The largest emerging markets ETF by assets has started its
well-documented transition to a new index. On Thursday, the
Vanguard MSCI Emerging Markets ETF (NYSE:
) changed its name to the Vanguard FTSE Emerging Markets ETF. "VWO"
remains the ETF's ticker.
, Vanguard, the third-largest U.S. ETF sponsor, announced it was
dropping MSCI (NYSE:
) indexes on 22 of its
. That list included VWO and other well known Vanguard ETFs such as
the Vanguard MSCI Europe ETF (NYSE:
As part of its transition to the FTSE Emerging Markets Index,
VWO will track the FTSE Emerging Transition Index for approximately
according to a statement issued by Vanguard
"This extended transition will reduce the costs associated with
trading large amounts of securities in a short period," said
Vanguard in the statement.
One of the issues surrounding VWO's switch to the FTSE Emerging
Markets Index that garnered ample attention is FTSE Group's
classification of South Korea as a developed market. That prompted
some speculation that South Korean equities could come under
selling pressure as Vanguard sold those stocks, including Samsung
and Kia, to bring VWO inline with its new index.
However, the ETF sponsor is muting the impact of its South
Korean stock sales through the use of the FTSE Emerging Transition
"FTSE has designed a process of reducing the weight of Korea
over a 25-week time horizon until all companies are removed,"
according data on the transition index published by
. "Korea's weight at the start of the transition process will be
adjusted on a weekly basis each Wednesday using a factor approach
to reduce the index weighting of each Korean company. At the start
of the index calculation companies will have a factor of 1 applied
to their free float adjusted market capitalizations. From the start
of the transition each week the factor will be reduced by 4 per
cent. For example, on Wednesday of week 1 the factor will be
reduced from 1 to 0.96, on Wednesday of week 2 from 0.96 to
of November 30, 2012
, the FTSE Emerging Markets Index allocated 17.95 percent of its
weight to China and 15.28 percent of its weight to Brazil. Taiwan
had a weight of 13.24 percent and South Africa was next at just
over 10 percent. With a weight of 9.62 percent, India was the
index's fifth-largest country exposure on November 30.
The index also features exposure to Indonesia, Malaysia, Mexico,
Chile, Colombia, Peru, the Philippines and Thailand, among
The index had 795 constituents as of the aforementioned date
with financials receiving the largest sector weight at 19.58
percent and energy names coming in second at 13.25 percent.
Familiar names among what could be some of VWO's top-10 holdings
when the transition is complete include Taiwan Semiconductor (NYSE:
), America Movil (NYSE:
) and Petrobras (NYSE:
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