The Promised Profits of Metaverse ETFs Are Disappointing in Returns

KODEX K-Metaverse Active Down 16.5%
Domestic ETF Concentrated in Game, Entertainment, Content Sectors

[Asia Economy Reporter Minji Lee]"It was good when it went up... but it keeps falling endlessly"

Last year, fueled by the Metaverse craze, the competitively launched 'Metaverse ETFs (Exchange-Traded Funds)' have hit bottom this year. The rapidly declining returns have only increased the sighs of individual investors. The securities industry sees that due to the US Federal Reserve (Fed)-driven interest rate hike issue, capital outflows are accelerating mainly in sectors that had high valuations, and adjustments may continue for the time being.

According to the Korea Exchange on the 18th, among the four Metaverse ETFs investing in domestic stocks, the fund with the lowest return as of the previous day's closing price was 'KODEX K-Metaverse Active,' which fell about 16.5% since the beginning of the year. It was followed by 'KBSTAR iSelect Metaverse (-14.8%)', 'TIGER Fn Metaverse (-12%)', and 'HANARO Fn K-Metaverse MZ (-11%)' in order.

These four funds mainly invest in domestic stocks related to Metaverse sectors such as games, content, and entertainment. As the Metaverse investment craze intensified, they recorded nearly 30% performance within about a month after listing, attracting over 1 trillion won in funds from individuals. However, this year, due to poor business conditions of the included stocks and decreased investor sentiment toward growth stocks, they have shown significant declines.

The biggest impact is the Fed's accelerated tightening clock. As uncertainty grew that the US base interest rate hike could be faster than expected, volatility expanded mainly in growth stocks. With the US 10-year Treasury yield soaring to 1.8%, liquidity that supported growth stock prices rapidly drained out. Recently, the four-week cumulative return gap between S&P 500 growth and value stocks has widened to -7 percentage points. In Korea as well, as sell-offs poured in mainly on growth stocks, related returns showed weakness.

Negative factors in major included stocks also affected performance declines. In the case of domestic Metaverse ETFs, game stocks are held with significant weight, but the major stock 'Wemade' caused a 'meoktwi' (scam) controversy in the virtual asset market and plunged more than 25% this month alone, causing a sharp drop in returns. In fact, 'KODEX K-Metaverse Active (-16%)', which holds Wemade with the largest weight (7%), showed a relatively larger decline compared to other ETFs. Additionally, since game, content, and entertainment stocks are industries that need to produce results using the Metaverse, there is a view that it will take a long time for this to be reflected in earnings, which seems to have influenced investor sentiment.

Meanwhile, ETFs investing relatively in global Metaverse stocks showed a better performance. Since the beginning of this year, 'KBSTAR Global Metaverse Moorgate' and 'Navigator Global Metaverse Tech Active' have only fallen 6%, while TIGER Global Metaverse Active and KODEX US Metaverse Nasdaq Active fell about 8% and 9%, respectively.

An official from an asset management company said, "In the case of domestic Metaverse ETFs, they invest in parts that can bear fruit when Metaverse technology is realized, while global Metaverse ETFs focus on big tech companies that possess the original Metaverse technology, which explains the difference in returns." He added, "Although fund returns have declined as the global market is shaken, since Metaverse is considered a long-term promising theme, it is advisable to use the adjustment period as a buying opportunity."