Preparing to Launch Single-Stock ETFs
Increasing Equity Proportion in Pension Assets
Can Reduce Stock Volatility
On the 7th, when Apple's new iPhone 14 series was officially released in Korea, citizens lined up at the Apple Store in Myeongdong, Jung-gu, Seoul to purchase the products. Photo by Moon Honam munonam@
[Asia Economy Reporter Junho Hwang] "Samsung Electronics ETF, Apple ETF."
Asset management companies are launching exchange-traded funds (ETFs) that primarily invest in a single stock. On the surface, these are bond-mixed ETFs, but a closer look reveals that 30% of the total assets are invested in ETFs holding only one stock such as Samsung Electronics, Apple, or Tesla. When held through pension accounts, the stock portion of pension assets can be increased up to 79%, making these ETFs a suitable long-term investment alternative for investors with a 'single-stock preference' tendency.
Samsung Electronics ETF, Tesla ETF, Apple ETF, Nvidia ETF
According to the financial investment industry on the 7th, six major domestic asset management companies are actively preparing to launch single-stock ETFs. Samsung Asset Management plans to launch an ETF investing 30% of its assets in Samsung Electronics, Mirae Asset Management will release a 'Tesla ETF,' Hanwha Asset Management will launch an 'Apple ETF,' and Korea Investment Management will introduce an 'Nvidia ETF.'
KB Asset Management and Shinhan Asset Management are preparing ETFs with a small number of stocks. KB Asset Management plans to include Samsung Group stocks such as Samsung Electronics, Samsung Biologics, and Samsung SDI, while Shinhan Asset Management will launch a product investing in the top five stocks by market capitalization listed on the U.S. Nasdaq and S&P 500.
Due to deregulation allowing mixed ETFs to be composed of a total of only 10 stocks regardless of asset type, it has become possible to list single-stock ETFs that hold one stock and nine bonds.
Seungho Jung, manager of the ETF Management Team at the ETF Management Division, stated, "We plan to launch this product to provide investors with an asset allocation portfolio combining Tesla stock and stable government bonds."
Can Increase Stock Portion Within Pension Accounts
The advantage of investing in this product is that it allows investors to maximize the stock portion of desired stocks within pension accounts. Single-stock ETFs are classified as safe assets with a stock portion below 40%. Therefore, if 70% of a defined contribution (DC) or individual retirement pension (IRP) account is invested in stock-type products or other risk assets and the remaining 30% is invested in single-stock ETFs, the stock portion within the account can be increased up to 79%. This enables long-term investment strategies such as 'buying 100,000 KRW worth of Samsung Electronics every month' through pension accounts that offer tax benefits.
Chanyoung Kim, head of Digital ETF Marketing at Korea Investment Management, explained, "By creating a bond-mixed product with overseas stocks (Nvidia), which are of high interest to Korean investors, the stock portion within pension accounts can be increased," adding, "Long-term investment in these stocks is possible through pension accounts."
Returns Proportional to Investment
NVIDIA's quad-core processor 'Tegra 3'
However, a downside is that even if the price of a single stock rises significantly, it is difficult to expect a similarly large return from the single-stock ETF. This is because only about 30% of the total assets are invested in the single stock. Although the structure may vary by product, for example, if the single stock price rises by 10%, it can be seen as a 10% increase on 30% of the single-stock ETF’s total assets. If the single stock was purchased directly, the investor could realize the full 10% gain, but with the ETF, the return will inevitably be lower. Conversely, this can be viewed as a way to reflect the volatility of each stock more stably.
Sunghoon Kim, head of the ETF Business Division at Hanwha Asset Management, analyzed, "Single-stock ETFs allow investors to clearly select the stocks they want, and since the stock portion is not high, volatility can be managed more stably, which is an advantage."
Meanwhile, single-stock ETFs are currently undergoing listing review at the exchange. Therefore, it is expected that they will be launched by the end of the year at the latest.
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