South Korea
There is a major difference between the emerging market indices managed by MSCI and FTSE in terms of country allocations.
“FTSE counts South Korea as a developed market and hence, does not include the country in its emerging markets index. MSCI still considers South Korea an emerging market,” says Daniel Wiener, editor of The Independent Adviser for Vanguard Investors.
“The country’s stocks represent about 15.5% of the index weight with Samsung Electronics Co. Ltd. the largest single company in the MSCI index at an almost 4% weighting,” he added.
Brendan Conway at Barron’s estimates the Vanguard emerging markets ETF may have to unload as much as $9 billion in exposure to South Korea at some point.
Vanguard said the transition to the new benchmarks is not expected to result in capital gains distributions to the funds’ shareholders.
In any case, investors will be closely watching the performance of the competing emerging market ETFs to see if Vanguard adopting a FTSE index results in a performance edge or disadvantage.