OREANDA-NEWS. September 20, 2016. The \\$59 billion Vanguard Emerging Markets Stock Index Fund has completed its transition to a new index that includes small-capitalization equities and China A-shares, effective with the start of trading on September 19, 2016. The move completes a previously announced change that brings the fund closer to market-cap weightings and offers increased diversification to investors.

The fund's index, the FTSE Emerging Markets All Cap China A Inclusion Index, is a market-cap-weighted benchmark representing the performance of large-, mid-, and small-cap companies in emerging markets.1

The fund had tracked a transition index since November 2015 while its portfolio managers gradually built exposure to small-cap equities and China A-shares:

Benchmark transition timeline (most recent first)
Effective 9/19/2016 Effective 11/2/2015 Before 11/2/2015 
FTSE Emerging Markets All Cap China A Inclusion IndexFTSE Emerging Markets All Cap China A Transition IndexFTSE Emerging Index

Changes bring enhanced diversification

As of August 31, 2016, the new benchmark represented approximately 3,561 securities from 22 countries, including new exposure to more than 1,800 small-cap firms (11% of the index) and 1,500 China A-share companies (5% of the index).

By adding small-cap equities and China A-shares, the fund becomes the first broad-based, market-cap-weighted emerging markets index fund to offer China A-shares and all-capitalization equity exposure.2

The benchmark change isn't expected to affect the fund's expense ratios or trigger capital gains distributions. Improved market conditions have lowered the cost of investing in international small-cap equities, creating an opportune moment to broaden the fund's investment strategy.

Investing in China A-shares

China A-shares are equity shares in mainland China companies that are traded on the Shanghai and Shenzhen stock exchanges and are available to foreign investors only through regulated programs. China A-shares increase diversification for investors by providing access to mainland Chinese companies.

China is one of the world's key emerging economies and the second-largest stock market in the world by market cap. With the world's second-largest GDP, China accounts for 16% of world GDP and had a 6.3% GDP growth rate through the first half of 2016.3

Vanguard believes access to this key market has the potential to offer significant long-term benefits for investors.

Last in a series of international fund transitions

The Emerging Markets Stock Index Fund is the last of four U.S.-domiciled international equity index funds to complete a move to all-cap strategies that Vanguard announced in June 2015.

Two of the funds, Vanguard European Stock Index Fund and Vanguard Pacific Stock Index Fund, began tracking all-cap equity indexes on October 1, 2015. The third, Vanguard Developed Markets Index Fund, began tracking a new index that includes small-cap and Canadian equities, effective June 1, 2016.

Additional information, including performance returns, weights, and constituent-level data for the former, destination, and transition indexes, is available on FTSE's Vanguard portal.

1The FTSE Emerging Markets All Cap China A Inclusion Index comprises large-, mid-, and small-cap securities of the FTSE Emerging All Cap Index and the FTSE China A All Cap Index. The weight of the FTSE China A All Cap Index in the FTSE Emerging Markets All Cap China A Inclusion Index will be adjusted by the quota available to international investors.

2Sources: Bloomberg and Morningstar.

3Sources: Quandl, 2015; International Monetary Fund, 2016.


  • All asset figures are as of August 31, 2016, unless otherwise noted.
  • All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. Prices of mid- and small-cap stocks often fluctuate more than those of large-company stocks.
  • Investments in stocks issued by non-U.S. companies are subject to risks including country/regional risk and currency risk. These risks are especially high in emerging markets and, in particular, in countries where market controls may impede investment.