An exchange-traded fund (ETF) based on the "Korea Value-Up Index" recorded a return nearing 80% one year after its launch. As the domestic stock market strengthened in the second half of this year, the value-up index, which is largely composed of blue chips, also posted steep gains. However, some active ETFs lagged in relative performance.
According to the Korea Exchange (KRX) on the 3rd, as of 11 a.m. that day the value-up index stood at 1,737.39. It was up 73.7% from the base line of 1,000 (as of Jan. 2). The Korea Exchange (KRX) unveiled the value-up index in September last year, composed of stocks with high capital efficiency, shareholder returns, and profitability. Twelve ETFs tracking it were launched on Nov. 4 the same year.
There are nine passive ETFs based on the value-up index. While share prices that track net asset value (NAV) show slight differences depending on whether each ETF pays distributions mid-month, month-end, or quarter-end, they posted roughly 78% in total returns including distributions. If 1 million won had been invested in Nov. last year, it would have earned 780,000 won.
Financials within the value-up index, as well as shipbuilding, defense, and power equipment, led the gains, and since September the sharp rallies in Samsung Electronics and SK hynix further widened the index's rise.
Unlike passive ETFs that track the underlying index almost as is, active ETFs, where fund managers have greater discretion, showed differing results. Active ETFs are required to track only 70% of the underlying index.
KoAct Korea Value-Up Active from Samsung Active Asset Management posted the strongest performance, with its one-year gain as of 11 a.m. that day topping 80%. By contrast, TIMEFOLIO Korea Value-Up Active from Timefolio Asset Management and TRUSTON Korea Value-Up Active from Truston Asset Management rose 66.5% and 61.4%, respectively, underperforming even passive ETFs over the same period.
Both value-up index active ETFs from Timefolio Asset Management and Truston Asset Management had relatively low weights in Samsung Electronics and SK hynix, widening the performance gap. Unlike passive ETFs, where the combined weight of Samsung Electronics and SK hynix exceeded 30% starting three months ago, Timefolio Asset Management was at 22% at the time and Truston Asset Management was at 12%.
Currently, the weight of Samsung Electronics and SK hynix in passive ETFs is around 42%. Timefolio Asset Management quickly adjusted afterward, and the weight of Samsung Electronics and SK hynix now exceeds 45%, but Truston Asset Management remains at 19%.
Although ETFs based on the value-up index posted high returns, the sharp increase in the weights of Samsung Electronics and SK hynix has made it harder to differentiate from the KOSPI 200 index, observers said. A person at an asset management firm said, "At the value-up index's launch, it was said to be different from the KOSPI 200 index by capping the weight of individual stocks at 15%, but because periodic rebalancing is only once a year (June), it has effectively become a similar index."
Fund inflows are also inevitably limited. Only KODEX Korea Value-Up from Samsung Asset Management, RISE Korea Value-Up from KB Asset Management, and TIGER Korea Value-Up from Mirae Asset Global Investments have net worth over 100 billion won, while the rest remain small to mid-sized ETFs in the 10 billion to 60 billion won range. Among newly launched products tied to the value-up index, only one has appeared: RISE Korea Value-Up Weekly Fixed Covered Call from KB Asset Management, which combines a covered-call strategy.
Another asset management firm official said, "If interest grows in shareholder-return policies such as the third-phase Commercial Act revisions by year-end, we expect the value-up index to gain further momentum," while adding, "Changes are also needed, such as making the value-up index's regular rebalancing cycle semiannual."