This iShares ETF Could Be Next To Offer China A Shares
Red-hot Chinese A shares could be coming to even more foreign-focused exchange traded funds. As China opens up its economy, more index providers are mulling whether to add once-out-of-reach A shares. MSCI’s decision on including A shares in its emerging markets benchmark is expected June 9.
The MSCI Emerging Markets Index is tracked by iShares MSCI Emerging Markets (ARCA:EEM), the second-largest broad-based ETF holding equities of developing countries. It has $ 31.38 billion in assets.
KraneShares FTSE Emerging Markets Plus () launched in February, giving investors exposure to A shares within a diversified emerging markets ETF wrapper. Vanguard FTSE Emerging Markets (ARCA:VWO), the largest ETF in this category, has followed suit. VWO will add A shares in late 2015, the company recently announced.
A shares are mainland China stocks that trade on the Shanghai and Shenzhen stock exchanges. Foreign investors get restricted access to these shares, with quotas governing the amounts available to large institutional buyers.
Other leading international ETFs from Malvern, Pa.-based Vanguard could eventually join the A share party.
“We will consider adding A shares at some point in the future” to more products, a company spokesperson said. For now, Vanguard is reserving its initial quota of A shares for the flagship emerging-market ETF, he added.
VWO holds $ 48.41 billion in assets and gives China a 28% weighting. That’s poised to get a boost when A shares are added.
Vanguard Total International Stock (NASDAQ:VXUS) and Vanguard Total World Stock (ARCA:VT) assign roughly 4% and 2% of assets respectively to Chinese stocks. Other differences in holdings are more striking. They’ve contributed to sometimes markedly divergent performance between the similar-sounding funds.
VXUS, with $ 4.71 billion in assets, virtually excludes U.S. stocks. It gives a 50% weighting to Europe, 18% to Japan and 14% to emerging markets. VT, with $ 4.42 billion in assets, invests 51% in U.S. stocks. It also has 25% of assets in Europe, 8% in Japan and 7% in emerging markets.
Stock market gains in the U.S. last year helped VT advance roughly 4%. VXUS dropped about 5% in 2014.
This year, stimulus programs in Europe and Japan have whet investors’ appetite for foreign stocks. Year to date, VXUS has risen roughly 9% vs. 7% for VT.
These two ETFs are among Vanguard’s international products that may gain A shares eventually. Year to date, China ETFs account for eight of the top 10 best-performing nonleveraged international ETFs. Investors have piled into A share ETFs holding small caps in particular.