On this week’s episode of ETF Prime, host Nate Geraci sat down with VettaFi Senior Industry Analyst Kirsten Chang to discuss Vanguard’s new CEO, ETF flows around the globe, and mounting interest in China-based ETFs. Later, Dave Nadig joined Geraci to discuss the push to use ETFs as a share class of mutual funds.
Vanguard’s New Leadership
To start Geraci asked Chang what her thoughts were on Vanguard’s decision to hire Salim Ramji as its new CEO. Chang called the announcement “remarkable.” She referred to the hiring as “a tectonic shift in leadership between the two biggest titans of the ETF industry.” Chang observed that Vanguard traditionally promotes roles from within, but Ramji’s hiring showed how tight-knit the ETF community truly is.
Geraci then asked Chang what she expects to see at Vanguard with Ramji at the helm. Chang believed that Vanguard will preserve its legacy of low-cost indexing, along with the unique structure for investor ownership. In terms of fund lineups, Chang predicted that Vanguard would continue to grow their active ETF space, “particularly in fixed income, which has been a strong presence for them.”
Global Flows
Moving on, Geraci noted that Chang recently wrote an article on ETFTrends about the strength of international equity ETF. Chang noted global ETFs have seen 58 straight months of inflows. She added that inflows saw record assets in 1Q24, contributing to over $30 billion in net inflows year-to-date. In particular, Chang observed Japan and India-focused ETFs are key drivers.
“Investors have been very underweight in Japan for a long time. But Japanese stocks just hit their first record high in decades,” Chang added. Looking at specific ETFs, Chang noted the iShares MSCI Japan ETF (EWJ), JPMorgan BetaBuilders Japan ETF (BBJP), and Franklin FTSE Japan ETF (FLJP) have seen good flows.
Looking at India, despite near-term election risks and broader outflows outside the ETF landscape, Chang noted the country is doing quite well. She highlighted that “India is still riding its best bull market ever,” adding that the country has the fastest growing major economy in 2024. In particular, she noted that the iShares MSCI India ETF (INDA) and iShares MSCI India Small-Cap ETF (SMIN) have witnessed strong inflows.
Interest in China
Geraci then asked Chang whether she believed investors might start moving back towards China-focused ETFs. While noting that it was too early to determine for certain, Chang did observe “rumbling of some renewed interest” in China-based equity ETFs. Noting that 12 of the 13 best performing global ETFs last month were China-based. Chang cited the KraneShares Hang Seng TECH Index ETF (KTEC) and the iShares China Large-Cap ETF (FXI) as particularly strong performers at the time. However, Chang noted that these funds have yet to see flows thar are particularly resonating.
“From a flows perspective, investors are only just beginning to dip their toes back into China’s equity markets, I would say. There’s still a lot of trepidation. Capital market allocations are still sitting around multi-decade lows, so it’s going to take some time,” added Chang.
Share Class Speculation
To close out this week’s podcast, Geraci was joined by Dave Nadig. He asked Nadig to weigh in on the push for SEC approval to use ETF as a share class of a mutual fund. While Nadig noted that he could not point to any distinct evidence for the SEC to block these applications, he still did not believe that these filings would be approved. In particular, Nadig expressed concern that the IRS may become more involved if both ETF and mutual fund companies pile into the multi share class fund structure.
“I suspect that there will be breaks put on some of this process. I don’t think anybody inside the SEC is particularly excited about the idea of having a raft of new share classes chasing Vanguard here. And if anything, I’ll bet you in their heart of hearts, they wish they could make the Vanguard share classes go away,” said Nadig.
Listen to the entire episode of ETF Prime, featuring Kirsten Chang and Dave Nadig:
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