As the domestic exchange-traded fund (ETF) market has grown to about 400 trillion won, asset management firms are advancing their portfolio strategies, including shortening rebalancing cycles. With volatility rising at home and abroad due to the sharp rally in the local stock market at the start of the year and the Iran situation, this is seen as a move to respond swiftly to market shifts.
According to the financial investment industry on the 10th, Mirae Asset Global Investments plans to increase the regular rebalancing frequency of the TIGER Korea TOP10 ETF from once a year (June) to twice a year (March and September) on the 16th. It also established new guidelines for selecting the 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 subdividing and fine-tuning the stock selection criteria.
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 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 carried out quarterly, four times a year. Korea Investment Management said this is to strengthen the ETF's thematic fit by reflecting the fast-changing nature of India consumer theme stocks.
Some managers are adjusting ETF creation structures to boost market responsiveness. Hanwha Asset Management on the 5th cut the creation unit (CU) of PLUS K-Defense and PLUS Global HBM Semiconductor by more than half, from 50,000 shares to 20,000, citing the need to facilitate smooth creations and redemptions. 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 creations and redemptions, allowing more agile inventory adjustments to suit market conditions.
Industry watchers say asset managers are making their portfolio strategies more flexible to improve returns as the ETF market expands and volatility rises. An asset management industry official said, "For passive ETFs, it is harder than for active products to reflect market changes immediately, so they are lengthening the rebalancing cycle to capture market trends more efficiently."
However, this shift could increase costs for investors. More frequent rebalancing reflects market changes faster, but higher trading volumes can lift trading and other expenses, eroding returns. In addition, more frequent creations and redemptions due to smaller CUs can also raise other expenses, warranting caution.