Since the market nosedive of 2007-2009, fund investors have become increasingly leery of active asset management.

This dynamic is reflected by the shrinking asset flows into traditional, actively managed mutual funds and the growth of flows into passive exchange-traded funds (ETF). While mutual funds around the world took in $565 billion in new assets last year, ETFs took in $809 billion.

All of those passive ETFs may have different ways of skinning the cat, but at their core they’re all index driven products. What is in those indexes will determine the performance of the fund.

Needless to say, the keepers of those indexes carry a lot of sway.

Maintaining a host of foreign, domestic and specialty indexes, MSCI (NYSE: MSCI) is one of the largest and most influential indexers in the business, determining how hundreds of billions of dollars around the world are allocated. It also happens to be one of the key arbiters of whether a market is considered emerging, developed or otherwise.

On June 11, MSCI conducted an index review and made some of the most significant changes to its international indexes in years. The United Arab Emirates (UAE) and Qatar were promoted from frontier to emerging markets, while Greece fell from developed to emerging and Morocco was demoted from emerging to frontier.

Most index fund investors prefer to take a more passive approach to portfolio management. Consequently, to them, this may seem like details. But for these countries, their markets and a whole host of companies, these designations can have a significant impact.

For instance, funds that run a developed market mandate will now have to drop any Greek companies they may hold to remain in compliance with their prospectuses. The whole reason the labels frontier, emerging and developed exist is to help investors gauge a country’s riskiness. While nothing changed in Morocco, between June 10 and June 11 it suddenly become much riskier.

More than $1 trillion is invested in developed market funds and more than $300 billion in emerging market funds. That’s a huge volume of money that will have to be shifted in November, when the change becomes effective for Morocco and Greece and in May for Qatar and the UAE.

The changes won’t be catastrophic for the global market, because all four countries figure rather lightly in their respective indexes. However, companies such as the Greek-based Coca-Cola Hellenic Bottling Co (NYSE: OCCH) will likely take a heavy hit, as index funds transition out of shares that are already fairly illiquid. That, in turn, will probably exert a significant impact on the Athens Stock Exchange Index when the transition occurs.

The change up will certainly be an orderly occurrence, because mechanisms are in place to minimize the volatility created by such changes. However, support that has been provided to companies such as Coca-Cola Hellenic Bottling by virtue of their market designation will be pulled out from under them. With fewer assets in emerging market funds than developed ones, proportionally fewer shares will have to be purchased to achieve the same level of index representation.

Considering the sums of money involved, these types of reclassifications can obviously upset the status quo, removing support from some countries and companies and providing it to others. There aren’t too many folks invested in Greece, Morocco, Qatar or the UAE, but it’s important to remember that external events can move markets, even when the fundamentals haven’t dramatically changed.

Portfolio Roundup

Gold prices have dipped below $1,300 per ounce for the first time in nearly three years, after Federal Reserve Chairman Ben Bernanke said that stimulus may be reduced later this year.

Gold has been hot for nearly five years. Investors have embraced the yellow metal as a safe haven during economic weakness, as well as a hedge against future inflation caused by loose money policies from central banks around the world.

That paradigm is beginning to shift. Now, even the Fed recognizes that the economy has recovered to the point where it can soon start standing on its own feet.

Shares of New Gold (NYSE: NGD) and Goldcorp (NYSE: GG) have plunged by more than 6 percent on the news, while more diversified miners such as Freeport-McMoRan Copper & Gold (NYSE: FCX) have fallen by just half that.

Lower gold prices are an obvious challenge for the miners, but all of our portfolio holdings are among some of the lowest-cost producers in the business. While that won’t shield them from lower realized profits, it allows them to circle their wagons and weather the storm.

Although New Gold and Goldcorp are both primarily involved in gold product, the production at the rest of our holdings is sufficiently diversified into other metals such as copper, which tends to perform well in periods of economic growth. Consequently, the impact of lower gold prices should be relatively muted.

We’re selling New Gold and Goldcorp, given their almost singular exposure to the yellow metal. Our other Metals & Mining Portfolio holdings remain buys below their target prices.