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. It is the fourth-largest economy in Asia behind India, Japan, and China, which is the biggest. 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 the South Korean market may wish to consider exchange-traded funds (ETFs) focused on South Korean equities.
- South Korean equities have significantly outperformed the broader U.S. stock market over the past year.
- The 3 South Korean ETFs currently available are 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 funds is Samsung Electronics Co. Ltd.
There are 3 distinct South Korea ETFs that trade in the U.S. South Korean equities, as measured by the MSCI Korea Index, have dramatically outperformed the broader market with a total return of 75.1% over the past 12 months compared to the S&P 500's total return of 40.6%, as of May 27, 2021. The best-performing South Korea ETF, based on performance over the past year, is the Direxion Daily South Korea Bull 3X Shares ETF (KORU), which is a leveraged ETF. We examine all three South Korea ETFs below. All numbers below are as of May 30, 2020.
Leveraged ETFs can be riskier investments than non-leveraged ETFs given that they respond to daily movements in the underlying securities 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 2x 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 SEC alert.
- Performance over 1-Year: 341.2%
- Expense Ratio: 1.39%
- Annual Dividend Yield: 0.01%
- 3-Month Average Daily Volume: 80,217
- Assets Under Management: $53.0 million
- Inception Date: April 10, 2013
- Issuer: Rafferty Asset Management
KORU is a leveraged fund targeting large-cap South Korean names. The fund seeks a return that is 300% of the performance of the benchmark MSCI Korea 25/50 Index for each single day. As with most leveraged ETFs, losses can be amplified during adverse price moves. The index tracks the large- and mid-cap stocks of the South Korean equity market. Like most leveraged funds, 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; the Dreyfus Government Cash Management fund (DGCXX); and the Goldman Sachs FS Treasury Instruments Fund (FTIXX), both of which are institutional mutual funds. These three holdings account for nearly three-quarters of the assets in KORU.
- Performance over 1-Year: 79.1%
- Expense Ratio: 0.09%
- Annual Dividend Yield: 0.92%
- 3-Month Average Daily Volume: 17,952
- Assets Under Management: $73.7 million
- Inception Date: Nov. 2, 2017
- Issuer: Franklin Templeton
FLKR tracks the FTSE South Korea Capped Index, a market cap-weighted index of large- and mid-cap stocks. The ETF follows a strategy focused on value stocks and is weighted towards large caps. Just under one third of the fund's holdings are based in the information technology (IT) sector, followed by consumer discretionary and communication services. 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 include Samsung Electronics Co. Ltd. (005930:KRX), a manufacturer of consumer and industrial electronic equipment and products; SK hynix Inc. (000660:KRX), a manufacturer of semiconductor products; and NAVER Corp. (035420:KRX), a provider of various web services such as search engine and online advertising.
- Performance over 1-Year: 76.2%
- Expense Ratio: 0.59%
- Annual Dividend Yield: 0.69%
- 3-Month Average Daily Volume: 3,968,288
- Assets Under Management: $6.7 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. EWY may appeal to investors seeking a tactical position in the South Korean market or to gain targeted international equity exposure. The ETF follows a value-based investing strategy. It is heavily weighted to the IT sector, with more than a third of the fund's holdings allocated. Consumer discretionary stocks receive the next biggest weighting with a roughly 12.2% allocation, followed by an allocation of about 10.8% to communication stocks. 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 next two top holdings include SK hynix and NAVER.
The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.