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One of my favorite exchange-traded funds is the S&P Global 100 (IOO) which is composed of the largest 100 companies in the world in terms of market value.

Samsung is one of the 70 largest companies in the world and one of the 10 largest companies in global technology. It does business in more than 100 countries. But because Samsung is based in South Korea, it is considered an “emerging market” stock by other index providers.

In an article in the Financial Times, Kelly Haughton writes that market indices should not constrain membership by sector, whether by arbitrarily leaving some companies off or failing to add new ones in a timely way. Combined with annual reconstitution, this tends to represent new industries earlier than other index providers. Russell Investment Group was the first to include financial exchanges – NYSE and Chicago Mercantile Exchange – in its index family.

Kelley's view is that the most efficient approach to index creation ensures companies are added to indices when they become investable by global investors, not when some arbitrary rule comes into effect.

This makes sense since the number of companies from China, India and Russia has grown over the past few years, while the number of companies from Brazil, Hungary and Mexico has remained relatively constant. I do think that advisors need to make some careful distinctions. Even though a company from China may be very large, this doesn't necessarily mean that it has world-class systems and accounting in place.

Source: Benchmark Blindspots in Global ETFs