What Will Funds Do?
It’s not clear yet what funds tracking the MSCI indexes will do. Under the MSCI system, the current indexes will translate into the “Standard” index series; the MSCI EAFE Index, for instance, will drop its small-cap exposure and focus fully on large- and mid-cap names. Most funds will likely follow that switch, while others will embrace the broader “international” indexes. Either way, the transition will take place over the next year in a two-stage process, with half the capitalization moving November 30, 2007, and half moving May 30, 2008.
It will be interesting to see what happens as far as ETFs and funds that track the MSCI EAFE. Hopefully it won't mean large capital gains for any of us. This is interesting to me in that things we rely on, like indices being stable, can many times be business/environment-driven.
I guess this is all the more reason not to put too much credit into backtesting, as even index criteria change now and again.