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iShares Core MSCI EAFE IMI Index ETF (XEF $48.22)
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iShares Core MSCI Emerging Markets IMI Index ETF (XEC $38.60)
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Vanguard FTSE Developed All Cap ex North America Index ETF (VIU $45.15)
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Vanguard FTSE Emerging Markets All Cap Index ETF (VEE $46.77)
Q: Hi, I was made aware of a gap (The "Korea Gap") in my international ETF strategy based on your ETF Update model portfolios that I believe is worth sharing.
The "Korea Gap" occurs when an investor mixes ETF providers that use different index benchmarks (specifically MSCI and FTSE). Because these two providers categorize South Korea differently, an investor can inadvertently end up with 0% exposure to the world's 10th-largest economy.
MSCI (Used by iShares XEF): Classifies South Korea as an Emerging Market. Therefore, it is excluded from XEF (Developed Markets).
FTSE (Used by Vanguard VEE): Classifies South Korea as a Developed Market. Therefore, it is excluded from VEE (Emerging Markets).
The result is if you hold only XEF and VEE, South Korea effectively disappears from your portfolio!
In 2025, this meant missing out on the massive "HBM (High-Bandwidth Memory) Craze" led by Samsung and SK Hynix, which drove the KOSPI to record highs.
Portfolio Combo | Provider | Where is Korea? | Avg. MER
XEF + VEE | Mixed | Missing (0%) | 0.24%
XEF + XEC | MSCI | XEC (Emerging) | 0.25%
VIU + VEE | FTSE | VIU (Developed) | 0.24%
I'll personally be replacing my VEE with XEC to hold the MSCI Blackrock combination.
In the XEF + XEC combo, South Korea makes up about 12-13% of the Emerging Markets (XEC) slice. In the VIU + VEE combo, it makes up about 5-6% of the Developed (VIU) slice. This means the iShares combo actually gives you a "heavier" bet on Korea.
The "Korea Gap" occurs when an investor mixes ETF providers that use different index benchmarks (specifically MSCI and FTSE). Because these two providers categorize South Korea differently, an investor can inadvertently end up with 0% exposure to the world's 10th-largest economy.
MSCI (Used by iShares XEF): Classifies South Korea as an Emerging Market. Therefore, it is excluded from XEF (Developed Markets).
FTSE (Used by Vanguard VEE): Classifies South Korea as a Developed Market. Therefore, it is excluded from VEE (Emerging Markets).
The result is if you hold only XEF and VEE, South Korea effectively disappears from your portfolio!
In 2025, this meant missing out on the massive "HBM (High-Bandwidth Memory) Craze" led by Samsung and SK Hynix, which drove the KOSPI to record highs.
Portfolio Combo | Provider | Where is Korea? | Avg. MER
XEF + VEE | Mixed | Missing (0%) | 0.24%
XEF + XEC | MSCI | XEC (Emerging) | 0.25%
VIU + VEE | FTSE | VIU (Developed) | 0.24%
I'll personally be replacing my VEE with XEC to hold the MSCI Blackrock combination.
In the XEF + XEC combo, South Korea makes up about 12-13% of the Emerging Markets (XEC) slice. In the VIU + VEE combo, it makes up about 5-6% of the Developed (VIU) slice. This means the iShares combo actually gives you a "heavier" bet on Korea.
5i Research Answer:
We understand that these classifications are not perfect and, in some cases, it could be noticeably costly for investors to not have enough exposure to certain themes or markets, which has been the case for the Korea market recently.
With that said, investors can always address this issue by supplementing their portfolios with specific regional or thematic ETFs in which they have high confidence, such as AI ETFs or Korea ETFs.