South Korea is one of the Four Asian Tigers, along with Hong Kong, Taiwan, and Singapore, a group known for decades of rapid economic expansion. Since the 1960s, very few countries have boasted as consistent and explosive economic growth as South Korea, which is the fourth-largest economy in Asia behind India, Japan, and China.
While the COVID-19 pandemic triggered South Korea’s worst economic performance in decades, the economy has been bouncing back on strong government stimulus across sectors. Investors seeking to gain exposure to South Korea’s bustling economy may wish to consider exchange-traded funds (ETFs) focused on South Korean equities.
- South Korean equities have outperformed the broader U.S. stock market over the past year.
- Three South Korea exchange-traded funds (ETFs) currently trade in the United States: KORU, FLKR, and EWY.
- The top holding of the first fund is the iShares MSCI South Korea ETF, and the top holding of the other two funds is Samsung Electronics Co. Ltd.
There are three distinct South Korea ETFs that trade in the United States. South Korean equities, as measured by the MSCI Korea Index, have outperformed the broader U.S. market over the past 12 months, with a total return of 48.3% compared to the S&P 500’s total return of 36.2%, as of Aug. 5, 2021. The best-performing South Korea ETF, based on performance over the past year, is the Direxion Daily MSCI South Korea Bull 3X Shares ETF (KORU), which is a leveraged ETF.
We examine all three South Korea ETFs below. All numbers are as of Aug. 6, 2021.
Leveraged ETFs can be riskier investments than non-leveraged ETFs given that they respond to daily movements in the underlying securities that they represent, and losses can be amplified during adverse price moves. Furthermore, leveraged ETFs are designed to achieve their multiplier on one-day returns, but you should not expect that they will do so on longer-term returns. For example, a 2× ETF may return 2% on a day when its benchmark rises 1%, but you shouldn’t expect it to return 20% in a year when its benchmark rises 10%. For more details, see this U.S. Securities and Exchange Commission (SEC) alert.
- Performance Over One-Year: 140.2%
- Expense Ratio: 1.39%
- Annual Dividend Yield: 0.01%
- Three-Month Average Daily Volume: 55,368
- Assets Under Management: $45.3 million
- Inception Date: April 10, 2013
- Issuer: Rafferty Asset Management
KORU is a leveraged ETF that seeks a return that is 300% of the performance of its benchmark MSCI Korea 25/50 Index for each single day. The index tracks the mid- and large-cap stocks of the South Korean equity market. Like most leveraged funds, losses can be amplified during adverse price moves, and KORU is not intended to provide 300% returns of the benchmark index’s cumulative return over periods longer than a single day.
The top holdings of KORU include shares of the iShares MSCI South Korea ETF (EWY), a South Korea-focused ETF also on our list, as well as two institutional mutual funds: the Dreyfus Government Cash Management Fund (DGCXX) and the Goldman Sachs Financial Square Treasury Instruments Fund (FTIXX). These three holdings account for more than two-thirds of the assets in KORU.
- Performance Over One-Year: 43.6%
- Expense Ratio: 0.09%
- Annual Dividend Yield: 1.54%
- Three-Month Average Daily Volume: 13,742
- Assets Under Management: $74.7 million
- Inception Date: Nov. 2, 2017
- Issuer: Franklin Templeton
FLKR tracks the FTSE South Korea RIC Capped Index, a market capitalization-weighted index composed of large- and mid-cap companies. The ETF follows a strategy focused on value stocks and is weighted toward large caps. Just less than one-third of the fund’s holdings are based in the information technology (IT) sector, followed by communication services and consumer discretionary.
One attraction of FLKR is its low expense ratio, enabling direct investor access to South Korean equities at a competitive price. Its top three holdings are Samsung Electronics Co. Ltd. (005930:KRX), a manufacturer of consumer and industrial electronic equipment and products; NAVER Corp. (035420:KRX), a provider of various web services such as search engine and online advertising; and SK hynix Inc. (000660:KRX), a manufacturer of semiconductor products.
- Performance Over One-Year: 42.2%
- Expense Ratio: 0.59%
- Annual Dividend Yield: 0.69%
- Three-Month Average Daily Volume: 3,213,348
- Assets Under Management: $6.4 billion
- Inception Date: May 9, 2000
- Issuer: BlackRock Financial Management
EWY tracks the MSCI Korea 25/50 Index, which gauges the overall performance of the large- and mid-cap segments of the South Korean equity market. The fund follows a value-based investing strategy and may appeal to investors seeking a tactical position in the South Korean market or targeted international equity exposure.
More than one-third of the fund’s holdings are allocated to the IT sector. Consumer discretionary stocks receive the next biggest weighting, with a roughly 12.1% allocation, followed by an allocation of about 12.0% to communication stocks.
A small number of companies make up a large percentage of EWY’s invested assets, with Samsung Electronics Co. Ltd. (described above) representing close to a quarter of the fund’s assets. The next two biggest holdings are SK hynix Inc. and NAVER Corp., both described above.
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