Does your index fund invest in what you want?

Linton

I'm setting up a SIPP to shortly go into drawdown. For something different I decided to set up a balanced portfolio with some reliance on Index funds. Starting with the far east, choosing one from a well regarded supplier I go for Vanguard Pacific ex Japan Index.

Now looking on trustnet I find that the index it follows only covers companies located in Australia, Hong Kong, New Zealand and Singapore, a somewhat arbitrary list one might think. Where's the massive Korean electronics companies? Not there, neither are almost any high tech companies. In fact it's more than 50% invested in the financial sector! Hardly what one thinks of when considering Asia/Pac.

Moral 1: check what your chosen funds invests in before buying. It may not be what you expect.

Moral 2: the theory of passive investing might be OK. But its not much use if the index followed doesnt represent a sensible investment.

SnowMan

If we are looking at OEICs. The Vanguard OEIC tracks the MSCI Pacific ex Japan Index

But strangely the Vanguard Pacific exc Japan ETF tracks the FTSE Developed Asia Pacific ex Japan Index rather than the MSCI index.

Of the other cheapest Pacific exc Japan trackers....

The HSBC C Class, Legal and General I class and Black Rock D class, Pacific exc Japan tracker funds, all track a FTSE rather than the MSCI index I believe.

But the HSBC ETF tracks the MSCI Pacific exc Japan index in contrast to their MSCI tracking OEIC.

You can get factsheets for the FTSE indices from here.

Samsung is a constituent (might even be the largest) of the FTSE World Asia exc Pacific index.

grey_gym_sock

MSCI Pacific ex Japan Index contains the 4 markets which MSCI classify as developed in the region.

FTSE Developed Asia Pacific ex Japan Index contains the 5 markets which FTSE classify as developed - viz. the same 4 as MSCI, plus south korea.

FTSE World Asia Pacific excluding Japan Index contains both (5) developed and (3) advanced emerging markets - so it also adds taiwan, thailand and malaysia.

though i don't generally like emerging markets, in this case i'd rather have the broadest index, as south korea and taiwan both seem to be very advanced economies, even if their stock markets lack a few bells and whistles. and much more of the money goes in them than in thailand and malaysia.

Ark_Welder

Definitions of the MSCI indices can be found here.

Just for reference, MSCI do not currently consider either South Korea or Taiwan to be developed markets (FTSE does so for the former), but this is under review according to Wiki: http://en.wikipedia.org/wiki/Emerging_economies