South Korea AI Rally Drives 170%+ Return Gap Between BlackRock and Vanguard Emerging Market ETFs
0xBroomberg
Same label, same asset class — yet the two largest emerging-market ETFs returned nearly double one versus the other over 12 months, all because of one classification call: is South Korea emerging or developed?
How wide is the gap?
In the 12 months to June 30, 2026, BlackRock's IEMG returned close to 40%. Vanguard's VWO delivered roughly half that.
The two funds manage a combined $270 billion-plus and tracked almost identically for years. A split this large is unprecedented.
This means → investors who bought the same "emerging markets" label got drastically different outcomes, depending solely on which index their fund follows.
Why do two "EM" funds hold different countries?
The split comes down to South Korea. IEMG tracks the MSCI Emerging Markets index; MSCI still classifies Korea as emerging and reaffirmed that call in last month's annual review.
VWO tracks the FTSE Emerging Markets index, which upgraded Korea to developed-market status back in 2009 — so VWO carries zero Korea exposure.
In plain terms = the same country sits in two different "drawers" at two index firms. Whichever fund you bought, you inherited that classification decision.
What drove Korea's rally — and how fragile is it?
Samsung Electronics and SK Hynix, riding the AI trade, pushed KOSPI up more than 170% over the measurement period.
Leveraged ETFs — including one linked to SK Hynix — amplified the move with heavy speculative trading.
A sharp late-June sell-off triggered two circuit breakers, yet Korea remains one of the world's best-performing markets year-to-date.
Why is "picking a passive fund" becoming an active decision?
Vanguard says it chose FTSE because Korea "meets the core characteristics investors typically associate with developed markets, including economic maturity, scale, and liquidity."
Firestone Capital CIO Michael Firestone picked VWO last year for its lower fee. After spotting the widening gap, he moved half his VWO position into IEMG in March. "Seeing these indices diverge was the first warning sign," he said.
This reflects a deeper trend: when returns concentrate in a handful of countries and companies, a seemingly technical index-classification call can create billions of dollars in return differences across passive funds.
What does this mean for ordinary investors?
Ocean Park Asset Management CIO James St. Aubin warns: "If you only ask 'which is cheapest,' you may miss something quite important."
In plain terms = passive investing ≠ no homework. The real risk hides in the composition of the underlying index.
As debate heats up over whether mega-IPOs like SpaceX will enter major benchmarks, "which index fund to buy" is itself becoming an increasingly active judgment call.
Content is for reference only, not financial advice.