Three Differences Between MSCI and FTSE Indices

Index providers MSCI and FTSE have launched many indices over the years. Hundreds of ETF providers and other companies use these indices to benchmark the performance of their products. Some use the MSCI while others use the FTSE. For example, the iShares Emerging Markets ETF (EEM) tracks the performance of the MSCI Emerging Markets Index. The Vanguard FTSE Emerging Markets ETF (VWO), on the other hand, tracks the return of FTSE Emerging Transition Index.

Late last year, Vanguard decided to replace benchmark indices from MSCI with FTSE indices as for their ETF products. However iShares decided to stay with MSCI.

What are some of the differences between the MSCI and FTSE indices?

While there are many differences between the indices in terms of holdings, countries, sectors and style, in this article let me list three differences.

1. The MSCI EAFE Index (Europe, Australasia, Far East) and the FTSE Developed Ex North America Index have a greater than 10% difference in holdings.

2. The two index providers also differ in terms of country allocations in their emerging market indices. For example, MSCI considers South Korea as an emerging country and includes it in the emerging market index. But FTSE considers South Korea as a developed country and excludes it from the index.

3. MSCI excludes Pakistan and United Arab Emirates(UAE) from its emerging index since they are assigned the frontier market statuses. But FTSE includes them in its Emerging Index.

Update June 2017: MSCI added Pakistan to the MSCI Emerging Markets Index

The key takeaway from this post is that investors have to thoroughly review the benchmark index that an ETF tracks before deciding to investing in that ETF.

Source: MSCI versus FTSE: Why they’re not the same, Canadian Investment Review


Disclosure: No Positions


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