The Vanguard S&P 500 Index Fund, the firm’s latest exchange traded fund launched five months ago, now has a total expense ratio - the percentage of total fund costs to total assets - of 18 per cent, a 22 per cent drop from 25 per cent. This move qualifies the fund as the most accessible ETF of its category for investors in Hong Kong, gaining Vanguard kudos for bringing value for money, it says.

The average TER for all Vanguard’s five Hong Kong-listed ETFs is 0.22 per cent, compared with the Hong Kong ETF industry average TER of 0.67 per cent, according to Morningstar’s independent research as at 31 August 2016.

Vanguard has been busy. In other news about the firm, from the end of this year, Vanguard’s Asia business will be led by David Cermak, current head of Vanguard Japan, a position he has held since June 2013. In his new role, Cermak continues to report to Jim Norris, managing director for Vanguard International, and is based in Hong Kong. In the interim, he will continue to oversee the Japanese business until a successor is named. Charles Lin, who has been instrumental in developing a China distribution strategy over the past five years, takes on a new role as head of China, where he will take on full responsibility for mainland China's build out, a strategic focus for the international business. Shelly Painter, regional MD for Vanguard Asia, will return to the US to lead the company’s enterprise risk management function. She will report to Chris McIsaac, MD, planning and development. 

As a top-level provider of "passive" funds, the firm also offers actively-managed portfolios.  market,” he said.

Martielly elaborated on the firm’s modus operandi, saying: “We have a building-blocks approach, a continuing long-term perspective on all our investments, and wouldn’t give priority to highly leveraged products for instance."

Asked if Vanguard had a strong view about the interest rate strategies of central banks, Martielli said the firm usually discourages anyone from listening to background noise on quantitative easing policies and says they should keep to their original strategy, unless their personal circumstances have changed.

The costs that count
Given the strong attachment to long-term investment strategies, it is no surprise that the firm has made efforts to reduce management costs, which is “one of if not the only factor we can control”, Martielli said.

“If you are investing for two days through an ETF, it does not matter so much what the management costs are, but the longer term you start looking, the more it matters,” he added.

“We will continue to reduce costs, reflecting our positive results,” said Martielli.

However, when asked to be more precise on how the distribution of cost cuts was calculated, Martielli did not elaborate.

“It is not a formula calculation,” said Martielli, “but what we can say is that when looking at economies of scale, we do not look at the picture on a product by product basis but rather at an industry as a whole.”

Linda Luk, Vanguard managing director for retail and intermediary business for Asia, said: “We integrate factors such as how well other indexes are doing and compare that specific ETF to others, and another factor is how our clients are reacting to our products.”

The firm applies different total expense ratios for developing markets and developed markets, she said. When asked whether that was to take into account the differences in overall economic performance of a country, she said that was not the case.

Though the firm seeks to continue pursuing other diversification opportunities in the region, there are no immediate plans to increase the number of Asian funds, said Lin.

However, a listing in Taiwan is being considered with interest, he said.

The firm is also upbeat about the new opportunities the Shanghai-Hong Kong Stock Connect should open up and expects to see a deeper ETF market with a greater choice of stocks.

(The author is a journalist based in Hong Kong.)