Vanguard launches international (ex Australia) small-cap ETF on ASX

Nov 19th, 2018 | By | Category: Equities

Vanguard Australia has launched the Vanguard MSCI International Small Companies Index ETF (VISM AU) on Australian Securities Exchange, providing exposure to small-cap companies from developed market countries outside of Australia.

Vanguard launches international small-cap ETF on ASX

The fund’s index provides exposure to over 4,000 small cap equities from developed markets outside of Australia.

The ETF is a share class of an existing Vanguard mutual fund backed by a strong track record of more than ten years and $801m under management.

Over these 10 years, the fund has produced a return of over 11 per cent per annum, while offering regional and sector diversification to a small-caps universe of almost 4000 holdings internationally.

The underlying reference is the MSCI World ex-Australia Small Cap Index which covers approximately the lowest 15% of the free float-adjusted market capitalization within each of the 22 developed market countries in the index.

The index is weighted by free float-adjusted market capitalization and is rebalanced on a quarterly schedule. It has a median market cap of $3.9 billion and offers a dividend yield of 2.0%.

The majority (59.2%) of the index is allocated to stocks from the US with the next largest country exposures being the UK (7.3%), Canada (3.8%), Germany (2.3%), and Sweden (2.2%).

While investors can expect higher risk and the prospect of higher returns compared to global large-cap equity ETFs, the fund also has the potential to play a diversifying role within portfolios. This may be especially true at the moment given concerns over the impact of potential trade wars, notably between the US and China.

Small-cap companies, which often have more domestically oriented business models, tend to be less impacted by changes to global trade arrangements.

The ETF is exposed to the fluctuating values of foreign currencies and comes with a management fee of 0.32%. Distributions are made to investors on a quarterly basis.

The fund is the first ETF on ASX to offer exposure to the international small-cap equity universe. Investors who wish to combine this with an ETF tracking the Australian small-cap market may look to funds provided by BetaShares, BlackRock, VanEck, SPDR ETFs, or Vanguard itself.

Indeed Vanguard appears to be the one to beat on price, with the Vanguard MSCI Australian Small Companies Index ETF (VSO AU) coming in with a management fee of 0.30%. It has AUM of approximately A$200 million.

The new ETF joins five other ETFs listed by Vanguard Australia this year including two ESG ETFs, two active factor ETFs, and most recently the Vanguard Global Infrastructure Index ETF, bringing the total number of Vanguard ETFs in Australia to 28.

“We are delighted to see this new ETF commence trading…representing a first for Australian ETF investors, and providing a further highly diversified building block for our investors,” said Damien Sherman, Head of ETF Capital Markets at Vanguard Australia.

“Despite significant market volatility in October, we continue to see increasing trading volumes across our low cost range of offerings, as ETFs continue to provide attractive investment options for Australians.

“As often happens with ETFs during volatile times, investors increased their usage of broad based ETFs as both an opportunity to “buy the dip” or to re-orient their portfolio toward index products that reduce their exposure to single stock risk”.

With total ETF assets under management of $12.2 billion as at 30 September 2018, Vanguard Australia is the largest ETF provider in Australia, capturing approximately 39% of total industry cash flows year to date.

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