Vanguard's Emerging Markets ETF Goes Without South Korea

| About: Vanguard FTSE (VWO)

By: The ETF Professor

The Vanguard FTSE Emerging Markets ETF (NYSEARCA:VWO) officially begins life without any exposure to South Korea today when the ETF transitions to the FTSE Emerging Index.

Last October, Vanguard stunned the ETF community when it said it would move 22 of its ETFs that tracked MSCI indexes to other indexes, including some built by FTSE.

Until the end of 2012, VWO tracked the MSCI Emerging Markets Index, the same index followed by the iShares MSCI Emerging Markets Index Fund (NYSEARCA:EEM), VWO's primary rival. At the start of this year, VWO began following the FTSE Emerging Transition Index, gradually reducing the ETF's exposure to South Korea in the process.

The transition index was used "so that the portfolio management team could implement the transition cost-effectively with minimal market impact and negligible tracking error, as well as to enable shareholders to see the fund's position," according to a statement issued by Vanguard.

As of May 31, VWO held a 2.6 percent weight to South Korea, Asia's fourth-largest economy, according to Vanguard data. Even with that weight, VWO's South Korea weight was paltry compared to the 14.2 percent EEM devotes to the country.

FTSE does not classify South Korea as an emerging market. MSCI does, though it has been close to bumping the country to developed market status.

At the end of May, China, Brazil, Taiwan, India and South Africa combined for over 64 percent of VWO's country weight. By comparison, those five countries currently represent less than 54 percent of EEM's weight.

Lack of exposure to South Korea may not be a bad thing as stocks there have been hammered by the weak yen and the possible loss of U.S. stimulus. South Korea's Kospi is down 6.1 percent this month and 8.1 percent year-to-date.

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