MSCI Defends its Take on Emerging Markets


The number one emerging markets ETF in the world, Vanguard MSCI Emerging Markets Fund (NYSEArca: VWO), is shedding the MSCI benchmark sometime during the first quarter next year mainly because of its rival FTSE.

Regarding this, MSCI is not considering the fact that this move could have its share of pitfalls. On the contrary, MSCI released a white paper that reasons why the index provider and broad based markets on the whole are the most relevant that they could be.

At the core of this matter is the index provider’s inclusion ofS. Koreain its basket of emerging markets.S. Koreais a country, which is not considered as an emerging market by FTSE and on the contrary most of them believe it falls under developed country category rather than developing. The verdict of next classification reviews of MSCI will be announced sometime in the month of June next year.

The fact of the matter is, when Vanguard announced sometime early in the month that it was going to give 22 MSCI indexes a pass for more affordable CRSP and FTSE benchmarks in a series of events that took the indexing world by a surprise, it actually argued that its new decision was taken keeping cost factors in mind. CRSP and FTSE were offering very credible indexes for much cheaper price.

Joel Dickson, one of the heads at the investor strategy group of Vanguard, said during a webinar, which was organized by IndexUniverse, that all this was not about comparing MSCI against FTSE but it was about offering indexes of high quality at affordable prices. But the concern about Korean in the portfolio of VWO quickly surfaced up, and it certainly is not a small thing as around $9 billion of the total $57 billion ETF of Vanguard is connected to its allocation toKorea.

Other popular players in developing markets world have argued against this move emphasising that making investments inKoreais pretty much like making investment in US than a market likeEastern Europe.

Still, MSCI mostly talks about various ways of targeting equities of the emerging markets, even though it does not talk about South Korea anywhere in its more twenty pages of document. At the heart of the argument put across by MSCI lies a fact that it believes that the traits and tricks of emerging market investment have changed a lot in last twenty years. 


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