Vanguard adding China A-shares to flagship emerging market ETF

Nov 3rd, 2015 | By | Category: Equities

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Vanguard, a leading global asset manager and exchange-traded fund provider, has initiated the first phase of transitioning the Vanguard Emerging Market ETF (VWO) to include Chinese A-shares (Chinese companies listed on the Shanghai or Shenzhen stock exchanges). The process involves a gradual alignment over the course of twelve months to the fund’s ultimate new index, the FTSE Emerging Markets All Cap China A Inclusion Index, a process which will also see the ETF increase its exposure to small-cap companies.

Vanguard begins adding China A-shares to flagship emerging market ETF

The Shanghai Stock Exchange (Pictured) and the Shenzhen Stock Exchange are the two primary listing venues for Chinese A-shares.

As of 30 September 2015, the fund already had a 27.2% allocation to China; however, this has been achieved mainly through American depository receipts which are traded on international exchanges in the form of B-shares or H-shares.

The completion of the move is forecast to provide a total allocation to Chinese A-shares of 5.6%, providing a more complete and diversified investment in such a key emerging economy with the second largest global GDP as well as provide access to the second largest share market in the world (by market capitalisation). The allocation to small-cap firms is expected to increase to 11.1%.

The total weighting to China is expected to increase to approximately 32% although, over the long-term as the current restrictions on foreign ownership of A-shares are lifted, total portfolio allocation may rise as high as 50%.

The fund will perform the transition over twelve months so as to minimise the market impact of trading a large number of securities within a short period of time. Doug Yones, Vanguard’s head of ETF product management, commented: “We’re going to take the appropriate steps to ensure that the changes have only modest impact and transaction costs for the fund.”

The index which the ETF will track during this period will be the FTSE Emerging Markets All Cap China A Transition Index, which will be updated on a monthly basis to provide transparency to investors.

The fund has a net expense ratio of 0.15%.

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