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 is bouncing back on strong government stimulus and rising exports. 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 outperformed the broader U.S. stock market over the past year.
- The 2 South Korean ETFs currently available are FLKR and EWY.
- The top holding of these two ETFs is Samsung Electronics Co. Ltd.
There are 2 distinct South Korea ETFs that trade in the U.S., excluding inverse and leveraged ETFs. South Korean equities, as measured by the MSCI Korea Index, have outperformed the broader market with a total return of 36.6% over the past 12 months compared to the Russell 1000's total return of 19.5%, as of November 27, 2020. The best-performing South Korea ETF for Q1 2021, based on performance over the past year, is the Franklin FTSE South Korea ETF (FLKR). We examine both South Korea ETFs below. All numbers below are as of November 30, 2020.
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.
- Performance over 1-Year: 35.7%
- Expense Ratio: 0.09%
- Annual Dividend Yield: 1.57%
- 3-Month Average Daily Volume: 7,375
- Assets Under Management: $29.7 million
- Inception Date: November 2, 2017
- Issuer: Franklin Templeton Investments
FLKR tracks the FTSE South Korea Capped Index, a market cap-weighted index of large- and mid-cap stocks. The ETF, which is comprised of 139 stocks, follows a strategy focused on value stocks and is heavily weighted towards large caps. About one third (33%) of the fund's holdings are based in the information technology (IT) sector, followed by a 12% allocation to the consumer discretionary sector, and 10% each to the communication services and financial sectors. 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: 33.0%
- Expense Ratio: 0.59%
- Annual Dividend Yield: 1.71%
- 3-Month Average Daily Volume: 4,129,529
- Assets Under Management: $6.1 billion
- Inception Date: May 12, 2000
- Issuer: iShares
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 35% of the fund's 107 holdings based in that sector. Consumer discretionary stocks receive the next biggest weighting with a 12% allocation, followed by a 10% allocation to the financial sector. 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 LG Chem Ltd. (051910:KRX), a manufacturer of petrochemicals, plastics, and industrial and electronic materials.
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