Vanguard Investments Canada is proposing to broaden the diversification of six Vanguard TSX-listed international equity index ETFs and move them to all-capitalization benchmarks.
The proposed changes, which would occur over several months, will also give Vanguard FTSE Emerging Markets Index ETF and Vanguard FTSE All-World ex Canada Index ETF exposure to China A-shares. Currently, no similar broad-based TSX-listed index ETFs offer access to these shares.
These proposed changes are subject to receipt of all required unitholder approvals, and follow closely index changes to the U.S.-listed Vanguard ETFs in which the six Vanguard TSX-listed ETFs invest. The ETFs will move from FTSE benchmarks containing large- and mid-capitalisation stocks to broader FTSE benchmarks that include small-capitalisation stocks. If the proposed changes are approved, Vanguard will rename the affected TSX-listed ETFs. The ETF ticker symbols will remain unchanged.
Exposure to small-caps will move investors in the TSX-listed ETFs closer to complete global market-cap weightings and provide broader diversification. Small-cap stocks will account for approximately 10 per cent of each benchmark.
"We believe this will benefit investors because an all-cap approach produces more complete exposure to the respective markets and increases diversification," says Atul Tiwari, managing director of Vanguard Investments Canada Inc.
The ETFs will join Vanguard FTSE Canada All Cap Index ETF (TSX ticker: VCN), Vanguard U.S. Total Market Index ETF (TSX ticker: VUN), Vanguard U.S. Total Market Index ETF (CAD-hedged) (TSX ticker: VUS), Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX ticker: VDY) and Vanguard FTSE Canadian Capped REIT Index ETF (TSX ticker: VRE), in offering investors all-cap exposure.
Through the addition of China A-shares to the U.S.-listed Vanguard FTSE Emerging Markets ETF (NYSE: VWO), investors in the TSX-listed Vanguard FTSE Emerging Markets Index ETF and Vanguard FTSE All-World ex Canada Index ETF will gain exposure to a key emerging economy and the second-largest share market in the world by market cap.
The new benchmark for the TSX-listed Vanguard FTSE Emerging Markets Index ETF includes China A-shares at around a 6 per cent weighting, and the new benchmark for the Vanguard FTSE All-World ex Canada Index ETF includes the shares at an approximately 0.55 per cent weighting. Vanguard recently received a quota for China A-shares, which provide exposure to China's largest issuers and a level of diversification that isn't otherwise accessible in the market.
"As the first broad-market Canadian ETFs to announce exposure to China A-shares, the funds will benefit investors with more diversification, deeper emerging markets exposure and greater access to the growth potential of Chinese equities," Tiwari says.
Management fee reductions to 0.20 per cent from 0.23 per cent for the Vanguard FTSE Developed Europe Index ETF and Vanguard FTSE Developed Asia Pacific Index ETF became effective June 1, 2015.
Additionally, Vanguard FTSE Developed ex North America Index ETF and Vanguard FTSE Developed ex North America Index ETF (CAD-hedged) will now offer all-cap exposure to developed markets excluding only the US, and will be renamed accordingly. The new target benchmark for the two ETFs will include Canada as an 8 per cent weighting.
Vanguard Investments Canada filed a preliminary prospectus with the Canadian securities regulators for two new developed market ETFs: Vanguard FTSE Developed All Cap ex North America Index ETF and Vanguard FTSE Developed All Cap ex North America Index ETF (CAD-hedged). These ETFs would follow the FTSE Developed All Cap ex North America Index, and FTSE Developed All Cap ex North America Hedged to CAD Index.
The proposed ETFs have an estimated management fee of 0.20 per cent. They would provide investors with exposure to developed markets excluding both Canada and the US, and would follow all-capitalisation benchmarks. The new offerings would bring to 23 the number of ETFs offered by Vanguard Investments Canada Inc.