New ex-China ETF launched following Missouri Republicans’ initiative

Vanguard’s New ETF Signals Shift in Investment Strategies

(Reuters) – Vanguard, the investment management firm, is launching a new exchange-traded fund (ETF) aimed at emerging markets outside of China. This development follows a push from the Missouri treasurer’s office for investment products that exclude Chinese stocks.

This ETF is indicative of a broader trend toward decoupling economic relations between the United States and China, a shift stemming from ongoing trade tensions.

Vanguard submitted its proposal for the Vanguard Emerging Markets Ex-China ETF to the U.S. Securities and Exchange Commission on May 30. Missouri treasurer Vivek Malek stated that this announcement followed a series of discussions and requests over the past six weeks.

In December 2023, Malek advocated for the state pension fund to divest from Chinese stocks. Moreover, on April 14, he collaborated with Vanguard to develop a China-free fund option for a $4.5 billion education savings plan.

“We think they made significant moves that contributed to this decision,” Malek noted.

While Vanguard did not directly address Malek’s comments, a company spokesperson affirmed their commitment to providing diverse low-cost investment options.

Malek added that without launching a China-free ETF, Vanguard risked losing its status as a primary investment product provider in Missouri’s 529 plan, particularly as the state reevaluates which asset managers will handle these savings next year.

Increase in Non-Chinese ETFs

According to Morningstar, the number of non-Chinese ETFs has surged over the past three years, with a total of 13 such ETFs from Vanguard—four of which were introduced in 2024.

Malek, sharing the sentiment of several other Republicans, has been critical of investments in China and has taken steps to remove them from the state’s investment strategy.

In an April 14 letter, he cited the economic, legal, and geopolitical risks associated with Chinese stocks, labeling these risks as, “realistic, accelerated, and incompatible with long-term fiduciary responsibility.”

Earlier in May, Malek’s team met with Vanguard executives ahead of a Council meeting regarding the University of Missouri’s savings plan, as noted in an email seen by Reuters.

On May 30, Vanguard suggested launching a new ETF to a Missouri accounting firm. This timing coincided with the submission to the SEC.

“Typically, product development in this space takes months, not weeks, so it’s likely that Vanguard identified this as an opportunity,” explained Brian Armour, an ETF analyst at Morningstar.

Malek perceives the new ETF as a successful example of collaboration between conservative state finance officials and asset managers.

With Vanguard’s favorable response to his request, Malek is optimistic about the success of this new ETF, indicating its influence on around 120 smaller pension funds throughout Missouri.