Vanguard launches first S&P 500 ETF listed in HK

May 21, 2015 18:30
Vanguard launches its fifth ETF offering in Hong Kong. James Martielli (right) and Shelly Painter (left) said the total expense ratio is much lower than those of its peers. Photo: EJ Insight

Vanguard, the world’s largest manager of mutual funds and second-largest provider of exchange-traded funds (ETFs), launched the first ETF that passively tracks the S&P 500 on the Hong Kong stock exchange Thursday.

The Vanguard S&P 500 ETF (03140.HK) distinguishes itself from other ETFs with its low total expense ratio of 0.25 percent, allowing investors to keep more of their returns.

“Great rewards grow from small differences in cost … if you actually compound it over time, it is a tremendous cost saving,” said James Martielli, head of portfolio review in Asia for Vanguard Investments Hong Kong.

The weighted average expense ratio for active funds in US equities is 1.55 percent, and for passive funds it is 0.89 percent, Vanguard said, citing figures from Morningstar.

The ETF is trading at HK$15 with a minimum lot size of 100 shares.

It is a full replication of the S&P 500 and has physical access to it, meaning it buys every stock in the index.

Amid concerns that the upside room for the index is limited, as the US equity market has risen a lot in the past few years, Martielli said that the index is now “nowhere near the highs and valuations that were seen 15 years ago”.

He said the product can help investors to diversify their portfolios and is most suitable for investors making long-term investments.

The annual return of the S&P 500 for 2013 was 32.44 percent, and for 2014 it was 13.7 percent.

The year-to-date return is 1.87 percent.

With US$3.3 trillion of assets under management, Vanguard now has ETFs for Europe, Japan, Asia ex Japan and the United States, covering nearly 80 percent of the world’s total equity market capitalization.

Vanguard said it will consider launching an A-share ETF, although it said it is premature to say how and when it will be on the market.

“In general, we believe that China is an important market … we think that it does make sense [to have an A-share ETF],” said Martielli.

The firm said it will help educate investors about the investment product, as the ETF market in Asia is still new.

“From an institutional perspective, there has been a very big shift from active to passive since the financial crisis in 2008. It’s been very hard in an active space with high fees to make a good rate of return,” said Shelly Painter, regional managing director for Asia at Vanguard Investments Hong Kong.

“That has been a trend that we think will move to the retail side as well. But it really hasn’t taken hold yet in any of the major markets in Asia."

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EJ Insight reporter