In a notice to unitholders of its ETFs, Vanguard has announced that it plans to close its ETF business in Hong Kong.
Vanguard has announced it is to close its Hong Kong operations.
The “orderly exit” is expected to take up to two years and will see Vanguard dismantle its local ETF platform which hosts six equity funds providing US, European, Japanese, Chinese, Asia ex-Japan, and Asia ex-Japan dividend exposures.
The ETFs will either be de-listed and liquidated in due course or transitioned over to a new investment manager.
Vanguard’s philosophy of low-cost, straightforward, index-based investing, which has been a key driver of rapid ETF growth in the US and Europe, has not caught on in Asia to the same extent.
Vanguard’s first Hong Kong ETF was listed in 2013 with the range progressively expanded in 2014 and 2015, and most recently in 2018 with the launch of the Vanguard Total China Index ETF (3169 HK). But none of the funds has generated significant investor interest.
The six ETFs collectively house $430 million in assets under management with roughly half of this ($210m) in the Vanguard S&P 500 Index ETF (9140 HK). The remaining ETFs each hold between $30m – $60m.
The lackluster demand for the funds stands in stark contrast to Vanguard’s reputation as the second-largest asset manager globally as well as the second-largest ETF provider in the US with over $1.2 trillion in ETF-linked AUM.
The firm’s presence in Europe is also robust where it sits as the sixth-largest ETF issuer (as of the end of 2019) with over $52bn ETF-linked AUM.
According to the notice, the “decision follows an extensive review by Vanguard of its international business for alignment with its strategic focus to expand its presence in international markets that offer the ability to directly reach individual investors – or positively impact individual investors through retail intermediaries”.
It is understood that Vanguard’s client base in Hong Kong comprised mainly institutional investors, contrasting with its stated objective to empower individual, retail investors.
Vanguard also announced it will be shutting its operations in Japan, although it currently offers no ETFs in the country. This follows on from the firm’s 2018 decision to shut up shop in Singapore.
Vanguard reportedly plans to reorient its focus in Asia on Mainland China and intends to set up a regional headquarters in Shanghai, where it established operations in 2017 along with a joint venture with local fintech titan Ant Group. Together, the firms have rolled out a robo-advisory service that builds tailored investment portfolios using mutual funds and caters to individual investors through Ant’s mobile-payments platform.