South Korea in for decades has been called one of the Four Asian Tigers for its rapid economic growth along with Hong Kong, Taiwan and Singapore. Since the 1960s, very few countries have boasted as consistent and explosive economic growth as South Korea. It is the fourth-largest economy in Asia behind India, Japan and China, which is the biggest. At the moment, the global coronavirus has pushed South Korea's economy into the steepest recession in decades. Investors seeking to gain exposure to the South Korean market may wish to consider exchange-traded funds (ETFs) focused on South Korean equities. Despite the disruption caused by the virus, the South Korean market, represented by the benchmark MSCI Korea Total Return Index, has slightly outperformed the broader market in the past year. As of September 2, the Index has provided a 1-year trailing total return of 25.9% compared with 24.8% for the S&P 500.
- The South Korean market has slightly outperformed the broader stock market in the past year.
- The 3 South Korean ETFs currently available are FLKR, EWY, and FKO.
- The top holdings of these funds are Samsung Electronics Co. Ltd. in the first two ETFs and Alteogen Inc. in the third.
Despite their growth and success, South Korean companies have not been a major focus of investment firms offering ETFs. There are 3 South Korea ETFs, excluding leveraged and inverse funds. The best South Korea ETF for Q4 2020, based on 1-year trailing performance, is the Franklin FTSE South Korea ETF (FLKR). Below, we take a look at all 3 South Korea ETFs. Aside from benchmark figures above, all data throughout is as of September 6.
ETFs with very low assets under management (AUM), less than $50 million, usually have lower liquidity than larger ETFs. This can result in higher trading costs which can negate some of your investment gains or increase your losses.
- 1-Year Trailing Total Return: 20.8%
- Expense Ratio: 0.09%
- Annual Dividend Yield: 1.75%
- 3-Month Average Daily Volume: 4,918
- Assets Under Management: $20.4 million
- Inception Date: November 2, 2017
- Issuer: Franklin Templeton Investments
FLKR targets value stocks in the South Korean market. The fund tracks the FTSE South Korea Capped Index, a market cap-weighted index of large- and mid-cap stocks. The fund holds stocks across many sectors including information technology, materials, health care, and more. One attraction of FLKR is its low expense ratio, enabling direct investor access to South Korean equities at a competitive price. Among the top holdings for FLKR are Samsung Electronics Co. Ltd. (005930), the maker of consumer and industrial electronics products; Naver Corp. (035420), the Internet and web portal services company; and SK Hynix Inc. (000660), the memory semiconductor maker.
- 1-Year Trailing Total Return: 18.1%
- Expense Ratio: 0.59%
- Annual Dividend Yield: 2.02%
- 3-Month Average Daily Volume: 4,064,880
- Assets Under Management: $4.9 billion
- Inception Date: May 12, 2000
- Issuer: iShares
EWY is the oldest and by far the largest and most liquid South Korea ETF. The large-cap value fund tracks the MSCI Korea Index, a broad South Korean equity market index. EWY may appeal to investors seeking a tactical position in the South Korean market or to gain targeted international equity exposure. A small number of companies make up a large percentage of EWY's invested assets, with Samsung Electronics representing close to a quarter of the fund's assets. The portfolio is also dominated by large-cap and technology-related stocks. Despite this concentration, the fund's remaining stocks represent a diverse set of holdings overall. The top holdings of EWY are Samsung; SK Hynix; and Naver.
- 1-Year Trailing Total Return: 4.7%
- Expense Ratio: 0.80%
- Annual Dividend Yield: 2.07%
- 3-Month Average Daily Volume: 3,130
- Assets Under Management: $2.0 million
- Inception Date: April 25, 2011
- Issuer: First Trust
FKO is a large-cap blended fund that tracks the NASDAQ AlphaDex South Korea Index. This index utilizes the quant-based AlphaDex methodology to select holdings from the broader NASDAQ South Korea Index. The AlphaDex index considers factors including price appreciation, sales to price, one year sales growth, book value to price, return on assets, and more. As a result of the methodology, FKO carries a higher expense ratio than the other South Korea ETFs on our list. The top holdings for FKO include Alteogen Inc. (196170), the pharmaceutical research company; as well as car makers Hyundai Motor Co. (005380) and Kia Motors Corp. (000270).