Vanguard just filed a new ETF launch that skips Chinese stocks. The new fund, called the Vanguard Emerging Markets ex-China ETF, is expected to hit markets later this summer.
It’s designed for investors who want exposure to growing markets like India and Taiwan but don’t want to deal with the uncertainty that often comes with China.
This isn’t the first ex-China fund out there, but it’s a big one. According to Morningstar, there are 13 such funds in total, and most of them only came out recently.
Investors have been pulling back from China after years of trade tension with the US, unpredictable government policy, and market losses. Last year, China’s CSI300 index posted its third straight year of decline. That was sufficient to shake investors’ confidence.
Now, Vanguard is offering an option for people who want to stay in emerging markets but limit their exposure to China.
But Wait, Is Skipping China Even Smart?
At the same time, Chinese stocks are actually doing better this year. The iShares China Large-Cap ETF is up over 35 percent in the last 12 months. And that strong performance has helped boost broader emerging market ETFs too. The iShares MSCI Emerging Markets ETF, which includes China, is up about 10 percent.
In comparison, ETFs that exclude China have lagged behind. The iShares MSCI Emerging Markets ex-China ETF is only up 4.8 percent in the same time. That gap makes some investors wonder if now’s the right time to skip China altogether.
Some experts think both fund types can exist together. China is a huge market, and for many investors, it makes sense to manage China exposure separately instead of mixing it in with everything else. That’s where this new Vanguard fund could help.
Where’s the ETF Money Going Instead?
If you buy the new Vanguard ETF, most of your money will likely go to India and Taiwan. Together, those two countries will make up nearly 60 percent of the fund’s holdings.
Vanguard says the fund will have a low fee of just 0.07 percent. That’s cheaper than similar offerings from BlackRock and others.
The idea is simple. Some investors want to avoid China’s risks but still believe in the growth potential of emerging markets. Vanguard is giving them a new way to do exactly that.
