Volatility in Korea's stock market has peaked in the wake of the war between the United States and Iran, but individual investors' love for ETFs (exchange-traded funds) is only heating up. So-called "mega ETFs" with assets under management (AUM) exceeding 1 trillion won have more than doubled from a year earlier. However, as hot-and-cold moves by issue continue, the polarization of returns is deepening.
According to the Korea Exchange (KRX) on the 13th, from the 3rd to the 12th of this month, individuals bought 66.881 trillion won worth of domestically listed ETFs. It has been a net buying streak for six trading days since the 4th, when the KOSPI posted its largest drop on record. During the same period, the average daily ETF transaction value reached 21.893 trillion won, showing standout vigor despite market jitters.
The ETF market is also growing rapidly. According to the Korea Financial Investment Association, as of the 12th, domestic ETF net assets under management totaled 377.3989 trillion won. The net asset size, which was 184.0995 trillion won a year earlier, has grown by about two times.
The so-called "1 trillion club" ETFs with more than 1 trillion won in assets under management have also increased sharply. As of the 12th, among 1,075 ETFs listed in Korea, 79 had assets under management of at least 1 trillion won. Compared with Mar. 12 last year, when only 36 ETFs had more than 1 trillion won in net assets, the number has more than doubled (119.4%). There were also 13 mega-cap ETFs with more than 5 trillion won in net assets.
ETFs, in particular, bulked up during the bull market when the KOSPI kept rising. From right after last year's presidential election to the end of July, the number of ETFs with more than 1 trillion won in assets under management increased by nine, and during the period when the KOSPI went from 4,000 points to 5,000 points (Oct. 27–Jan. 27), the number also increased by 16.
Kang Hyun-gi, a researcher at DB Securities, said, "Based on past experience, friction between the United States and certain Middle Eastern countries often ended as short-term events, so expectations that stock prices would recover after a brief correction seem to have played a role," adding, "In particular, because ETF product structures are diverse, they are gaining popularity as they allow for strategic responses in events like this."
However, as sharp ups and downs have repeated this month, performance has split starkly by ETF. From the 3rd to the 12th, among the top 50 ETFs by transaction value, only six domestic index-tracking and domestic equity ETFs generated gains. While inverse, defense, and gold ETFs produced gains, ETFs tied to semiconductors and secondary batteries, which had been the previous market leaders, plunged from at least 8% to more than 30% in the case of leveraged products.
Kang said, "This month, the KOSPI plunged by more than 10%, and as the Middle East situation kept shaking the market, only products linked to defense stocks that emerged as beneficiaries or gold spot products, which are classified as safe assets, appear to have generated gains."
Investing in leveraged and inverse ETFs is also increasing amid volatile markets. So far this month, individuals have been net buyers of 630.2 billion won of KODEX Leverage and 363.5 billion won of KODEX KOSDAQ150 Leverage. From the 3rd to the 12th, all of the top six issues by trading volume were inverse or leveraged products. By net assets under management, KODEX Leverage ranks 10th with a size of 5 trillion won, and KODEX KOSDAQ150 Leverage, at 4.8886 trillion won, is on the verge of entering the "5 trillion club."
Still, there are warnings to be cautious with leverage or inverse investments as uncertainty grows. Park U-yeol, a researcher at Shinhan Investment & Securities, said, "Leveraged products are not suitable from a long-term investment perspective due to the negative compounding effect (a phenomenon in which losses compound when ups and downs repeat)," adding, "Because they track two times the index's daily return, even if the index moves back and forth around the same level, losses on leveraged products can widen."