Introduction
Investment manager Vanguard has introduced a new exchange-traded fund (ETF) that focuses on emerging markets outside of China, a move influenced by the Missouri State Treasurer's office advocating for exclusion of Chinese stocks.Context
This product marks a significant shift in the economic decoupling between the U.S. and China, a trend accelerated by actions from U.S. President Donald Trump. Vanguard has filed with the U.S. Securities and Exchange Commission (SEC) to launch the Vanguard Emerging Markets Ex-China ETF. Missouri Treasurer Vivek Malek revealed that this announcement followed a series of requests and discussions with Vanguard, as supported by internal correspondence.Malek successfully urged the state's pension fund to divest from public Chinese stocks in December 2023 and sought a China-free option for Missouri's $4.5 billion 529 educational savings plan in an April 14 letter to the plan's program manager.
Developments
Malek believes his advocacy contributed to Vanguard's decision, although the firm did not comment on his statements due to restrictions on discussing products under SEC review. According to a Vanguard spokesperson, the company's aim is to provide investors with lower-cost options.Malek noted that if Vanguard had not pursued the ex-China ETF promptly, it could have jeopardized its standing as the primary provider of investment products for the state's 529 plan. Missouri will reassess which asset managers will oversee these savings next year, and firms will need to present a fund that excludes Chinese stocks to qualify.
Research from Morningstar indicates a growing trend in the launch of ex-China ETFs over the past three years, bringing the total to 13, with four introduced in 2024 alone. Like many Republicans, Malek has criticized the inclusion of Chinese stocks in state investment portfolios, making their removal a political priority.
In his April 14 correspondence, Malek highlighted the economic, legal, and geopolitical risks linked to Chinese stocks, emphasizing that these concerns are "real, accelerating, and incompatible with long-term fiduciary responsibility."
According to emails reviewed, Malek's team met with Vanguard executives in early May ahead of a May 21 meeting of the Missouri college savings plan's board of trustees, where they discussed investment options excluding China.
On May 30, Vanguard informed the Missouri Treasurer's office about the impending launch of the ex-China ETF. This email coincided with the firm's filing with the SEC.
Bryan Armour, an ETF analyst at Morningstar, noted that product development typically spans months rather than weeks, suggesting that Vanguard may have already been exploring this direction before the discussions with Malek.
Malek views the new ETF as a testament to effective collaboration between conservative state treasurers and asset managers. Following Vanguard's responsive action, he intends to leverage his influence to promote the ETF among the approximately 120 smaller pension funds throughout Missouri.