As Korea's exchange-traded fund (ETF) market has grown to about 400 trillion won, asset managers are advancing their strategies, including shortening rebalancing cycles. With volatility at home and abroad widening amid a sharp rally in domestic stocks at the start of the year and the Iran situation, this is seen as a move to respond swiftly to market changes.
According to the financial investment industry on the 10th, Mirae Asset Global Investments plans to increase the regular rebalancing frequency of the "TIGER Korea TOP 10" ETF from once a year (June) to twice a year (March and September) on the 16th. It also established a new policy for selecting specific index constituents.
This ETF invests in 10 core stocks that represent the Korean stock market. It holds about 66% in Samsung Electronics and SK hynix. Mirae Asset said it aims to narrow the gap between the index and the actual market trend and maximize operational efficiency by refining and detailing the selection criteria for constituents.
Korea Investment Management also decided to sharply increase the rebalancing frequency of the "ACE India Consumer Power Active" ETF on the 26th. Under the original ground index calculation standards, constituent changes were made once a year (March) and weight changes twice a year (March and September), but both will now be done quarterly, four times a year. Korea Investment Management said the move is to strengthen the ETF's thematic fit by reflecting the characteristics of India's rapidly changing consumer theme stocks.
Some managers are also adjusting ETF creation structures to boost market responsiveness. Hanwha Asset Management, citing the need to facilitate smooth creation and redemption, on the 5th cut the creation unit (CU) of "PLUS K Defense Industry" and "PLUS Global HBM Semiconductor" by more than half, from 50,000 shares to 20,000 shares. A CU is the minimum trading unit for creating or redeeming an ETF; the lower the CU, the less cash an authorized participant (AP) needs for creation/redemption, allowing more agile inventory adjustments to match market conditions.
Industry watchers say that as the ETF market expands and volatility increases, asset managers are making their strategies more flexible to boost returns. A person in the asset management industry said, "For passive ETFs, there is a limitation in immediately reflecting market changes compared with active products, so they are increasing the number of rebalancings to efficiently reflect market trends."
However, such moves could increase costs for investors. While more frequent rebalancing reflects market changes faster, other costs, including trading costs due to higher trading volume, rise and eat into returns. In addition, more frequent creation/redemption due to smaller CUs can also increase other costs, warranting caution.