Vanguard Plans Actively Managed China Equity Fund

 Commentary  November 29, 2021 at 07:44 AM  Share & Print

What You Need to Know

  • The Vanguard China Select Stock Fund will invest in onshore and offshore Chinese equities.
  • It is expected to launch in Q1 2022 and charge 0.83% for Investor Shares and 0.73% for Admiral Shares.
  • Wellington Management and Baillie Gifford Overseas will co-manage the fund.

More than eight months after Vanguard abandoned plans to start a mutual fund business in China for Chinese investors, the fund giant has announced plans to launch an actively managed China equity fund for U.S. investors.

The Vanguard China Select Stock Fund will invest in both onshore and offshore Chinese equities and is expected to launch in the first quarter of 2022.

“Vanguard research indicates that there is an opportunity for talented active managers to generate alpha in China’s large, but inefficient, equity market,” said Kaitlyn Caughlin, head of the Vanguard Portfolio Review Department, in a statement.

Vanguard “believes exposure to China is important for both equity and fixed income allocations of a globally diversified portfolio,” according to the company’s news release. It notes that China, the second-largest economy in the world, “is a significant and growing portion of the global equity market,” accounting for one-third of the global market’s capitalization.

The Vanguard China Select Stock Fund will seek to outperform the MSCI China All Shares Index and will be co-managed by Wellington Management Company LLP and Baillie Gifford Overseas Ltd., both long-tenured Vanguard fund advisors with portfolio management experience and expertise in China.

The fund is geared to “risk-tolerant investors with a targeted approach to exposure in the region,” according to Vanguard. While it may offer investors diversification benefits and alpha potential, it’s the single-country focus that may expose them to “more acute investment, geopolitical, and regulatory risks,” according to Vanguard.

Indeed, the Chinese stock market has been volatile for much of this year, buffeted by changing federal regulations and problems and a problematic property market. Year to date, the MSCI China All Shares index is down about 12%.

The Vanguard China Select Stock Fund will have an estimated expense ratio of 0.83% for Investor Shares, which require a $3,000 minimum investment, and 0.73% for Admiral Shares, which have a $50,000 minimum. The average expense ratio of competing funds is 1.14%, according to Vanguard, which cites fee data from Lipper, the fund data company.

The fund is part of a growing number of active mutual funds at Vanguard, which account for a little more than one-fifth ($1.8 trillion) of the firm’s $8.4 trillion in assets under management.

 


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