In a "bull market" where the stock market rose led by blue chips, the performance of active ETFs turned out to be weak. Despite a large influx of money into active exchange-traded funds (ETFs) on expectations that fund managers' aggressive strategies would quickly reflect market trends and generate high returns, investment results were not that great. With higher fees added on, cases are emerging in which active ETFs lag passive ETFs.
According to the Korea Exchange on the 11th, since the start of the year (Jan. 1–Sept. 9), the "TIMEFOLIO KOSPI Active" ETF rose 34.72%. During the same period, it was lower than passive products that track the KOSPI index as is, such as "RISE KOSPI" (35.59%) and "TIGER KOSPI" (35.36%).
As the KOSPI index climbed this year, it appears an active strategy found it difficult to generate excess returns that outperformed the index.
RISE and TIGER products that track the KOSPI index as is mainly included blue-chip leaders such as Samsung Electronics, SK hynix, and LG Energy Solution, while the active product from TIMEFOLIO Asset Management, as of the end of June, selected growth stocks such as Samyang Foods, HYBE, and PharmaResearch as key holdings.
One drawback for active ETFs is their high total expense ratio. For example, the total expense ratio of "TIMEFOLIO KOSPI Active" is 0.8%, the highest among ETFs that track the KOSPI index. Considering that the total expense ratios of the RISE and TIGER passive products are 0.12%–0.14%, fees are presumed to have had a significant impact in reducing the performance of active ETFs.
Performance also diverged clearly among dividend-type ETFs that drew attention as the "Korean SCHD." "TIMEFOLIO U.S. Dividend Dow Jones Active" rose just 3.26% over the past three months (Jun. 9–Sept. 9). That contrasts with the passive products from KODEX, TIGER, ACE, and SOL that all climbed more than 6% while tracking the same index. This active product also has the highest total expense ratio (0.8%) among similar products.
Kim Min-gi, a research fellow at the Capital Market Research Institute, said, "Domestically listed equity-type active ETFs show relatively smaller liquidity, higher management fees, and lower price stability," and noted, "The gap between ETF market prices and net asset value (NAV) could be relatively larger."
Performance also varies widely across active strategies. Since the start of the year, among products (excluding TR type) that track the Korea Value-up Index, "TRUSTON Korea Value-up Active" stood out with a 38.58% rise. In contrast, ETFs using the same active strategy, "KoAct Korea Value-up Active" and "TIMEFOLIO Korea Value-up Active," rose only 34%, recording the lowest rate of change among similar products. Their relatively low weighting in SK hynix and the financial holding companies, whose share prices have surged recently, is cited as a reason for the weak performance.
Meanwhile, according to the Korea Exchange, as of the 10th there were 273 active ETFs listed on the domestic stock market. The number more than doubled from 108 at the end of 2022 in just one year and nine months.
Total net assets also expanded from 12.4 trillion won over the same period to 80.442 trillion won as of the 9th, roughly a sixfold increase. Compared with the total ETF net assets rising from 76 trillion won to 232 trillion won—three times—over the same period, it shows the rapid growth of active products.
An official at an asset management company said, "Although the active ETF market is growing rapidly, if it fails to deliver excess revenue that justifies high fees in a steadily rising domestic market, it could lead to investor outflows," adding, "However, in theme-driven markets with high volatility or sharply diverging stock-by-stock moves, active ETFs can deliver differentiated performance over the long term."