Vanguard, the world’s second-biggest asset manager, cut the total expense ratio on all its Hong Kong-listed exchange traded funds, effective on Monday, as competition heats up in the passive asset management space. The move follows similar steps taken by companies such as Charles Schwab Corp and Blackrock in the United States that have cut fees recently ahead of a new Labor Department rule governing retirement products.
While the cuts on Vanguard’s stable of exchange-traded funds offered in the Hong Kong market is a sliver of the overall market, the move points to an increasing focus on costs by asset management companies.
“We believe in the low cost approach and think this will ultimately benefit the growth of the ETF market in Hong Kong,” said James Martielli, head of portfolio review, Asia at a media briefing.
After the cuts, the expense ratio for all of Vanguard’s funds will fall to 0.22 per cent, compared to 0.67 per cent for the broader industry, according to a company presentation.
While Hong Kong has seen rising interest in such products in recent years in the backdrop of volatile markets and relatively higher fees, its growth has lagged its Western counterparts.
As of September 2015, Hong Kong had about 131 ETFs with a market capitalization of $340 billion offered by 25 issuers, according to a Financial Services Development Council report released last year.
Vanguard’s five ETFs have a combined market capitalisation of HK$648 million ($83.53 million) compared with HK$28 billion of the ishares FTSE A50 China ETF.
Its Asian business amounts to about $130 billion. Globally, it has $3.8 trillion under management.