“We always try to create value for investors in our funds, and one of the ways we do this is by lowering investment costs,” said Vanguard CEO Bill McNabb. “Index licensing has become more expensive over the years, and we identified a high-quality benchmark that provides cost certainty and saves potentially hundreds of millions of dollars over time that can be passed on to investors.”
VWO, the emerging market ETF, will drop its exposure to South Korea as part of the index transition. The Vanguard ETF has $61.1 billion in assets versus $52 billion for EEM, which is managed by BlackRock’s (NYSE: BLK) iShares. [Vanguard Emerging Market ETF to Drop South Korea]
Investors in some of Vanguard’s mutual funds and ETFs will end up with different portfolios than they may have long owned while others could see little impact resulting from the index transitions, S&P Capital IQ ETF analyst Todd Rosenbluth said in a note this week.
“Vanguard believes by shifting to new benchmarks, it can bring costs down over time for investors through lower trading activity. While this approach likely will fit with investor goals, we believe a close look at the Vanguard portfolios is needed to see if the holdings and sector weights make sense for them,” Rosenbluth said.
“[W]hen the benchmark they seek to replicate changes in 2013, there will likely be an impact. Whether this is a positive or negative remains unknown, but it is a risk investors need to be aware of,” the analyst wrote.
Full disclosure: Tom Lydon’s clients own EEM.