The popular developing-country-focused exchange traded fund, Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), has switched to a new benchmark index that will gradually shift component holdings to include Chinese A-shares.

As of November 2, VWO will begin tracking the new FTSE transition index that will begin building exposure to small-capitalization stocks and China A-shares before finalizing the switch to the FTSE Emerging Markets All Cap China A Inclusion Index, according to Vanguard Group.

VWO will follow a transition index for approximately one year to diminish costs associated with the huge amount of securities that will need to be acquired. Specifically, the fund will sell large- and mid-cap stocks on a monthly basis while proportionally adding China A-shares and small-cap ex China A-shares.

The Vanguard Emerging Market ETF is a behemoth with $37.5 billion in assets under management, so any large reallocations could affect underlying prices.

As of September 30, the FTSE Emerging Markets All Cap China A Inclusion Index held 1,856 small-cap companies, or 11.3% of the index, and 1,454 Chinese A-shares, or 5.8% of the index.

“The initial weighting of China A Shares in the FTSE Emerging inclusion indexes will be approximately 5%. This is expected to increase to 32% (at 31-March 2015 market values) when China A Shares are fully available to international investors, and hence resulting in Chinese stocks (including B-Share, H-Share, P Chips and Red Chips) to make up 50% of FTSE Emerging Index,” FTSE Russell previously said in statement.

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