As more investors seek out opportunities to trade in emerging markets, the Vanguard MSCI Emerging Markets ETF has been a strong asset to those investing in China, South Korea, Brazil, Taiwan, and others. But just recently, investment giant Vanguard is now switching the benchmark for the ETF, causing a controversial backlash from investors.
Vanguard opted to switch the benchmark tracked by one of its most popular ETFs (the Vanguard MSCI Emerging Markets ETF) to that of rival FTSE. The company said its decision was simply based on lowering licensing fees. For investors, this presents a challenge because in the MSCI, Korean stocks represent about 14% of the ETF and South Korea proven strong performance by outperforming emerging markets broadly by four percentage points a year over the past decade according to Morningstar. A tough choice for investors, South Korea’s economy has been boosted by popular consumer brands like Samsung and Hyundai– yet, it has still left experts divided over whether it qualifies as emerging market like China or Brazil.
When interviewed by Wall Street Journal about the projected impact, Matthew Reiner stated that the change presents a conundrum. Because he owns a developed-market fund pegged to an MSCI index, his clients may be left without any exposure to South Korean stocks. Before the year is out, Reiner will determine whether or not he plans to dump the Vanguard MSCI Emerging Markets ETF. According to Reiner, “It comes down to, ‘Do we like Korea or not?'”
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