Vanguard, the third-largest U.S. ETF issuer, announced it is
shifting to an index managed by the FTSE Group for the Vanguard
Emerging Markets ETF (NYSE:
). The Vanguard Emerging Markets ETF, the largest emerging
markets ETF and third-largest ETF of any kind trading in the
U.S., has to this point been benchmarked to the MSCI Emerging
Vanguard is changing indexes on 21 other products in what is
being deemed a cost-cutting move. The move away from the MSCI
Emerging Markets Index is significant because the comparable FTSE
index does not recognize South Korea as a developing nation. MSCI
still sees South Korea as an emerging market,
though there is ample debate regarding whether
that classification is still warranted
The iShares MSCI Emerging Markets Index Fund (NYSE:
), VWO's nearest competitor, allocates 15.4 percent of its weight
to South Korea. That makes the country the second-largest in the
ETF behind China,
according to iShares data
. EEM will continue using the MSCI Emerging Markets Index.
"MSCI is the gold standard of global and international equity
indexes - the near-universal choice of professional investors. We
plan to deepen our partnership with MSCI to help deliver the
highest quality products and portfolio construction to our
clients," said Mark Wiedman, global head of iShares, in an email
to members of the media.
U.K.-based FTSE classifies the following nations as advanced
developing economies: Brazil, Czech Republic, Hungary, Malaysia,
Mexico, Poland, South Africa, Taiwan and Turkey. The following
are classified as secondary emerging nations: Chile, China,
Colombia, Egypt, India, Indonesia, Morocco, Pakistan, Peru, the
Philippines, Russia, Thailand and the United Arab Emirates.
China and Brazil combine for nearly 33 percent of the FTSE
Emerging Markets Index's weight,
according to FTSE data
. Taiwan and South Africa are the next largest country
allocations with a combined weight of nearly 24 percent.
Other index providers, including Standard & Poor's, also
recognize South Korea as a developed nation.
Although VWO is younger than EEM, the former has been able to
become larger than its rival by virtue of lower fees. VWO charges
0.2 percent per year compared to 0.67 percent for EEM. Now, the
Vanguard fund may have another weapon in its asset-gathering
FTSE data show that over the past three years, the FTSE
Emerging Markets Index has outperformed the MSCI equivalent. The
MSCI index has a three-year standard deviation of 22.75 percent.
The FTSE index has a three-year volatility of 21.4 percent based
on weekly, according to FTSE.
Vanguard will also drop MSCI indexes on the Vanguard MSCI
Europe ETF (NYSE:
) and the Vanguard Total Stock Market ETF (NYSE:
the company said in a statement
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