Broadly speaking, clients view Vanguard in a favorable light and they typically view the fund giant as recognized, trusted name in the realms of index funds and passive exchange traded funds.
However, seasoned advisors know that the Pennsylvania-based asset manager also has deep roster of actively managed mutual funds.
“Vanguard’s actively managed mutual funds and ETFs represent $1.8 trillion across traditional active equity, bond, quantitative, and balanced assets,” said the fund issuer. “The firm has more than 45 years of experience in selecting and partnering with active managers and currently partners with 25 of the world’s top asset managers to oversee a full roster of active stock, bond, and balanced mandates.”
Perhaps to the surprise of advisors and clients alike, Vanguard is tapping its active management expertise to enter previously uncharted territory for the firm: Single-country funds. Well, “fund” to be specific, but you get the picture.
Vanguard’s China Surprise
In a statement out Monday, Vanguard revealed plans for the Vanguard China Select Stock Fund.
“The fund will invest in both onshore and offshore Chinese equities and is intended for clients seeking actively managed, high-alpha-target equity exposure to complement a broadly diversified portfolio. Vanguard expects to launch the fund in the first quarter of 2022,” said the issuer.
This is a surprise on multiple fronts. First, Vanguard’s current lineup of international equity index funds and ETFs consists entirely of broad-based products and that applies to both developed and emerging markets fare. Single-country funds are a realm dominated by BlackRock and some others. Not Vanguard. At least not to date.
Second, these might seem like perilous times to launch a new China fund, regardless of the brand attached to it. Amid a heightened regulatory regime courtesy of Beijing – one targeting once high-flying consumer internet companies – the MSCI China Index is down 19.2% year-to-date. Still, the allure and importance of the world's second-largest economy cannot be ignored.
“Vanguard believes that exposure to China is an important part of both the equity and fixed income allocations of a globally diversified portfolio. China is a significant and growing portion of the global equity market, representing the second largest nation by GDP output and the third largest country by market capitalization,” adds Vanguard.
The new fund will be co-managed by Wellington Management Company LLP and Baillie Gifford Overseas Ltd. – both of which have long-standing relationships with Vanguard. Both are established track records in China fund management and each possesses a knack for beating benchmarks – a rarity among active managers, regardless of asset class.
What's Next for Vanguard China Fund
As noted above, Vanguard’s new China fund will debut sometime in the first quarter and it will seek to outperform the MSCI China All Shares Index.
In terms of predicting success, that's a fool errands with any new fund, but Vanguard is selective with new product launches and nearly all of its rookie funds – active and passive – go on to reach assets under management tallies observers consider impressive.
And yes, the new fund will keep with the time honored Vanguard tradition of low fees. The issuer estimates the China fund will cost 0.83% per year on the Investor Shares, or $83 on a $10,000 investment, and 0.73% on the Admiral Shares. That's not cheap in the grand scheme of funds, but those are more favorable prices than the average expense ratio of 1.14% on active China funds.
Related: What to Make of S&P 500 Valuations