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Vanguard to unveil its first China ETF in HK

Despite a spate of China ETF delistings in Hong Kong, the firm is about to launch its first China-focused exchange traded fund in Hong Kong.
Vanguard to unveil its first China ETF in HK

The product, the Vanguard Total China Index ETF, is expected to be listed on 10 May, according to a Hong Kong Stock Exchange filing.

The launch of the fund comes at a time when a number of China-focused ETFs, particularly those that invest solely in China A-shares, have been delisted as they failed to accumulate satisfactory assets. Industry sources point to the lack of diversification in these products, with most of them tracking the same index.

In Hong Kong, there are 40 ETFs that invest in Chinese companies, according to the Hong Kong Stock Exchange. Twenty-nine of them invest in mainland-listed companies, nine in Hong Kong-companies and two in companies listed in both jurisdictions.

FSA sought more information from Vanguard, but it would not comment on differentiation from the other products already available in the market. However, it noted that it will be providing additional information tomorrow as it announces the launch.

A “total China” approach?

However, some information has already been made available on the firm’s website. The ETF will take a “total China investing approach”, aiming to track the performance of the FTSE Total China Connect Index, which covers 1,000 large- and mid-cap Chinese stocks in all major share classes listed in or outside of China.

FTSE Total China Connect Index

Source: Vanguard


“Over the past 10 years, there has not been a consistent top performer in China’s equity market. Having a diversified portfolio with access to all major Chinese share classes should help minimise return cyclicality,” the firm said.

Source: Vanguard


The firm also said that the index the ETF will follow is diversified across industry sectors. Unlike some China indices, the FTSE Total China Connect Index is not highly concentrated in financials. For example, the CSI 300 Index, a widely used index for China A-shares, has 39.2% exposure in financial companies, according to its factsheet.

FTSE Total China Connect Index sector breakdown

Source: Vanguard


The China ETF will be the sixth passive product Vanguard has in Hong Kong. The other five ETFs collectively have HK$1.2bn ($150m) in assets, according to data from the Hong Kong Stock Exchange.

Globally, the firm reports that it manages $1trn in ETFs assets.

Part of the Mark Allen Group.