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Not all indexes are created equal. In the early 2000s, MSCI, among other index providers, moved from tracking a company’s total market capitalization to its free float—the shares that trade publicly. That involved a shift from a company’s economic footprint to its stock market footprint, eliminating non-traded shares held by governments and company insiders as stock option grants.

It made sense given the need to keep indexes investable. But in global indexes, it shifted weights away from countries with a large degree of state control (France, Japan) to countries with less (U.S., U.K.). And it can have perverse effects, as countries see capital inflows and outflows to match their index weights.

In a different move, in the early 2000s, Standard & Poor’s decided to purify the S&P 500 by purging it of non-U.S. companies. Among the seven names to fall were Inco, Nortel and Alcan. All names for the history books, now.

Again, it made sense: investors want the U.S. economic footprint, not the footprint of all stocks traded in the U.S., be they cross-listed Canadian stocks or American Depositary Receipts issued by foreign companies. Still, some U.S. companies that moved offshore to escape U.S. corporate taxes (Bermuda is a prime location) continue to be included, because the majority of their trading volume occurs on U.S. stock markets.

Which leads to an interesting conundrum, in part sparked by Vanguard. Vanguard has shifted the benchmark for its emerging markets ETF from MSCI to FTSE. But the two indexes differ, notes the Financial Times. MSCI lists South Korean equities in its emerging market index. FTSE, in contrast, includes South Korea in its developed market index.

The Financial Times points out a couple of other anomalies. Prada is an Italian-listed company, but its sales are primarily in emerging markets. Similarly, Singapore Telecom, while listed in its home market, derives two-thirds of its revenue from Australia.

Which is the emerging market stock; the one based in the market, or the one deriving its revenues from that market?

While ETF investing is relatively simple, the indexes they follow may be more complex.

Scot Blythe is a Toronto-based financial writer.

Originally published on Advisor.ca