Accessing the U.S. market through ETFs Brian Roberts Vanguard Investments Hong Kong Limited 9 Jul 2015 For professional institutional use investors only. Not use for only. public Not distribution. for public distribution.
Probability U.S. growth outlook: Modest cyclical thrust above low 2%-trend Vanguard s 2015 U.S. growth outlook (2.5-3.0%) Estimated distribution of growth outcomes 30% Odds of a slowdown 33% Trend growth 2.1% Odds of an acceleration 45% 22% 21% 20% 16% 17% 14% 10% 10% 0% Recession: Less than 0.5% Stagnation: 0.5 to 1.5% Status Quo: 1.5% to 2.5% Cyclical Rebound: 2.5% to 3.5% Robust Growth: 3.5% to 4.5% Overheating: More than 4.5% Note: Distribution of growth outcomes generated by bootstrapping the residuals from a regression based on a proprietary set of leading economic indicators and historical data, estimated from 1960 to 2014 and adjusting for the time-varying trend growth rate. Trend growth represents projected future estimated trend growth. Source: Vanguard calculations, based on data from U.S. Bureau of Economic Analysis and Federal Reserve. 2
S&P 500 index is an effective proxy for the US broad market Sector difference relative to S&P US BMI Rolling correlations with S&P US BMI 1.50% 1.20% 1.00 1.00% 0.50% 0.62% 0.42% 0.73% 0.23% 0.99 0.98 0.00% -0.50% -0.35% -0.03% 0.97 0.96-1.00% -0.75% -0.72% 0.95-1.50% -1.35% 12 mo. rolling correlation 36 mo. rolling correlation Rolling 12-month returns 80% 60% 40% 20% 0% -20% -40% -60% Jun-91 Jun-93 Jun-95 Jun-97 Jun-99 Jun-01 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11 Jun-13 S&P 500 S&P US BMI Source: Vanguard calculations using data from Morningstar and Factset, data as at 31 May 2015. S&P US BMI = S&P US Broad Market Index. 3
Considerations for non-u.s. investors accessing the U.S. market through ETFs S&P 500 ETF (VOO)* Listed: NYSE S&P 500 ETF (VUSD)* Listed: LSE S&P 500 ETF (3140) Listed: HKEx AUM: $32.6 billion TER: 0.05% 30-day average spread: 1 bp Distribution withholding: 30% ADV: 1,335,237 shares AUM: $11.4 billion TER: 0.07% 30-day average spread: 4 bps Distribution withholding: 15% ADV: 939,036 shares AUM: $10 million TER: 0.25% 30-day average spread: 25 bps Distribution withholding: 30% ADV: 104,289 shares Trading currency: USD Trading hours: 9:30pm to 4:00am (following day) HKT Trading currency: USD, EUR, GBP, CHF Trading hours: 3.00pm to 11.30pm HKT Trading currency: HKD Trading hours: 9:30am to 4:00pm HKT Advantages: Generally, the lowest expense ratio and tightest spread Advantages: Competitive expense ratio and spread Potentially favorable tax treatment for U.S. equity products Advantages: Trade in HKD no FX conversion costs Can be accessed through every retail brokerage account Execute transaction during Asian trading hours Considerations: Trade during U.S. hours Potentially the highest tax drag for non-u.s. investors Considerations: Trade during European hours FX costs to convert to traded currency Considerations: May be higher expense ratio and wider spread *Not authorised by SFC and not available for the public in Hong Kong. 4
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