Vanguard Emerging Markets ETF finalises index transition to include China-A Shares

Vanguard | 19 September 2016


Vanguard announced today that the Vanguard FTSE Emerging Markets Shares ETF (ASX: VGE) will move from the current FTSE transition index to the final FTSE Emerging Markets All Cap China A Inclusion Index, effective at the opening of trading on 19 September.

Since November 2015, the fund has tracked the FTSE Emerging Markets All Cap China A Transition Index, as it gradually built exposure to small-capitalisation and China A-shares stocks.

The fund's new target index, the FTSE Emerging Markets All Cap China A Inclusion Index, is a market-cap weighted benchmark representing the performance of large-, mid-, and small-cap companies in emerging markets.1 The index comprises approximately 3,550 securities from 22 countries, including exposure to 1,800 new small-cap stocks and 1,500 new China A-shares stocks.

VGE, is the first broad-based, market-cap weighted emerging-markets ETF to offer Australian investors China A-shares and all-cap exposure.2

This aligns with the index change to US-listed Vanguard FTSE Emerging Markets ETF (NYSE: VWO) into which VGE invests. VWO is the world's largest emerging markets ETF, and its underlying fund is the $59 billion Vanguard Emerging Markets Stock Index Fund.

Addition of all-cap exposure

The new benchmark's 11% exposure to small-cap stocks brings the fund closer to full market-cap weightings and offers additional diversification. Improved market conditions have lowered the cost of investing in international small-capitalisation stocks, making it an opportune time to provide investors with added exposure to all-capitalisation stocks and broader diversification.

Inclusion of China A-shares

Additionally, the new benchmark features 5% exposure to China A-shares stocks. China A-shares are equity shares in mainland China companies that are traded on the Shanghai and Shenzhen stock exchanges and are only available to foreign investors through regulated programs. China A-shares provide investors additional diversification via access to mainland Chinese companies that offer these shares.

China is one of the world's key emerging economies and the second-largest stock market in the world by market cap. With the world's second-largest GDP, China accounts for 16% of world GDP and has shown a 6.3% GDP growth rate.3 Vanguard believes access to this key market has the potential to offer significant long-term benefits for investors.

1 FTSE Emerging Markets All Cap China A Inclusion Index comprises large-, mid- and small-cap securities of the FTSE Emerging All Cap Index and FTSE China A All Cap Index. The weight of the FTSE China A All Cap Index in the FTSE Emerging Markets All Cap China A Inclusion Index will be adjusted by the quota available to international investors.

2 Sources: Bloomberg and Morningstar

3 Sources: Quandl, 2015 and International Monetary Fund, 2016
All asset figures are as of 31 August 2016, unless otherwise noted. Source: Vanguard.