The rally led by large-cap semiconductor stocks is continuing, but active funds that aim to outperform the market are instead struggling. As regulations under the Financial Investment Services and Capital Markets Act limit the weighting of individual stocks, the so-called "regulatory time lag" is said to be dragging down returns.
According to FnGuide on the 13th, as of the 8th, the three-month return of domestic equity active funds was 23.14%. The figure alone looks decent, but it falls well short of the market, given that Samsung Electronics surged about 56% over the same period and index funds tracking the market posted a 29.94% return.
Unlike index funds that track gauges such as the KOSPI 200, where Samsung Electronics and SK hynix carry heavy weightings and thus fully benefited from the large-cap rally, active funds appear to have failed to keep pace with the market upswing as they were bound by diversification structures and stock-specific weighting limits.
In fact, products following passive strategies show a clear contrast to active funds. With a passive approach concentrating roughly 26%–27% each in Samsung Electronics and SK hynix, the "HANARO Fn K-Semiconductor" ETF delivered a three-month return of 52.43%. Over the same period, "ACE AI Semiconductor Focus," which concentrated more than a combined 50% in the two stocks, recorded a 60.96% return.
This performance gap is also leading to a polarization of fund flows. Over the past three months, domestic equity active funds saw only about 245.9 billion won in net inflows, while index funds drew a lump sum of 5.1152 trillion won. With semiconductors leading the market phase, passive strategies that mirror the index effectively overwhelmed active managers' stock-picking capabilities.
Active fund managers cite "public offering fund weighting limits" as the main reason for recent underperformance. Under the Financial Investment Services and Capital Markets Act, a public offering fund cannot allocate more than 10% to a single stock. However, under the enforcement decree, if a stock's weighting in the KOSPI exceeds 10%, investment is exceptionally allowed up to that weighting. Samsung Electronics and SK hynix are subject to this exception.
The problem is that the weighting cap is set based on the "previous month" figures. The average market capitalization during the prior month becomes the reference for the following month. As a result, if a bellwether's share price jumps sharply in a short period, the actual index weighting cannot be reflected immediately, and the gap with the fund's allowable weighting inevitably widens quickly, critics say.
As of the 8th, SK hynix's share of KOSPI market capitalization had climbed to around 15%, but this month's fund allocation cap, calculated using last month's average, is only about 12%. For Samsung Electronics (including preferred shares), the reference is 21%, below its current market-cap weighting of about 24%. If the two stocks continue their high-flying rally this month, the gap in weightings between the index and funds is likely to widen further.
A fund manager said, "While semiconductor bellwethers are pulling the entire market and rapidly increasing their market-cap weightings, the current regulation tied to previous-month figures is hamstringing active fund management," adding, "A cap-setting method that fails to reflect real-time market changes effectively puts active managers at a disadvantaged starting line in competition with the index."
Nam Jae-woo, a senior research fellow at the Korea Capital Market Institute, said, "The current regulation with a time lag is an excessive operational control that does not fit the purpose of active funds seeking outperformance versus the market," and noted, "Allowing allocations to match current market-cap weightings does not necessarily violate the principle of diversification."