As expectations grow for the government's policy to revitalize the KOSDAQ market, a large influx of investment capital is also pouring into KOSDAQ exchange-traded funds (ETFs). With massive funds flowing in, the number of listed units of KOSDAQ ETFs has also surged. The number of listed units is the total quantity of ETFs listed and traded on the exchange, a concept similar to shares outstanding.
On the 25th, according to the Korea Exchange (KRX), the number of listed units of Samsung Asset Management's "KODEX KOSDAQ150" ETF jumped 239.8% in the past month (Jan. 23–Feb. 23), from 104.6 million units to 355.45 million units. This product has the largest net worth among domestic KOSDAQ ETFs, at 7.2526 trillion won.
When investors buy a lot of ETFs, securities firms that act as liquidity providers (LPs) and authorized participants (APs) ask the asset manager to create additional ETFs, and at that point new ETFs are issued and the number of listed units increases.
The number of listed units of the "KODEX KOSDAQ150 Leveraged" ETF, which ranks No. 2 in net worth (4.6965 trillion won), also rose 85.4% over the same period, from 140.7 million units to 260.9 million units. More investors are aggressively betting on leveraged products that track twice the KOSDAQ150 index's daily return.
Individual investors made net purchases totaling 4.9554 trillion won of the two ETFs over the month, ranking No. 1 and No. 2 in net purchases during this period.
It is interpreted that investors flocked to related ETFs as the government recently put forward policies to boost KOSDAQ. To encourage KOSDAQ investment by pension funds such as the National Pension Service, the government recently improved fund management evaluation criteria and announced a plan to shift to a "many births and many deaths" structure to increase trust in the KOSDAQ market.
An ETF management head at a large asset management firm said, "An increase in the number of listed units of KOSDAQ ETFs means that investor buying is occurring actively," adding, "Since neither KOSPI nor KOSDAQ has seen a major drop since the start of the year, demand for related ETF products has continued to grow, and in line with the government's stance, the number of listed units is likely to keep increasing for the time being."
More investors are also betting on a KOSDAQ decline. As the KOSDAQ index has surged in a short period, investors who judge there is potential for a correction are buying inverse ETFs. The number of listed units of the "KODEX KOSDAQ150 Futures Inverse" ETF increased 11.7% in the past month, from 78.9 million units to 88.1 million units, and individuals made net purchases of nearly 400 billion won of this ETF.
Some cautioned that excessive concentration in short-term high-return, high-risk products such as leveraged and inverse ETFs could lead to heavy losses if the market corrects.
An official at a small to mid-sized asset management firm said, "We cannot view the funds flowing into KOSDAQ ETFs as purely speculative," but added, "A lot of money is also pouring into leveraged ETFs, and in the case of the KOSDAQ market, it is composed mainly of small and mid-cap stocks with high share-price volatility, so the downside risk is relatively greater."
If the number of ETF listed units increases in a short period, the manager's fee income rises, but LP quote management becomes difficult, which can widen the premium/discount. When the gap widens, investors end up buying at overvalued prices or selling at undervalued prices.