Vanguard Set to Challenge BlackRock’s Grip on Ex-China ETF Trade
Vanguard Group Inc. is launching a low-cost fund focused on emerging-market stocks while explicitly avoiding China, muscling into a trade long dominated by BlackRock Inc.
The Vanguard Emerging Markets ex-China product looks set to become the cheapest exchange-traded fund tracking the investment strategy with an expense ratio of just seven basis points, or 7 cents for every $100 invested. Vanguard registered for it with the US Securities and Exchange Commission last week.
The strategy centers on the argument that China — snared in the deteriorating relationship with the US, an aging population and a housing crisis — is simply too big and too unique to be lumped together with the rest of the developing nations. Yet it comes as Chinese equities have staged a recovery in 2025 after a multi-year beating, despite trade tensions with Washington.
China’s stimulus late last year and an AI breakthrough shook off some pessimism about the country, leading its benchmark index to a 16.5% gain this year, double the returns for a broad gauge of EM stocks ex-China. And BlackRock’s $14 billion iShares MSCI Emerging Markets ex-China ETF (EMXC), the largest of its kind, posted record $1.5 billion outflows last month.
“The rally in Chinese equities has changed that narrative for some, but not all,” said Jason Hsu, chief investment officer of Rayliant Global Advisors, which manages both China and emerging-market ex-China funds. “China is simply too large and too controversial to not be carved out from the EM portfolio. The trade war has only further polarized investors on China.”
If approved, Vanguard’s new fund, which will trade under the ticker VEXC, will be the Valley Forge, Pennsylvania-based firm’s first equity ETF to debut in the US since 2018. That suggests the company sees investors continuing to turn to the non-China strategy.
The Missouri State Treasurer, for one, recently urged Vanguard to offer funds with international exposure without China. Over the past five-years, that ex-China EM trade has returned 10% annually, compared with a loss of 0.5% for the China benchmark.
It’s an arena long dominated by BlackRock, though. Of the roughly 15 emerging-market equity funds that exclude China and are tracked by Bloomberg, BlackRock’s EXMC — which has an expense ratio of 25 basis points — commands 85% of the $15.5 of assets under management.
The expense ratio of Vanguard’s new fund is on par with its broad emerging-markets ETF (VWO), which manages $87 billion assets as the second largest in the category after a rivaling BlackRock fund (IEMG).
In the eyes of Jane Edmondson of TMX VettaFi, Vanguard’s new ETF is a strategic move to challenge BlackRock’s dominance in the emerging-markets space. She points to VOO, the firm’s S&P 500 ETF, which has risen to become the world’s largest ETF this year, eclipsing SPY.
“Vanguard sees this as an opportunistic area to employ its capabilities and compete head-on with BlackRock on cost to gather assets,” the firm’s head of index product strategy said. “True to Vanguard’s form, they are offering it up at an attractive price.”
A key distinction between the two ETFs will lie in South Korea: MSCI includes it as an emerging market, while FTSE does not. As a result, Vanguard’s new ETF, which tracks a FTSE index, will exclude South Korea, redirecting more weight toward countries like India, Brazil and South Africa.
BlackRock declined to comment.
Shutting Funds
The rise of emerging-market ex-China funds in recent years is a mirror image of the cooling off of investors’ interest in China as a standalone strategy.
Since 2020, about 31 China-focused ETFs have shut down, while only 13 new ones have launched, according to data compiled by Bloomberg Intelligence. That’s a stark reversal from the industry norm of 2.5 launches for every closure, says BI’s Athanasios Psarofagis, signaling deepening investor skepticism.
“The imbalance reflects waning demand and rising challenges tied to China exposure,” he wrote. “Vanguard’s entry doesn’t start a new trend, but it signals just how mainstream the ex-China approach is becoming.”
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