catalysts for EM ex China equities in the year to come:

 

The International Monetary Fund has predicted that the growth gap between developed and emerging markets will reverse to favor the latter for the first time in nearly a decade, forecasting growth of 4% for EM in 2023 compared to 1.2% for developed markets.

 

Although China’s equity valuations saw a significant increase compared to other EM equity valuations in the fourth quarter of 2022, we believe the latter may close this gap over the next 12 months as EM ex China economies rebound and benefit from the Chinese population’s increased spending on energy, travel, and raw materials.

 

The U.S. dollar may see declines in the year ahead given its current high level versus EM currencies, which may improve the economic outlook for many EM countries to the extent that it mitigates the drag of their U.S. dollar denominated debt burden.

 

Emerging Markets Overview (April 1, 2022 to March 31, 2023)

 

Emerging Market equities, as measured by the MSCI Emerging Markets Index, were down for the period, returning -10.39%.

 

The best performing sectors across the EM equity market included Energy (+4.22%), Consumer Staples (-0.08%), and Consumer Discretionary (-3.86%).

 

The worst performing sectors across the EM equity market included Health Care (-15.02%), Materials (-15.21%), and Real Estate (-16.16%).

 

Within the Fund, exposure for the Period to the Consumer Discretionary and Consumer Staples sectors benefitted the Fund, while exposure to the Communication Services and Financials sectors detracted from Fund performance. The best-performing country exposure for the Fund was Turkey, and the worst-performing country exposure was Colombia.

 

For the Period, the NAV of the Fund decreased by -12.12% while the Underlying Index decreased by -13.32%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees and the Fund’s usage of representative sampling to seek to track the Underlying Index’s performance.

 

46

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI Emerging Markets ex China Index 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
    Three Year
Return
    Annualized
Inception to Date
 
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
    Net
Asset
Value
    Market
Price^
 
KraneShares MSCI Emerging Markets ex China Index ETF     -12.12 %     -11.40 %‡     14.80 %‡     14.88 %‡     3.47 %‡     3.72 %‡
MSCI Emerging Markets Ex China Index     N/A       -13.32 %‡     N/A       14.30 %‡     N/A       2.44 %‡
S&P 500 Index     N/A       -7.73 %‡     N/A       18.60 %‡     N/A       11.15 %‡

 

* The Fund commenced operations on April 12, 2019.
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, as supplemented, the Fund’s gross operating expense ratio is 0.59% and its net expense ratio is 0.23% due to a Fee Waiver whereby the Fund’s investment manager, Krane Funds Advisors, LLC, has contractually agreed to reduce its management fee by 0.35% of the Fund’s average daily net assets until August 1, 2022. Please note that one cannot invest directly in an unmanaged index. There are no assurances that the Fund will meet its stated objectives.

 

47

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI Emerging Markets ex China Index ETF (concluded)

 

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.

 

48

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI China ESG Leaders Index ETF

 

The KraneShares MSCI China ESG Leaders Index ETF (the Fund) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the MSCI China ESG Leaders 10/40 Index (the Underlying Index).

 

The Underlying Index is designed to measure the performance of Chinese companies with high Environmental, Social and Governance (ESG) ratings relative to their sector peers. The Underlying Index consists of small-cap, mid-cap and large-cap companies in China. In order to ensure diversification, the Underlying Index limits individual constituent weights to 10% and the cumulative weight of all constituents with a weight of over 5% to 40% of its composition.

 

China ESG Review:

 

Chinese companies with the highest MSCI ESG rankings tend to be highly concentrated in growth sectors and, as such, were caught up in the global growth selloff during the 12-month period ended March 31, 2023 (the Period). Nonetheless, we continue to see strong client interest in strategies that consider ESG factors. Furthermore, we are encouraged by the Fund’s performance since inception, which has outpaced the broader China equity market, as represented by the MSCI China Index. These performance results reinforce our thesis that ESG considerations may lead to outperformance in China.

 

President Xi’s pledge last year to promote “common prosperity” in the government’s oversight of private businesses led to investor enthusiasm for Chinese companies with high ESG rankings. With Xi installed for a third term, we believe this emphasis may continue.

 

We see three potential positive catalysts for China ESG equities in the year to come:

 

We believe that The People’s Bank of China (PBOC) is likely to maintain a dovish monetary policy stance, to the benefit of growth equities.

 

China retail sales increased +3.5% year-over-year in the first two months of 2023, setting the stage for a rebound in consumer spending this year, which could benefit consumer-oriented ESG equities.

 

New regulations globally surrounding ESG disclosure and adherence to sustainability standards in investment processes may cause more investors to seek ESG characteristics in their China investments. Meanwhile, China’s government continues to support industries with a high concentration of companies with high ESG ratings, such as manufacturers of electric vehicles and solar panels.

 

Communication Services was the best-performing sector within the Fund. Meanwhile, Real Estate was the worst-performing sector.

 

For the Period, the NAV of the Fund decreased by -10.38% while the Underlying Index decreased by -9.62%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees.

 

49

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares MSCI China ESG Leaders Index 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 MSCI China ESG Leaders Index ETF     -10.38 %     -8.64 %‡     -6.44 %‡     -6.53 %‡
MSCI China ESG Leaders 10/40 Index     N/A       -9.62 %‡     N/A       -5.77 %‡

 

* The Fund commenced operations on July 28, 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 0.59%. 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.

 

50

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares CICC China 5G & Semiconductor Index ETF

 

The KraneShares CICC China 5G & Semiconductor Index ETF (the Fund) seeks to provide investment results that, before expenses and fees, correspond generally to the price and yield performance of the CICC China 5G and Semiconductor Leaders Index (the Underlying Index).

 

The Underlying Index is designed to track the performance of companies engaged in 5G and semiconductor related businesses, including 5G equipment, semiconductors, electronic components, and data centers.

 

China 5G & Semiconductor Market Review:

 

China’s 5G and semiconductor-related equities were down for the 12-month period ending March 31, 2023 (the Period) due to a global risk-off environment and geopolitical concerns that led to negative sentiment towards the semiconductor industry.

 

Regarding the semiconductor component of the strategy, in late 2022, the U.S. government implemented a series of restrictions on the export of certain varieties of high-end semiconductors to Mainland China. China’s share of U.S. semiconductor exports declined from $7 billion in 2021 to $5 billion in 2022. These restrictions were initially viewed as negative for China’s industry, but they have likely accelerated the timeline in which China could become self-sufficient in producing semiconductors. A self-sufficient China semiconductor industry would lead to a significant increase in the revenues of China’s leading semiconductor manufacturers and catalyze the Fund’s performance.

 

Regarding the 5G component of the strategy, the Fund’s performance benefited from holding stocks of companies mainly involved in the production of telecommunications equipment. We believe that the relative outperformance of these names was tied partially to the Chinese government’s reiteration of its goal to increase the nation’s 5G penetration rate as part of the 14th Five Year Plan.

 

We see three potential positive catalysts for China’s 5G & semiconductor companies in the year to come.

 

China’s imports of U.S.-made and/or designed semiconductors are likely to continue to fall given new export restrictions, representing a significant opportunity for local semiconductor manufacturers to grow their business.

 

We expect ample liquidity in China’s equity markets driven by dovish central bank policy in China, in contrast to the hawkish policy in the U.S. and Europe. We believe that such dovish policies are likely to benefit growth-oriented technology stocks, such as those of 5G and semiconductor issuers, listed in Mainland China.

 

According to a report from UBS, China is projected to have over 400 million 5G users by 2025, accounting for 40% of total global use and driving China’s 5G industry forward.

 

For the Period, the NAV of the Fund decreased by -9.62% while the Underlying Index decreased by -9.32%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees.

 

51

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares CICC China 5G & Semiconductor Index 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     Annualized  
    Return     Inception to Date  
    Net           Net        
    Asset     Market     Asset     Market  
    Value     Price^     Value     Price^  
KraneShares CICC China 5G & Semiconductor Index ETF     -9.62 %     -8.72 %‡     -13.41 %‡     -13.51 %‡
CICC China 5G And Semiconductor Leaders Index     N/A       -9.32 %‡     N/A       -12.21 %‡
S&P 500 Index     N/A       -7.73 %‡     N/A       N/A  

 

* The Fund commenced operations on November 23, 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 gross operating expense ratio is 0.79% and its net expense ratio is 0.64% due to a Fee Waiver whereby the Fund’s investment manager, Krane Funds Advisors, LLC, has contractually agreed to reduce its management fee by 0.14% of the Fund’s average daily net assets until August 1, 2022. 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

 

52

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares CICC China 5G & Semiconductor Index ETF (concluded)

 

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.

 

53

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares CICC China Consumer Leaders Index ETF

 

The KraneShares CICC China Consumer Leaders Index ETF (the Fund) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the CICC China Consumer Leaders Index (the Underlying Index).

 

The Underlying Index consists of the investable universe of publicly traded China-based companies whose primary business or businesses are in the consumption-related industries such as home appliance, food & beverage, apparel & clothing, hotels, restaurants, and duty-free goods.

 

China Consumer Leaders Review:

 

The stocks of China’s local consumer brands moved higher during the 12-month period ended March 31, 2023 (the Period), mostly due to the lifting of pandemic restrictions following China’s National Party Congress in October 2022, which led to an increase in consumer spending compared to one year earlier. The first evidence of this increase in consumer spending was reported by China’s Tourism Ministry in data from the Chinese Lunar New Year holiday in late January 2023, which signaled a rebound in consumer activities following the lifting of the pandemic restrictions. The data indicated a +23% rise in domestic trips taken during the seven-day holiday in 2022 as compared to the same holiday in 2021.

 

We believe that with the lifting of pandemic restrictions, China can return to normal and that consumption-related companies will be direct beneficiaries of the country’s reopening. We also believe that a recovery in the service sector (e.g., travel as evidenced by the activity around the Chinese Lunar New Year) will likely lead to a resurgence of demand for consumer products. As China’s inflation remains low and its high target for GDP growth remains intact, there appears to be significant policy support for China’s consumer market. In time, we expect China to strive to rebalance its economy through consumption rather than investments and exports, which will create a long-term opportunity for the leading consumer brands in China.

 

We see three potential positive catalysts for China’s consumer brands in the year to come:

 

China retail sales increased +10.6% year-over-year in March, setting the stage for a rebound in consumer spending this year, which may benefit both onshore and offshore China equities.

 

According to sources on the ground in China, consumers are beginning to perceive many local brands on equal footing with foreign brands, which, in the past, had been perceived as higher quality and more fashionable.

 

Many global banks have upgraded their 2023 GDP growth estimates for China to above 6% year-over-year, mostly owing to the heightened level of consumption, which may benefit the leading local China brands.

 

Within the Fund, the best-performing sectors during the Period were Consumer Discretionary and Consumer Staples. Meanwhile, the worst-performing sectors were Materials and Information Technology.

 

For the Period, the NAV of the Fund increased by 1.64% while the Underlying Index increased by 2.32%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees.

 

54

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares CICC China Consumer Leaders Index 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     Annualized  
    Return     Inception to Date  
    Net           Net        
    Asset     Market     Asset     Market  
    Value     Price^     Value     Price^  
KraneShares CICC China Consumer Leaders Index ETF     1.64 %     2.85 %‡     -8.78 %‡     -8.82 %‡
CICC China Consumer Leaders Index     N/A       2.32 %‡     N/A       -7.77 %‡
S&P 500 Index     N/A       -7.73 %‡     N/A       N/A  

 

* The Fund commenced operations on December 8, 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 0.69%. 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.

 

55

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares SSE STAR Market 50 Index ETF

 

The KraneShares SSE STAR Market 50 Index ETF (the Fund) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Shanghai Stock Exchange (SSE) Science and Technology Innovation Board 50 Index (the Underlying Index).

 

The Underlying Index is comprised of the 50 largest companies listed on the SSE Science and Technology Innovation Board (STAR Market) as determined by market capitalization and liquidity.

 

STAR Market Review:

 

China’s STAR Market was not spared the global selloff in growth equities during the 12-month period ended March 31, 2023 (the Period). Nonetheless, the STAR market continues to attract new listings, accounting for 41% of the total capital raised through new listings in Mainland China in 2022. Since its launch in 2019, the STAR market has allowed 486 companies, mostly in the technology industry, to raise a total of 102 billion USD in capital.

 

We see three potential positive catalysts for the STAR Market in the years to come:

 

Ample liquidity driven by what we expect to be a dovish central bank policy in China, in contrast to the hawkish policy in the U.S. and Europe, which is likely to create the conditions for a vibrant IPO market in China over the next few years and lead to new listings on the STAR market.

 

China’s increasing support for high technology companies, such as semiconductor manufacturing, which represent a majority of companies in the Underlying Index and Fund portfolio, after restrictions on the export of high-end chips to China implemented by the U.S. last year.

 

The potential revival of financial technology company Ant Group’s IPO on the STAR Market.

 

The best-performing holdings for the period were mainly in the software industry. Beijing Kingsoft Office Software was the top-performing holding in the Fund. Meanwhile, pharmaceuticals, including Shanghai Junshi Biosciences Co., were the primary detractors from the Fund’s performance.

 

For the Period, the NAV of the Fund decreased by -9.97% while the Underlying Index decreased by -8.05%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees and the Underlying Index’s inclusion of an issuer that cannot be held by the Fund due to restrictions imposed by the U.S. Department of Treasury.

 

56

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares SSE STAR Market 50 Index 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     Annualized  
    Return     Inception to Date  
    Net           Net        
    Asset     Market     Asset     Market  
    Value     Price^     Value     Price^  
KraneShares SSE Star Market 50 Index ETF     -9.97 %     -8.81 %‡     -16.50 %‡     -16.29 %‡
SSE Science & Technology Innovation Board 50 Index     N/A       -8.05 %‡     N/A       -15.42 %‡

 

* The Fund commenced operations on January 26, 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 0.88%. 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.

 

57

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Hang Seng TECH Index ETF

 

The KraneShares Hang Seng TECH Index ETF (the Fund) seeks to provide investment results that, before expenses and fees, correspond generally to the price and yield performance of the Hang Seng TECH Index (the Underlying Index).

 

The Underlying Index is designed to track the performance of the 30 largest technology companies listed in Hong Kong that have high business exposure to technology themes and pass the Underlying Index’s screening criteria.

 

Hong Kong-listed Technology Market Review:

 

During the 12-month period ended March 31, 2023 (Period), global markets saw declines due to rising global interest rates; and Hong Kong-listed technology stocks were not spared the downdraft in growth equities. Following China’s National Party Congress, held in October 2022, China’s government removed all domestic pandemic-related restrictions. This development improved the outlook for China’s consumer market and led to a rebound in many of China’s Hong Kong-listed, consumer and internet-related equities. As a result, stocks of internet and consumer companies were the best performing among the Fund’s holdings, while electric vehicle companies and data center operators detracted from the Fund’s performance.

 

We see three potential positive catalysts for Hong Kong-listed technology equities in the year to come:

 

We believe that The People’s Bank of China (PBOC) is likely to maintain a dovish monetary policy stance, to the benefit of growth equities.

 

China retail sales increased +3.5% year-over-year in the first two months of 2023, setting the stage for a rebound in consumer spending this year.

 

Alibaba’s recent restructuring into six separate business groups, each individually able to raise capital, indicates the company’s focus on generating shareholder value; and a resulting IPO would likely result in a new issuer, which would be included in the Underlying Index and Fund portfolio in the future.

 

For the Period, the NAV of the Fund decreased by -4.37% while the Underlying Index decreased by -5.15%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees.

 

58

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares Hang Seng TECH Index 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     Annualized  
    Return     Inception to Date  
    Net           Net        
    Asset     Market     Asset     Market  
    Value     Price^     Value     Price^  
KraneShares Hang Seng TECH Index ETF     -4.37 %     -1.85 %‡     -29.36 %‡     -29.74 %‡
Hang Seng TECH Index     N/A       -5.15 %‡     N/A       -28.98 %‡

 

* The Fund commenced operations on June 8, 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 0.69%. 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.

 

59

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares China Innovation ETF

 

The KraneShares China Innovation ETF (KGRO) is an active ETF which provides investors with core exposure to the brightest high-growth areas within China’s economy by combining “New China” growth sectors. KGRO primarily invests in the following ETFs:

 

KraneShares CSI China Internet ETF (KWEB)

 

KraneShares MSCI All China Health Care Index ETF (KURE)

 

KraneShares MSCI China Clean Technology Index ETF (KGRN)

 

KraneShares CICC China 5G & Semiconductor Index ETF (KFVG)

 

KraneShares SSE STAR Market 50 Index ETF (KSTR)

 

In addition to investments in these ETFs, KGRO may invest up to 15% of its net assets in the securities of private companies that align with the themes represented by the ETFs or appear to be attractive opportunities, including those that may be preparing for an initial public offering.

 

China Innovation Review:

 

China’s growth equities were down for the 12-month period ended March 31, 2023 (Period) as global central banks engaged in the most aggressive interest rate hiking cycle in decades. This is reflected in the Fund’s performance for the Period. Nonetheless, internet and e-commerce outperformed during the Period as several of the macroeconomic and geopolitical headwinds that had weighed on such issuers in previous periods were resolved, including as a result of China removing pandemic restrictions following the National Party Congress. Technology companies also saw a significant rebound in the first quarter of 2023 on significant policy support for key industries, such as semiconductors, although the sector was still down for the overall Period.

 

The best performing ETF in the portfolio was the KraneShares CSI China Internet ETF, reflecting the rebound in internet and e-commerce stocks during the Period thanks to the removal of pandemic restrictions. Meanwhile, the worst-performing ETF was the KraneShares MSCI China Clean Technology Index ETF, reflecting the underperformance of the Information Technology sector for the Period.

 

We see three potential positive catalysts for China growth equities in the year to come:

 

We believe that The People’s Bank of China (PBOC) is likely to maintain a dovish monetary policy stance, to the benefit of growth equities.

 

China retail sales increased +3.5% year-over-year in the first two months of 2023, setting the stage for a rebound in consumer spending this year.

 

Alibaba’s recent restructuring into six separate business groups, each individually able to raise capital, indicates the company’s focus on generating shareholder value; and a resulting IPO would likely result in a new issuer, which would be included in the Underlying Index and Fund portfolio in the future.

 

For the Period, the NAV of the Fund decreased by -6.60% while the Underlying Index decreased by -6.44%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees.

 

60

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares China Innovation 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     Annualized  
    Return     Inception to Date  
    Net           Net        
    Asset     Market     Asset     Market  
    Value     Price^     Value     Price^  
KraneShares China Innovation ETF     -6.60 %     -6.91 %‡     -20.74 %‡     -20.70 %‡
China All Shares Index     N/A       -6.44 %‡     N/A       -14.49 %‡

 

* The Fund commenced operations on October 5, 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 0.64%, 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.

 

61

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares S&P Pan Asia Dividend Aristocrats Index ETF

 

The KraneShares S&P Pan Asia Dividend Aristocrats Index ETF seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the S&P Pan Asia Dividend Aristocrats Index (the Underlying Index).

 

The Underlying Index is designed to measure the performance of constituents in the S&P Pan Asia BMI Index that have followed a policy of consistently increasing dividends every year for the last seven years (Asia dividend growers). The S&P Pan Asia BMI Index is a comprehensive benchmark index that includes securities of companies from the Asia-Pacific region, including developed and emerging market countries.

 

Asia Dividend Growers Review:

 

Asia dividend growers outpaced by a wide margin global equities, as measured by the MSCI All Country World Index (ACWI), from the Fund’s inception on September 15, 2022 to the Fund’s fiscal year end on March 31, 2023 (the Period). This significant outperformance was likely due to the relative attractiveness of the companies’ dividend payments amid rising U.S. interest rates and the global risk-off environment, which broadly favored value-oriented companies with strong cash flows and balance sheets.

 

We see three potential positive catalysts for Asia dividend growers in the year to come:

 

China’s reopening is likely to contribute to strong economic growth in the Asia Pacific region this year compared to other regions globally.

 

Dividend yields in Japan, which made up approximately 31% of the portfolio as of the end of the period, are expected to remain elevated over the next year compared to other developed markets, with Nikko forecasting a 2.6% dividend yield for 2023 compared to 2.1% for the MSCI World Index.

 

We believe that investors may continue to search for yield and diversification over the year to come, which may continue to benefit Asia dividend growers.

 

For the Period, the NAV of the Fund increased by 6.08% while the Underlying Index increased by 6.36%. The deviation between the Fund’s performance and that of the Underlying Index can be mainly attributed to management fees.

 

Within the Fund, the best-performing sectors during the Period were Healthcare and Consumer Staples. Meanwhile, the worst-performing sectors were Financials and Utilities.

 

62

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares S&P Pan Asia Dividend Aristocrats Index 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
    Market  
    Value     Price^  
KraneShares S&P Pan Asia Dividend Aristocrats Index ETF   6.08 %     -6.33 %‡
S&P Pan Asia Dividend Aristocrats Index   N/A       6.36 %‡

 

* The Fund commenced operations on September 14, 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 0.68%, 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.

 

63

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares China Internet and Covered Call Strategy ETF

 

The KraneShares China Internet and Covered Call Strategy ETF (the Fund) seeks to provide current income by following a “covered call” or “buy-write” strategy. The Fund buys shares of the KraneShares CSI China Internet ETF and “writes” or “sells” corresponding call options on the KraneShares CSI China Internet ETF, which seeks to provide investment results that, before expenses and fees, correspond generally to the price and yield performance of the CSI Overseas China Internet Index (the Underlying Index).

 

The Underlying Index is designed to measure the performance of the investable universe of publicly traded China-based companies whose primary business or businesses are in the Internet and Internet-related sectors (China Internet Companies), as defined by the index sponsor, China Securities Index Co., Ltd. (CSI).

 

China Internet Review

 

Although global markets saw declines due to rising global interest rates, U.S. and Hong Kong-listed stocks of Chinese internet issuers saw positive catalysts during the 12-month period ended March 31, 2023 (the Period) as many of the geopolitical and policy-related issues that had been weighing on the sector in prior periods were resolved. We believe that the two most important developments for the sector during the Period were the China government’s removal of pandemic restrictions and the achievement of full access to the audit books of U.S.-listed, China-based firms by the U.S. Public Company Accounting Oversight Board (PCAOB).

 

Following the National Party Congress, held in October of 2022, China’s government removed all domestic, pandemic-related restrictions. This development improved the outlook for China’s consumer market and led to a rebound in the stock price of certain China Internet Companies.

 

On December 15th, 2022, the PCAOB announced that the agency had secured complete access to inspect and investigate China-based firms and their auditors for the first time in history. This announcement was significant for China Internet Companies, many of which are listed publicly in the U.S., because the U.S. Congress in 2022, required U.S.-listed foreign companies to allow the PCAOB to inspect their audit books to remain listed publicly on U.S. exchanges. This development significantly reduced the risk of the American depositary receipts (ADRs) of China Internet Companies being delisted from U.S. exchanges.

 

Despite the rebound in the prices of China Internet Companies during the Period, U.S. and Hong Kong-listed shares of such companies continued to exhibit a high level of volatility. As a result, from the Fund’s inception on January 12, 2023, the Fund was able to generate a significant premium income, which tends to be directly correlated to the volatility of the reference asset, which in this case us the KraneShares CSI China Internet ETF (KWEB). In March, the Fund paid out a distribution of approximately $1.10 per share, reflecting the premium income received.

 

We see four potential positive catalysts for the Fund in the year to come:

 

We believe that The People’s Bank of China (PBOC) is likely to maintain a dovish monetary policy stance, to the benefit of growth equities.

 

China retail sales increased +10.6% year-over-year (YoY) in March, setting the stage for a potential rebound in consumer spending this year, which we would expect to benefit China Internet Companies.

 

Alibaba’s recent restructuring into six separate business groups, each individually able to raise capital, indicates the company’s focus on generating shareholder value; and a resulting IPO

 

64

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares China Internet and Covered Call Strategy ETF (continued)

 

would likely result in a new issuers, which would be included in the Underlying Index and Fund portfolio in the future.

 

The potential for a continuation of the heightened level of volatility of KWEB seen during the Period due to continued U.S.-China tensions, which may allow the Fund to continue to earn significant option premiums.

 

From the Fund’s inception on January 12, 2023 to the Fund’s fiscal year end on March 31, 2023, the NAV of the Fund decreased by 3.56%.

 

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
    Market  
    Value     Price^  
KraneShares China Internet and Covered Call Strategy ETF   -3.56 %     -3.48 %‡
CSI Overseas China Internet Index   N/A       -9.48 %‡

 

* The Fund commenced operations on January 12, 2023.
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

 

65

 

 

Management Discussion of Fund Performance (Unaudited) (continued)

 

KraneShares China Internet and Covered Call Strategy ETF (concluded)

 

in the Fund’s prospectus, the Fund’s operating expense ratio is 0.26%, 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.

 

66

 

 

Schedule of Investments March 31, 2023

 

KraneShares CICC China Leaders 100 Index ETF

 

 

   

Shares

   

Value

 
COMMON STOCK — 100.0%             
CHINA — 100.0%                
Communication Services — 0.8%                
China South Publishing & Media Group, Cl A     9,100‌     $ 15,425‌  
G-bits Network Technology Xiamen, Cl A     500‌       34,712‌  
              50,137‌  
Consumer Discretionary — 17.6%                
Changchun Faway Automobile Components, Cl A     7,500‌       9,534‌  
Chongqing Department Store, Cl A     2,600‌       10,268‌  
Chongqing Zongshen Power Machinery, Cl A     8,500‌       9,122‌  
FAWER Automotive Parts, Cl A     9,000‌       6,304‌  
Fuyao Glass Industry Group, Cl A     19,900‌       100,727‌  
Gree Electric Appliances of Zhuhai, Cl A     55,800‌       298,611‌  
Guangdong Vanward New Electric, Cl A     3,600‌       4,707‌  
Guangdong Xinbao Electrical Appliances Holdings, Cl A     4,200‌       10,421‌  
Guangzhou Automobile Group, Cl A     27,400‌       44,448‌  
Hisense Home Appliances Group, Cl A     5,600‌       17,084‌  
HLA Group, Cl A     21,600‌       19,627‌  
Huayu Automotive Systems, Cl A     19,600‌       47,778‌  
IKD, Cl A     4,500‌       15,845‌  
Jiangsu Changshu Automotive Trim Group, Cl A     3,200‌       9,063‌  
KingClean Electric, Cl A     1,500‌       6,391‌  
Loncin Motor, Cl A     12,700‌       9,543‌  
Midea Group, Cl A     43,000‌       336,934‌  
Ningbo Huaxiang Electronic, Cl A     6,200‌       13,371‌  
Wuchan Zhongda Group, Cl A     38,600‌       27,261‌  
Zhejiang Hangmin, Cl A     7,800‌       9,507‌  
Zhejiang Supor, Cl A     2,100‌       16,559‌  
Zhejiang Wanfeng Auto Wheel, Cl A*     19,400‌       17,571‌  
Zhejiang Weixing Industrial Development, Cl A     7,900‌       10,791‌  
              1,051,467‌  

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

 

67

 

 

Schedule of Investments March 31, 2023

 

KraneShares CICC China Leaders 100 Index ETF (continued)

 

   

Shares

   

Value

 
COMMON STOCK (continued)            
Consumer Staples — 4.9%                
Heilongjiang Agriculture, Cl A     9,100     $ 17,783  
Henan Shuanghui Investment & Development, Cl A     13,000       49,105  
Jiangsu Yanghe Brewery JSC, Cl A     7,500       180,704  
Meihua Holdings Group, Cl A     26,500