Video: ETF of the Week: VEXC

On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research, Todd Rosenbluth, discussed the Vanguard Emerging Markets Ex-China ETF (VEXC) with Chuck Jaffe of Money Life. The pair discussed several topics related to the fund to give investors a deeper understanding of the ETF.

Chuck Jaffe: One fund, on point for today. The expert to talk about it. This is the ETF of the Week!

Yes, welcome to the ETF of the Week, where we examine trending, new, newsworthy, unique, and intriguing exchange-traded funds with Todd Rosenbluth, the head of research at VettaFi. And if you go to VettaFi.com, you will find all the tools and research you need to become a savvier, smarter investor in exchange-traded funds.

Todd Rosenbluth, great to chat with you again.

Todd Rosenbluth: Great to be back, Chuck.

Chuck Jaffe: Your ETF of the Week is…

Todd Rosenbluth: The Vanguard Emerging Markets Ex-China ETF, VEXC.

Chuck Jaffe: VEXC, the Vanguard Emerging Markets Ex-China ETF. Now this, we talk about “new and newsworthy.” Well, this is new! It’s the ETF of the Week, because it’s been around for like a week at this point. Why this fund, right out of the box?

Todd Rosenbluth: That’s right! This fund launched at the end of September. Excluding China from a portfolio or from an ETF to make it easier within a portfolio is not a new concept. iShares has been a leader within that space. What’s new and newsworthy or exciting to me about this is a couple of things. One, the Vanguard Emerging Markets ETF (VWO) is a $100 billion ETF.

This new ETF from Vanguard, VEXC, pairs very nicely; I’m sure we’ll talk about how in a moment. VEXC is just seven basis points, so it’s extremely cheap. And Vanguard, I mean, they don’t launch that many ETFs. What they’ve been launching as of late have been actively managed fixed income ETFs. So for Vanguard, who is known primarily as an index-based provider, bringing something new out of the gate caught my eye.

Chuck Jaffe: It did, and I understand why. But let’s talk briefly about portfolio construction and how this one is managed. Because you mentioned the VWO — that’s the Vanguard FTSE Emerging Markets ETF. Is this fund basically that fund, just take out everything based in China? Is this the exact same methodology, minus exactly what you think would be excluded?

Todd Rosenbluth: Yes, it’s as simple as that! So, China represents roughly a third of the assets that are in VWO; it’s by far the largest country. Then Taiwan and India are other countries that are represented within the broader emerging markets ETF, VWO. So, what VEXC does is it excludes all of those Chinese stocks. And so the weighting in Taiwanese and Indian stocks, South African stocks, I could name additional markets as well. We’d be here a while. You see much more weighting there. 

If you are concerned about the role China is playing within your portfolio, or you’re concerned about U.S.-China relations, to me, there are a couple of things you could do with this ETF. One, it could be an outright replacement for VWO, if you might not have fully appreciated that you had so much exposure to China and you don’t want any exposure to China. Then VEXC is a way of doing that.

What we found with the ex-China ETFs, in particular the iShares product, is that it’s being used to pair with that broader emerging markets one. So, instead of having 35% or 33% exposure to China, what if you wanted to bring that down to 20%, for example? You can’t remove the China from your ETF that already holds China, but you can add an ex-China ETF into that. You are then narrowing the exposure you have to China by using some of your international equity exposure to buy VEXC.

Chuck Jaffe: Todd, you and I have known each other for a long time, and I am someone who is out and I read a lot of things. I’m never surprised when I’m reading something about the ETF space and I’m like, “Oh, there’s Todd.” I remember a story, I think it was in Investor’s Business Daily, that was from this past summer, where you were talking about how emerging markets ex-China funds were falling out of favor, largely because they hadn’t performed as well. So they’d been very popular a year or two ago, and they were less popular now.

So, that’s all these funds on the whole. Then we’ve got this new issue. How do you resolve that, or did I misquote you there? Because I very distinctly remember a story where it’s like, “Oh, I wonder when this will show up on ETF of the Week?” And here it is now, a few months later!

Todd Rosenbluth: Here it is! Now, obviously I stand by that. The facts are the facts. Money has been flowing out of the ex-China ETFs this year. In particular, the iShares product has seen net outflows. China has performed relatively well. I think if you looked at an ex-China ETF and an inclusive-of-China ETF, they’re close in performance this year.

I think the inclusive-of-China ETF is outperforming by 100 or so basis points, the last time that I looked, when I was thinking about talking about VEXC. So, it hasn’t been as rewarding, and investors have not been favoring it as much. 

Now, should they? Again, I’m not here to give investment advice. I’m highlighting the fact that Vanguard, who many people are using to get emerging markets exposure, has brought something to the market that allows you to better control that. And it’s considerably cheaper.

So, do you think China is going to outperform the broader emerging markets between now and the rest of the year or into 2026? If you do, VEXC is not the fund for you. If you think China is going to underperform and you still want to have exposure to other emerging markets — either paired with your VWO product or another product, or you want to do it as a standalone — VEXC makes a lot of sense to me.

Chuck Jaffe: Speaking of making sense, one of the things that you have talked about a lot with recent picks for ETF of the Week has been active management, and how you like active management. Now this, again, is not an actively managed fund. 

But since you’re talking about pairing strategies, is this a case where if somebody has their favorite emerging markets fund… They’re investing in Seafarer, or something along those lines, with an active manager, or they’re doing it with one of the ETFs we’ve discussed in the space previously. Do you want to pair this with an active manager, not just the China component, but also get your active and passive in emerging markets that way?

And conversely, if you’re looking at an ex-China fund and you already are indexed, do you lose some of the appeal because both of these funds would be passive?

Todd Rosenbluth: If you are using an active manager to get exposure to emerging markets, and then you’re deferring to that management team to make a — call on where the exposure is — I was going to say a top-down call, but many of these funds are doing bottom-up selection, but they might not have a lot of exposure to China. They might not find the appeal. 

So, that’s partially being done for you. So, can this complement an active strategy and offer you a cheap, index-based approach? Yes, you’re just reducing your exposure to China. So, if that active manager is doing it for you, you might just feel more comfortable letting somebody do that.

I think this pairs well — or goes well for somebody who wants emerging markets exposure and has concerns about having too much towards China. Whether they want to have nothing toward China, that may make sense. You’re obviously taking a significant risk of underperformance because the Chinese stock market can do well. It has historically done well, not every year, but it has historically done well enough that you might want to have representation. But this is a cheap, broad market approach that just makes it easier for you to reduce exposure to China from Vanguard. So there are a lot of things to consider on this fund.

Chuck Jaffe: Do you have a sense in your own mind about if anything changes, if we get into or avoid trade wars with China? Is this fund going to be particularly tariff-sensitive? Is there anything else that is a factor here beyond that it’s new and it’s covering this space in this way?

Todd Rosenbluth: So, I would have thought, and I think many people might have thought, that the Chinese stock market would not perform well, given that the U.S.-China relations under the Trump administration have not been very smooth. And yet the Chinese stock market has done quite well, and emerging markets have done quite well. So I’m not sure my tea leaf reading is going to be as strong as it should be.

But if you are concerned about your exposure to China, this is a good way of doing that in a low-cost, broadly diversified manner. I probably sound like a broken record, but this is a relatively simple fund, and so my comments are often going to be straightforward.

Chuck Jaffe: Banging the drum hard on the elements that make this fund attractive, and that’s exactly what you should do, because you’ve made VEXC, the Vanguard Emerging Markets Ex-China ETF, the ETF of the Week for this week, in its second week in existence. 

Todd, great stuff, always is. Thanks so much for joining me. We’ll talk to you again next week!

Todd Rosenbluth: Sounds great, Chuck.

Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yes, I’m Chuck Jaffe. It would be great if you would check out my hour-long weekday podcast. You can find it wherever you find your favorite podcasts, or you can search for it at MoneyLifeShow.com.

Now, if you’re searching for information on your next great ETF or a new one or any of our picks, go to VettaFi.com, where they’ve got a full suite of tools that you can use to improve your ETF investing game. They’re on X, or Twitter, at @Vetta_Fi and Todd Rosenbluth, their head of research, my guest, is on X as well; he’s at @ToddRosenbluth.

The ETF of the Week is here for you every Thursday. Make sure you never miss an episode by following along on your favorite podcast app. We’ll be back next week with another ETF for you to consider. Until then, happy investing everybody!

Note: This article was created in part through assistance from AI tools. The content has been thoroughly reviewed and edited by the author. 

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