KraneShares Launches New Short-Duration Sustainable Fund

“With investors looking to diversify their equities, and with few incentives to extend duration, KCSH seeks to maximize current income through ultra-short duration, investment grade bonds,” said Luke Oliver, KraneShares’ head of climate investments. “As with the rest of KraneShares’ climate-focused suite of ETFs, KCSH can offer compelling potential returns while supporting the decarbonization of the global economy.”

In normal circumstances, KCSH has a net expense ratio of 0.30%. However, KraneShares is waiving a portion of the fund’s fee until August 1, 2025. Until then, the fund’s expense ratio is 0.20%.

KCSH aims to give investors similar investment results to that of the Solactive ISS Sustainable Select 0-1 Year USD Corporate IG Index. This underlying index uses a rules-based methodology to measure the performance of investment-grade corporate assets. Eligible securities must be U.S.-dollar-denominated and have a maturity of up to one year.

Components for the index are then scrutinized on a number of different research factors. These include environmental impact, human rights, corruption, labor rights, and involvement in controversial weapons research. Additionally, securities that generate significant revenue from activities such as gambling, tobacco, cannabis, fossil fuel production, and firearms, among others, may be excluded from inclusion.

To properly weigh securities, the index uses an optimization process that fulfills all thresholds for carbon emissions. The index’s weighing also aims to mitigate index turnover while preserving the overall risk profile.

KSCH intends to use a representative sampling strategy to gain similar performance to the index. However, the fund reserves the right to opt in to a replication strategy instead.

A smaller portion of fund assets may be allocated toward assets that are not present within the underlying index. These can include equities outside the index, derivative instruments, structured notes, and cash or cash equivalents, among others.

The fund aims to provide similar industry concentration to that of the index. As of May 31, 2024, the fund prospectus notes the index has strong exposure to the financials sector. However, the index is rebalanced and reconstituted on a monthly basis.

KraneShares currently has nearly 30 ETFs listed within the United States. One of KraneShares’ largest funds, the KraneShares CSI China Internet ETF (KWEB B), has over $4 billion in assets under management.

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