Vanguard announced the debut of a new low-cost, emerging markets (EM) exchange-traded fund (ETF) — the Vanguard Emerging Markets ex-China ETF (VEXC). EM assets have been garnering increased investor attention this year and could see additional interest with the prospect of more interest rate cuts to come. This makes the timing of VEXC’s debut auspicious.
True to form, Vanguard is offering VEXC with a low expense ratio of 0.07%, or $7 per every $10,000 invested. This falls well below the ETF Database Category Average of 51 basis points. It is also much lower than the FactSet Segment Average of 46 basis points for similar funds. Vanguard has a longstanding reputation of offering low-cost, indexed funds that can easily slot into any portfolio. The fund can complement a portfolio with existing U.S. equities exposure like the market-leading Vanguard S&P 500 ETF (VOO ) for added diversification. It can also work in tandem with another international fund like the Vanguard FTSE Developed Markets ETF (VEA ) for comprehensive international equities exposure.
The fund tracks the return of the FTSE Emerging ex China Index. According to the index fact sheet, it “provides investors with a comprehensive means of measuring the performance of the most liquid large and mid cap companies in the emerging markets excluding China.”
As mentioned, getting EM exposure is a viable option in the current market environment, especially given the global de-dollarization and monetary easing by the U.S. Federal Reserve. EM assets are typically tied to the strength of their local currencies, which benefit from a weaker dollar.
Tailored EM Exposure Without China
China has long been a hallmark when it comes to getting EM exposure. However, the country is facing its fair share of economic and geopolitical challenges. This creates a conundrum for investors looking at broad-based EM funds, who don’t want exposure to China’s equities. Hence, funds like VEXC can allow investors to exclude China equities for more tailored exposure.
“China’s growing weight and its unique risk and opportunity profiles have fueled the need for investors to better manage the risk that comes with an allocation to China,” a report by the London Stock Exchange Group (LSEG) noted. “For these investors, this has necessitated the separation of China from the rest of the emerging markets investment opportunity set.”
The fund is advised by the Vanguard Equity Index Group (EIG),which is a global leader in equity indexing. Portfolio managers in charge of the holdings for VEXC include Michael Perre, Jeffrey Miller, and John Kraynak, CFA.
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