Vanguard ETFs: A low-cost way to capture global equity market returns

Vanguard ETFs: A low-cost way to capture global equity market returns Vanguard FTSE Asia ex Japan Index ETF (2805) Vanguard FTSE Japan Index ETF (3126) - NEW Vanguard FTSE Developed Europe Index ETF (3101) - NEW Vanguard FTSE Asia ex Japan High Dividend Yield Index ETF (3085) - NEW IMPORTANT: Investment involves risk, including the loss of principal. Investors are advised to consider their own investment objectives and circumstances in determining the suitability of an investment in the Vanguard FTSE Asia ex Japan Index ETF, the Vanguard FTSE Japan Index ETF, the Vanguard FTSE Asia ex Japan High Dividend Yield Index ETF and the Vanguard FTSE Developed Europe Index ETF (the Funds ). If you are in any doubt, you should seek professional advice. Investors should refer to the Funds prospectus for further details, including the product features and risk factors. Investors should not base investment decisions on this marketing material alone. Investors should note: The Funds aim to provide investment results that, before fees and expenses, closely correspond to the performance of the FTSE Asia Pacific ex Japan, Australia and New Zealand Index, the FTSE Japan Index, the FTSE Asia Pacific ex Japan, Australia and New Zealand High Dividend Yield Index and the FTSE Developed Europe Index. The Funds invest in financial derivatives instruments ( FDIs ) which are more sensitive to changes in market prices of the underlying assets and investing in FDIs, may expose investors to a higher degree of fluctuations and the Funds may be exposed to credit risk on the counterparties with which they trade FDIs. The units of the Funds are traded on the Stock Exchange of Hong Kong Limited ( SEHK ). Their prices on the SEHK are based on secondary market trading factors and the Funds market prices may deviate significantly from the net asset value. The Vanguard FTSE Asia ex Japan Index ETF and the Vanguard FTSE Asia ex Japan High Dividend Yield Index ETF invest in securities markets that are considered to be emerging markets which involve a greater risk of loss than investing in more developed markets due to, among other factors, greater political, tax, economic, foreign exchange, liquidity and regulatory risks. The Vanguard FTSE Asia ex Japan High Dividend Yield Index ETF invests in high dividend yield securities which may offer a higher rate of dividend yield. However, high dividend yield securities are subject to risks that the dividend could be reduced or abolished, or the risks that the value of the securities could decline or have lower-than average potential for price appreciation. The Vanguard FTSE Japan Index ETF concentrates its investment in the Japanese securities market which may involve a higher level of risks compared to investing in a more diversified portfolio/strategy and a greater risk of loss than investing in other markets and may result in a higher risk of loss to the fund. Changes in governmental regulations on trade, exchange rate of the Japanese yen, decreasing imports or exports, and/or an economic recession in Japan may have a significant adverse effect on the Japanese economy. The Vanguard FTSE Developed Europe Index ETF invests in European securities markets which involve a greater risk of loss than investing in other markets and may result in a higher risk of loss to the fund. Changes in governmental or European Union (the EU ) regulations on trade, exchange rate of the euro, decreasing imports or exports, the default or threat of default by an EU member country on its sovereign debt, and/or an economic recession in an EU member country may have a significant adverse effect on the EU economy. Further, the Economic and Monetary Union of the EU requires compliance with interest rates, debt levels, restrictions on inflation rates, deficits and fiscal and monetary controls, each of which may significantly affect the EU economy.

A trusted name Vanguard may be new to Hong Kong, but our parent company, The Vanguard Group, Inc., was founded in the United States in 1975 with a commitment to serving our clients interests exclusively. Over the years, we have held firm to that commitment and become the largest mutual fund company 1 and the third largest exchange-traded fund (ETF) provider 2 in the world. In 1996 we established our first office outside the United States in Australia. We later expanded into Japan, Europe, Canada, Singapore and, most recently, Hong Kong. A unique client focus Why have clients from around the world entrusted us with more than USD 2.8 trillion in assets? 3 The answer lies in our core purpose: To take a stand for all investors, to treat them fairly and to give them the best chance for investment success. What sets us apart and lets us deliver on that promise is our ownership structure in the United States. Unlike other investment management companies, we don t have public shareholders or private owners expecting dividends. We are owned by our US-domiciled funds, which in turn are owned by their investors. As a result, we have no conflicting interests and can stay focused on doing what s best for our clients. The most tangible benefit to our clients is our low costs. Our investment philosophy Vanguard believes successful investing begins with focusing on what you can control. You can t control market returns, but you can set clear goals, stay diversified, keep costs low and maintain long-term discipline. Following these principles can be an effective way to achieve long-term results. Consistent with those principles, we believe an investor s core portfolio should consist of low-cost exposure to the broad markets. An indexing leader Vanguard introduced the first index fund for individual investors in the United States in 1976, beginning the era of low-cost index investing. Over the last decade, we have extended our indexing expertise to ETFs. Why indexing? Index investments provide an ideal way to capture broad market returns. Instead of hiring fund managers to select which securities a fund will hold, an index fund buys all Figure 1. Vanguard s global reach Scottsdale Est. 1994 Toronto Est. 2011 Valley Forge Est. 1975 Charlotte Est. 1997 London Est. 2008 Paris Est. 2005 Zurich Est. 2008 Amsterdam Est. 2004 Hong Kong Est. 2011 Tokyo Est. 2000 Singapore Est. 2003 Perth Est. 2009 Brisbane Est. 2009 Sydney Est. 2007 Melbourne Est. 1996 Source: Vanguard, as at 31 December 2013. 1 Source: Morningstar, as at 31 January 2014. Based on global total net assets of mutual funds (including long-term and money market funds). 2 Source: Morningstar, as at 28 February 2014. 3 Source: Vanguard, as at 31 March 2014. 2

(or a representative sample) of the securities in the market index it seeks to track. Because index investments hold securities until the index itself changes, they typically have very low costs. Due mostly to their low costs, index investments have generally outperformed higher-cost investments over time. 4 In addition to a potential performance edge, index investments offer other appealing traits, including: Diversification. Most index funds and ETFs hold a broad range of securities, which can help reduce risk. Style consistency. An investor who seeks exposure to a particular market and selects an index fund that tracks that market is assured of a consistent allocation. Transparency. Because index funds and ETFs are designed to track an index and hold the same securities (or a representative sample), index funds and ETFs are transparent and easy to understand. ETFs: Another way to index ETFs have become popular for features that traditional index funds don t offer. Like index funds, ETFs offer the benefits of low costs and diversification. But ETFs have the added flexibility of trading on a stock exchange. Like individual stocks, they can be bought and sold through an adviser or a brokerage account at market-determined prices, whenever the exchange is open. Combining indexing with active management Investors who seek market outperformance, but without the potentially higher costs and risks of an all active portfolio, may benefit from combining indexing and active strategies. The appeal of this approach is that it seeks to provide risk control through indexing while also offering prospects of outperformance. Vanguard ETFs offer low-cost access to global equity markets Vanguard ETFs offer you the diversification and transparency of indexing with the low costs and investment expertise for which Vanguard is known. With exposure to broad equity markets in Asia ex Japan, Japan and Europe, our ETFs offer you access to more than 40% of the world s total equity market capitalisation. 5 And Vanguard s low costs mean you keep more of your returns a benefit that compounds in your favour over time. The average total expense ratio (TER) of our four ETFs is just 0.33% annually, compared with 0.73% for all ETFs listed in Hong Kong. 6 Used together or individually, Vanguard ETFs offer you a flexible, low-cost and high-quality way to build a globally diversified portfolio. Figure 2. ETFs combine features of index funds and individual stocks Index fund characteristics Diversification Low fees Low portfolio turnover Exchangetraded fund Individual stock characteristics Continuous pricing Trading flexibility Low execution costs 4 Source: The case for index fund investing for Asian investors, Vanguard, 2013. 5 Source: FTSE, as at 30 April 2014. 6 Vanguard calculations using data from Morningstar as at 15 May 2014. 3

Explore our ETF line-up Vanguard FTSE Asia ex Japan Index ETF (2805) Product highlights Employs a passively managed, index sampling strategy to gain exposure to developed and emerging equity markets across Asia, excluding Japan. Offers the lowest total expense ratio in its category of ETFs on the Hong Kong Stock Exchange. 7 Key fund facts Stock code 2805 Benchmark FTSE Asia Pacific ex Japan, Australia and New Zealand Index Total expense ratio 0.38% Currency HKD Listing date 15 May 2013 Fund characteristics 8 Number of stocks 716 Median market cap $151.7 billion Equity yield (dividend) 2.4% Number of countries 10 Number of sectors 10 Fund top 10 holdings 8 Samsung Electronics Co. Ltd. 4.4% Taiwan Semiconductor Manufacturing Co. Ltd. 3.0% AIA Group Ltd. 1.9% Tencent Holdings Ltd. 1.8% China Construction Bank Corp. 1.6% China Mobile Ltd. 1.6% Industrial & Commercial Bank of China Ltd. 1.4% Hyundai Motor Co. 1.1% Bank of China Ltd. 1.1% Hon Hai Precision Industry Co. Ltd. 1.0% Total 18.9% Fund country diversification 8 China 21.4% Korea 19.1% Hong Kong 15.3% Taiwan 14.4% India 10.3% Singapore 6.6% Malaysia 5.3% Indonesia 3.0% Thailand 2.9% Philippines 1.7% Fund sector diversification 8 Financials 30.5% Consumer Goods 16.3% Industrials 12.5% Technology 11.9% Oil & Gas 6.7% Telecommunications 6.2% Basic Materials 5.6% Consumer Services 5.4% Utilities 3.4% Health Care 1.5% Performance history Total returns for period ending 30 April 2014 3 months Year to date 1 year 3 years 5 years Since inception Vanguard FTSE Asia ex Japan Index ETF 5.36% 0.11% -1.37% FTSE Asia Pacific ex Japan, Australia and New Zealand Index 5.33% 0.15% 1.64% -0.09% 13.45% Cumulative monthly return. Annualised return. The performance of an index is not an exact representation of any particular investment as you cannot invest directly in the index. The historical performance of the index is for illustrative purposes only. The historical performance of the index is not meant to forecast, imply or guarantee the future performance of the fund. Index performance does not reflect tracking error, charges and expenses associated with the fund, or brokerage commission associated with buying and selling the fund. The fund s inception date was 10 May 2013. 7 Source: Morningstar, as at 26 May 2014. 8 Source: Vanguard, as at 30 April 2014, unless otherwise noted. Discrepancies due to rounding. 4

ETF line-up (continued) Vanguard FTSE Japan Index ETF (3126) - NEW Product highlights Employs a passively managed, index sampling strategy to gain exposure to the broad equity market in Japan. The first physical, market-cap-weighted Japan equity ETF listed on the Hong Kong Stock Exchange. 9 Offers the lowest total expense ratio in its category of ETFs on the Hong Kong Stock Exchange. 9 Key fund facts Stock code 3126 Benchmark FTSE Japan Index Total expense ratio 0.25% Currency HKD Listing date 13 June 2014 Benchmark characteristics 10 Number of stocks 461 Equity yield (dividend) 1.9% Number of sectors 10 Benchmark sector diversification 10 Consumer Goods 24.2% Industrials 21.6% Financials 18.3% Consumer Services 9.8% Health Care 6.3% Basic Materials 6.2% Telecommunications 5.2% Technology 4.8% Utilities 2.4% Oil & Gas 1.3% Benchmark top 10 holdings 10 Toyota Motor 5.1% Mitsubishi UFJ Financial 2.7% Softbank 2.5% Honda Motor Co 2.1% Sumitomo Mitsui Financial Group 1.9% Mizuho Financial Group 1.7% Canon 1.3% Fanuc 1.3% Takeda Pharmaceutical 1.2% Japan Tobacco 1.2% Total 21.0% 9 Source: Morningstar, as at 26 May 2014. 10 Source: FTSE, as at 30 April 2014. Discrepancies due to rounding. 5

ETF line-up (continued) Vanguard FTSE Developed Europe Index ETF (3101) - NEW Product highlights Employs a passively managed, index sampling strategy to gain exposure to the broad equity markets of developed European countries. The first Europe equity ETF listed on the Hong Kong Stock Exchange. 9 Offers the lowest total expense ratio in its category of ETFs on the Hong Kong Stock Exchange. 9 Key fund facts Stock code 3101 Benchmark FTSE Developed Europe Index Total expense ratio 0.25% Currency HKD Listing date 13 June 2014 Benchmark characteristics 10 Number of stocks 510 Equity yield (dividend) 3.2% Number of countries 17 Number of sectors 10 Benchmark top 10 holdings 10 Nestle 2.7% Roche Holdings (GENUS) 2.2% Novartis (REGD) 2.2% HSBC Holdings 2.1% Royal Dutch Shell A 1.7% BP 1.7% Total 1.6% GlaxoSmithKline 1.5% Sanofi 1.3% Banco Santander 1.2% Total 18.1% Benchmark country diversification 10 UK 32.1% France 14.6% Germany 13.7% Switzerland 13.6% Spain 5.3% Sweden 4.7% Netherlands 4.2% Italy 4.0% Denmark 2.3% Belgium & Luxembourg 1.8% Finland 1.3% Norway 1.2% Austria 0.4% Ireland 0.4% Portugal 0.3% Greece 0.2% Benchmark sector diversification 10 Financials 22.4% Consumer Goods 17.3% Industrials 12.8% Health Care 11.4% Oil & Gas 9.4% Basic Materials 8.6% Consumer Services 6.6% Telecommunications 4.4% Utilities 4.2% Technology 2.9% 9 Source: Morningstar, as at 26 May 2014. 10 Source: FTSE, as at 30 April 2014. Discrepancies due to rounding. 6

ETF line-up (continued) Vanguard FTSE Asia ex Japan High Dividend Yield Index ETF (3085) - NEW Product highlights Employs a passively managed, index sampling strategy to gain exposure to stocks that are characterised by higherthan-average dividend yields in emerging and developed equity markets across Asia, excluding Japan. The first physical, market-cap-weighted, Asia ex Japan equity high dividend yield ETF listed on the Hong Kong Stock Exchange. 9 Offers the lowest total expense ratio in its category of ETFs on the Hong Kong Stock Exchange. 9 Key fund facts Stock code 3085 Benchmark FTSE Asia Pacific ex Japan, Australia and New Zealand High Dividend Yield Index Total expense ratio 0.45% Currency HKD Listing date 13 June 2014 Benchmark characteristics 10 Number of stocks 361 Equity yield (dividend) 3.7% Number of countries 11 Number of sectors 9 Benchmark top 10 holdings 10 Taiwan Semiconductor Manufacturing 5.9% China Construction Bank (H) 3.1% China Mobile (Red Chip) 3.1% Industrial and Commercial Bank of China (H) 2.7% Bank of China (H) 2.1% CNOOC (Red Chip) 1.7% Petrochina (H) 1.5% DBS Group Holdings 1.5% MediaTek 1.4% China Petroleum & Chemical (H) 1.4% Total 24.4% Benchmark country diversification 10 China 26.3% Taiwan 21.8% Hong Kong 17.3% Singapore 10.4% Malaysia 8.5% Thailand 5.0% India 3.6% Korea 3.2% Indonesia 2.8% Philippines 0.8% Pakistan 0.4% Benchmark sector diversification 10 Financials 34.9% Technology 11.8% Telecommunications 11.3% Oil & Gas 9.2% Industrials 8.9% Consumer Goods 8.9% Basic Materials 5.8% Consumer Services 5.2% Utilities 4.1% 9 Source: Morningstar, as at 26 May 2014. 10 Source: FTSE, as at 30 April 2014. Discrepancies due to rounding. 7

Vanguard Investments Hong Kong Limited Level 20, Man Yee Building 60-68 Des Voeux Road Central, Central, Hong Kong Phone: 3409 8333 Email: sales@vanguard.com.hk Connect with Vanguard vanguard.com.hk The contents of this document and any attachments/links contained in this document are for general information only and are not advice. The information does not take into account your specific investment objectives, financial situation and individual needs and is not designed as a substitute for professional advice. You should seek independent professional advice regarding the suitability of an investment product, taking into account your specific investment objectives, financial situation and individual needs before making an investment. The contents of this document and any attachments/links contained in this document have been prepared in good faith. The Vanguard Group, Inc., and all of its subsidiaries and affiliates (collectively, the Vanguard Entities ) accept no liability for any errors or omissions. Please note that the information may also have become outdated since its publication. The Vanguard Entities make no representation that such information is accurate, reliable or complete. In particular, any information sourced from third parties is not necessarily endorsed by the Vanguard Entities, and the Vanguard Entities have not checked the accuracy or completeness of such third party information. This document contains links to materials which may have been prepared in the United States and which may have been commissioned by the Vanguard Entities. They are for your information and reference only and they may not represent our views. The materials may include incidental references to products issued by the Vanguard Entities. The information contained in this document does not constitute an offer or solicitation and may not be treated as an offer or solicitation in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The Vanguard Entities may be unable to facilitate investment for you in any products which may be offered by The Vanguard Group, Inc. No part of this document or any attachments/links contained in this document may be reproduced in any form, or referred to in any other publication, without express written consent from the Vanguard Entities. Any attachments and any information in the links contained in this document may not be detached from this document and/or be separately made available for distribution. This document is being made available in Hong Kong by Vanguard Investments Hong Kong Limited (CE No.:AYT820), a Hong Kong company licensed with the Securities and Futures Commission ( SFC ) in Hong Kong. Investment involves risks, including the loss of principal. Investors are advised to consider their own investment objectives and circumstances in determining the suitability of an investment in the ETFs. If you are in any doubt, you should seek professional advice. Investors should refer to the ETFs prospectus for further details, including product features, risk factors and restrictions on owning and holding the ETFs. Investors should not base investment decisions on this document alone. Further details of the ETFs can be found at www.vanguard.com.hk. The ETFs are traded on the HKEx at market price, which may be different from their net asset value. Past performance is not an indication of future performance. The contents of this document have not been reviewed by the SFC and SFC authorisation is not an official recommendation of the ETFs. This document does not constitute an offer, an invitation to offer or a recommendation to enter into any investment products. In China, the information contained in this document does not constitute a public offer of any investment products in the People s Republic of China (the PRC ). No unit is being offered or sold directly or indirectly in the PRC to or for the benefit of, legal or natural persons of the PRC. Further, no legal or natural persons of the PRC may directly or indirectly purchase any units or any beneficial interest therein without obtaining all prior governmental approvals that are required by the PRC, whether statutorily or otherwise. Persons who come into possession of this document are required by the issuer to observe these restrictions. The units are not registered in Taiwan and may not be sold, issued or offered in Taiwan. No person or entity in Taiwan has been authorised to offer, sell, give advice regarding or otherwise intermediate the offering and sale of any units in Taiwan. All rights in the FTSE Asia Pacific ex Japan, Australia and New Zealand Index, FTSE Developed Europe Index, FTSE Japan Index, FTSE Asia Pacific ex Japan, Australia and New Zealand High Dividend Yield Index (the Indices ) vest in FTSE International Limited ( FTSE ). FTSE is a trademark of London Stock Exchange Group companies and is used by FTSE under licence. Vanguard FTSE Asia ex Japan Index ETF, Vanguard FTSE Developed Europe Index ETF, Vanguard FTSE Japan Index ETF, and Vanguard FTSE Asia Pacific ex Japan, Australia and New Zealand High Dividend Yield Index ETF (the Products ) have been developed solely by Vanguard. The Indices are calculated by FTSE or its agent. FTSE and its licensors are not connected to and do not sponsor, advise, recommend, endorse or promote the Products and do not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Indices or (b) investment in or operation of the Products. FTSE makes no claim, prediction, warranty or representation either as to the results to be obtained from the Products or the suitability of the Indices for the purpose to which they are being put by Vanguard. 2014 Vanguard Investments Hong Kong Limited. All rights reserved. GTLCSTHK 062014