Many investors allocate to international stocks to maximize diversification. A single ETF, such as Vanguard’s VEU, which tracks the FTSE Global Ex-US index, is an easy, cost-effective way to get exposure to thousands of companies in developing and emerging markets outside the U.S.
However, some investors prefer to use separate funds or ETFs to get their international exposure, separating developed markets and emerging markets into two different allocations. This strategy may have unintended consequences, such as accidentally doubling up or avoiding certain countries, which could have a huge impact on your total return.
The Index Provider Matters
When choosing an ETF, many people rightfully focus on the target market, liquidity, the fund management company’s reputation, and the expense ratio. Little attention is given to the index provider that a passive ETF is supposed to replicate.
Let’s look at a specific example comparing the iShares Core MSCI International Developed Markets ETF (IDEV) and Vanguard FTSE Developed Markets ETF (VEA). On the surface, they look nearly identical. Both offer broad, low-cost access to developed-market equities outside the United States. But upon closer examination, there is a meaningful discrepancy: these two ETFs follow different index providers, and those providers don’t agree on which countries count as “developed.”
IDEV
The most consequential classification disagreement is over South Korea. FTSE promoted the country to developed-market status in 2009. MSCI, however, continues to classify South Korea as an emerging market. That means VEA includes South Korean stocks, while IDEV does not.
Including or disallowing South Korea in a global index has material consequences. South Korea is home to semiconductor giants, Samsung Electronics and SK Hynix. These two companies alone account for a meaningful 4% of VEA’s portfolio. They have a zero allocation in IDEV. They have a zero allocation in IDEV.
Impact on Performance
South Korean equities have performed extremely well over the last year. EWY, the iShares MSCI South Korean ETF, has risen 211% over the last year, primarily driven by its roughly 50% combined weight to Samsung and SK Hynix.
The one-year trailing return of VEA through May 15, 2026 is 31% compared to 23.6% for IDEV, a difference of 7.4 percentage points. That gap is almost entirely attributable to VEA’s South Korea exposure catching a tailwind.
The Same Disagreement Shows Up In Emerging Markets
Developed market classification differences is not an isolated quirk. It shows up in the emerging markets as well. For example, let’s look at two of the most popular emerging markets ETFs: The iShares Core MSCI Emerging Markets ETF (IEMG) and Vanguard FTSE Emerging Markets ETF (VWO).
IEMG
The performance consequences are significant. Over the last year, IEMG rose approximately 43% compared to 26% for VWO, a difference of almost 17 percentage points. Again, the presence (or absence) of Korean equities is largely responsible.
How To Avoid Overlaps And Exclusions
Gaps and overlaps occur when fund families are mixed together. Sticking with a single index family across asset classes (either MSCI or FTSE) is the simplest way to ensure every country appears exactly once.
If IDEV (MSCI developed) is paired with IEMG (MSCI emerging), South Korea shows up once in the emerging markets ETF. If VEA (FTSE developed) is paired with VWO (FTSE emerging), South Korea also shows up once, but in the developed markets ETF. Either combination is clean.
Problems arise when fund providers and the indices they track are mixed. Pair IDEV with VWO, and there will be no exposure to South Korea; Pair VEA with IEMG, and exposure is doubled, holding South Korea in both the developed and emerging markets ETFs. Neither outcome is what most investors intend when trying to diversify globally.
The Bottom Line
Pick one index family. It doesn’t really matter if it is Vanguard, iShares, Schwab, etc. Stick with it across all international and emerging markets allocations. With fees ultra-competitive, there is no reason for most investors to include funds from multiple asset managers.
If there is a big difference in performance between passive developed or emerging markets ETFs, it’s most likely not due to the skill of the fund provider. The discrepancy most likely comes from the index the fund is designed to track.
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