In light of Vanguard’s major index swaps for its exchange traded fund products, investors have begun to take greater notice of how their ETF products are melded together.

Vanguard recently announced plans to swap from major MSCI indices for FTSE and CRSP indices in an attempt to lower costs. More importantly, the switch also changes the ETFs’ underlying holdings. [ETFs Target Indices to Lower Fees Even More]

“We expect that the change will force investors to review specific country exposures across international indexes and it could lead to a meaningful divergence of returns versus the more established competing MSCI index,” Daniel Weiskopf, Principal at Global ETF Strategies, said in a research note. [Vanguard Index Trade ‘All About Costs’]

Specifically, Weiskopf notes that investors, advisors and portfolio managers “will now be forced to define ‘how they define a country as Developed, Developing and Emerging.'”

For instance, FTSE, Chicago’s Center for Research in Security Prices (CRSP) and MSCI differ in their views on emerging market status. South Korea has about a 16% weighting in MSCI’s emerging markets, whereas South Korea is considered a developed market in FTSE and CRSP. [Does the ETF Index Provider Matter?]

“The decision forces ETF Strategists and financial advisors to review their South Korea exposures and, depending upon their client allocation, could force investment decisions that otherwise they would not have had to make that ultimately is a franchise risk for Vanguard,” Weiskopf added.

For more information on ETF indexing, visit our indexing category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.