“At the same time, we understand that for some investors this change may be problematic. FTSE classifies South Korea as a developed market, while MSCI classifies it as an emerging market,” says Fran Kinniry, a principal in Vanguard Investment Strategy Group. “It’s a dilemma that’s led some investors to reevaluate their holding of Vanguard Emerging Markets Stock Index Fund and ETF (VWO).” [Doing the Math on International ETFs]
In the FT story, Kinniry said Vanguard anticipated inflows might slow in the short term but believed the index switch would benefit investors over the long run. “The switch will solidify our cost leadership in indexing over the next decade and beyond,” he said in the report.
Dan Caplinger at the Motley Fool on Wednesday reported the Vanguard index change has created a controversial situation.
“After creating a huge success with its Vanguard MSCI Emerging Markets ETF (VWO), the company decided to make a money-saving move that has some of its biggest customers crying foul — and putting their money where their mouths are,” he writes.
“Vanguard is doing what it can to protect its shareholders by not disclosing exactly when the changes will start taking place,” Caplinger added. “But the more important question facing the fund is whether the move will cause a massive shareholder defection. After having worked so hard to dethrone the iShares emerging market ETF, Vanguard certainly doesn’t want to give back the title.”
Full disclosure: Tom Lydon’s clients own EEM.