Vanguard, the second-largest U.S. issuer of exchange traded funds, said today it is expanding four of its widely held international ETFs, including the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO).
As a result of last week’s announcement from FTSE Russell that the index provider will elevate China A-shares to its global benchmarks, VWO will transition to the FTSE Emerging Markets All-Cap China Inclusion Index from the FTSE Emerging Index. FTSE Russell said China A-shares will account for about 5% of the FTSE Emerging Markets Index, the underlying benchmark VWO, the largest emerging markets ETF by assets. [A-Shares ETFs Surge on FTSE News]
“The initial weighting of China A Shares in the FTSE Emerging inclusion indexes will be approximately 5%. This is expected to increase to 32% (at 31-March 2015 market values) when China A Shares are fully available to international investors, and hence resulting in Chinese stocks (including B-Share, H-Share, P Chips and Red Chips) to make up 50% of FTSE Emerging Index,” said FTSE Russell in a statement.
VWO had a weight to China of 28.6% at the end of last month, according to Vanguard data. China A-shares will represent 5.6% of the new benchmark for the Emerging Markets Index Fund, according to the issuer.
The $52 billion Vanguard FTSE Developed Markets ETF (NYSEArca: VEA), the $20 billion Vanguard FTSE Europe ETF (NYSEArca: VGK) and the $6 billion Vanguard FTSE Pacific ETF (NYSEArca: VPL) are also undergoing changes.
Those ETFs “will move from FTSE benchmarks containing large- and mid-capitalization stocks to broader FTSE benchmarks that include large-, mid-, and small-capitalization stocks,” according to a Vanguard statement.
VEA, VGK, VPL and VWO will all see significantly increased small-cap exposure as a result of the index transitions. Under the funds’ new benchmarks, small-cap stocks will account for approximately 9%-11% of each fund, according to Vanguard.
VEA will also Canadian stocks for the first time. The ETF currently allocates 22.5% to Japan and 19.3% to the U.K. VEA will have an 8.2% weight to Canada. [Diversify With International ETFs]
The expense ratios on the aforementioned Vanguard ETFs, which range from 0.06% to 0.33%, will not change as a result of the funds’ index swaps.
“The transitions will require turnover of holdings, resulting in short-term transaction costs. Vanguard Equity Investment Group, advisor to the funds, will seek to minimize any impact through the use of efficient portfolio trading and other expert strategies developed over many years and used during the periodic rebalancing of indexes,” said Vanguard in the statement.
Table Courtesy: Vanguard
ETF Trends editorial team contributed to this post.