As active ETFs have taken hold as the mainstream in the asset management industry, Kiwoom Asset Management is rolling out a passive, theme-based ETF that employs a high-beta strategy. The idea is to use a passive approach to capture theme-driven surging stocks in the market and continuously find investment opportunities.
On the 8th, Kiwoom Asset Management said it will list the "KIWOOM U.S. AI Tech High Beta ETF" on the 12th after holding a webinar, investing in U.S. innovative technology corporations with strong growth momentum.
Classified as a passive, theme-based ETF, the product is differentiated from existing theme ETFs in that it uses a "high beta" strategy. Lee Kyung-jun, head of ETF management at Kiwoom Asset Management, said, "Simply put, it is a passive strategy that invests in theme-driven surging stocks."
Beta is an indicator of market sensitivity, and the higher the beta, the more strongly it reacts to market fluctuations. Generally, stocks that soar or plunge in the market have high betas. A high-beta strategy invests in stocks with high betas that have higher volatility and upside momentum compared to the market.
This beta strategy also addresses the limitations of existing theme ETFs. Theme ETFs have the drawback of being difficult to reflect market trends immediately. Because their names and constituents are built around specific industry classifications or keywords, it has been hard to flexibly add certain stocks depending on market conditions.
Lee said, "By the time a specific theme ETF is introduced to the ETF market, the theme stocks' prices are effectively near their peaks," adding, "Story-based themes emerge quickly with shifts in the market, creating a mismatch with the speed of theme ETF launches."
Because of this issue, theme ETFs have been a difficult choice for long-term investing such as pension investing, but this product is said to allow long-term investing since it continuously chases new themes.
For this product, to address such drawbacks, it is designed to continuously incorporate innovative technology corporations drawing attention in the market.
Kiwoom Asset Management applied a theme-based high-beta strategy by selecting corporations related to artificial intelligence (AI) and frontier tech (next-generation cutting-edge innovative technologies in the early stage of commercialization) through keyword analysis using large language models (LLMs), then investing in the top 30 stocks with the highest beta values.
It said the current portfolio includes a variety of innovative technology themes now drawing market attention, such as AI semiconductors, data centers, optical communications, and space. Innovative technology corporations showing strong momentum in the market recently are included, such as Vertiv Holdings, a data center infrastructure corporation; SanDisk, a memory semiconductor corporation; and Lumentum Holdings, an optical communications equipment corporation.
Lee said, "By implementing the high-beta strategy in a way that refreshes the stocks every three months, we can continuously identify investment opportunities, unlike a single-theme ETF."
The move also stands in contrast to asset managers recently launching active ETFs one after another.
Lee said, "Active ETFs may have the advantage of pinpointing rising stocks through precise analysis, but there have always been concerns that managers have a low likelihood of continuously finding such stocks."
Lee added, "In the case of this product, based on a specific algorithm, it can repeatedly invest in theme-driven surging stocks using a passive method, thereby pursuing both the market responsiveness of active ETFs and the transparency and consistency of passive ETFs."
The ETF's total expense ratio is set to be 0.49%. It is described as a management fee level typical for theme ETFs. While the total expense ratio is higher than that of index-tracking ETFs, the fee is slightly lower than that of typical active ETFs.