US Asset Management Giant Wades Into China's A-Shares Market

Tom Burroughes

4 June 2015

US investment management giant , overseeing more than $3.3 trillion of assets, has announced it will include Chinese mainland A-shares in one of its funds, the Vanguard Emerging Markets Stock Index Fund, and its exchange traded fund share class.

The moves makes these the first emerging markets, market-cap weighted index fund and ETF to include exposure to A-shares and all-caps, Vanguard said. The move is seen as a sign of how asset managers are eager to ramp up exposure to mainland China’s equity market as the Asian country liberalises its capital markets.

“The addition of China A-shares to the Emerging Markets Stock Index Fund and its ETF share class, VWO, the world’s largest emerging-markets ETF, will provide investors with more complete exposure to a key emerging economy and the second-largest stock market in the world by market cap,” the firm said.

“With the world’s second-largest GDP, China accounts for 20 per cent of global trade and 7 per cent of global consumption. China A-shares will represent 5.6 per cent of the new benchmark for the Emerging Markets Index Fund. Vanguard recently received a quota for China A-shares, which provide exposure to China’s largest issuers and a level of diversification that isn’t otherwise available in the market,” it continued.

Vanguard’s announcement is part of a decision that will see four of its US-domiciled international equity index funds, representing $147 billion of assets, switch to using all-cap benchmarks.

The firm said its Vanguard Developed Markets Index Fund will also include Canadian equities.

The $69 billion Vanguard Emerging Markets Stock Index Fund, $52 billion Vanguard Developed Markets Index Fund, $20 billion Vanguard European Stock Index Fund, and $6 billion Vanguard Pacific Stock Index Fund will move from FTSE benchmarks containing large- and mid-capitalization stocks to broader FTSE benchmarks that include large-, mid- and small-capitalization stocks, the firm said in a statement.

The addition of small-cap exposure to the four funds moves investors closer to “complete global market-cap weightings and fuller diversification benefits”, Vanguard said. Under the funds’ new benchmarks, small-cap stocks will account for about 9 per cent to 11 per cent of each fund.