[Chasing ETFs] ① Domestic ETFs' Net Assets Hit Record Highs Consecutively

As of the 16th, 83.754 trillion KRW, up 6.7% from the end of last year
Suitable for long-term investment and portfolio diversification
Diverse with 668 ETF products listed domestically

Editor's NoteAs recession signals strengthen, individual investors are growing increasingly anxious. Even if they want to invest, it is difficult to find suitable investment options. Although it is a high-interest-rate era, banks have lowered deposit rates under government pressure, which is unsatisfactory. The real estate market is in deep winter, requiring large sums of money, making it hard to take the plunge. At the same time, investing in individual stocks in the stock market does not bring peace of mind. For such investors, Exchange-Traded Funds (ETFs) are worth considering. Combining the advantages of stocks and funds, ETFs can be freely bought and sold in real time like stocks. Moreover, the lineup is diverse, ranging from products that gather multiple stocks like funds to those that track the movements of specific indices such as domestic and international stocks, bonds, real estate, commodities, infrastructure, and futures. Buying just one share of an ETF can provide the effect of diversified investment across multiple stocks.

[Asia Economy Reporter Park So-yeon] Amid growing concerns over domestic and international economic recessions, investor sentiment is turning toward Exchange-Traded Funds (ETFs) as a new investment destination. Accordingly, the total net assets of domestic ETFs have been hitting record highs day after day. The total net assets of ETFs, which had somewhat decreased due to last year's sluggish domestic stock market and weakened investor sentiment, have surpassed the 80 trillion won mark again this year. The securities industry expects the total net assets of ETFs to grow to 300 trillion won in 10 years. This contrasts sharply with the investor deposit funds, which serve as standby funds for stock investment, plummeting from the 70 trillion won range at the beginning of last year to the 40 trillion won range currently.

ETFs, which can be traded like stocks, are funds whose returns are determined by the movements of specific stock indices. They are products that evenly combine the advantages of stocks and funds. With a small amount of money, investors can achieve diversified investment effects across various fields such as domestic and international stocks, bonds, alternative investments, futures, leveraged, and inverse ETFs. Bonds or commodities, which are difficult to invest in directly, can also be easily accessed through ETFs.

As of the 18th, there are 668 ETF products listed domestically. Even buying just one share of an ETF provides the effect of diversified investment across multiple stocks. Experts say that ETFs are advantageous financial products for retail investors because they allow diversified investment with a small amount of money. Suppose you want to buy Samsung Electronics stock and SK Hynix stock. If you buy stocks, you have to buy both stocks separately. ETFs are different. You can simply purchase an ETF that includes both Samsung Electronics and SK Hynix.

ETFs not only serve as a means of diversified investment but also have excellent liquidity. Unlike funds, prices can be checked in real time through Home Trading Systems (HTS) and Mobile Trading Systems (MTS), allowing trading at any time.

When trading ETFs, unlike individual stocks, management fees must be paid. However, these fees are lower than those of stock-type funds. Also, since ETFs track indices, unnecessary short-term trading can be reduced compared to individual stock trading, saving on commissions. There is no transaction tax (0.23%) imposed when selling general stocks. Transparency in management is also higher than that of general funds. The composition of ETF holdings, each holding ratio, quantity held, and prices are disclosed daily. Additionally, dividends from held stocks are paid in cash, and the details are disclosed to the exchange.

According to the Korea Financial Investment Association's comprehensive statistics service, the total net assets of domestic ETFs reached 83.754 trillion won as of the latest data on the 16th, up 6.7% from the end of last year (78.5116 trillion won), setting a new record high. After the total net assets of ETFs recorded 82.7 trillion won on December 1 last year, they fell to the 70 trillion won range but have surged sharply this year.

ETFs are regarded as an easily accessible investment destination for investors amid uncertain market conditions and have steadily gained popularity even in sluggish stock market situations. As of the end of last year, the KOSPI market capitalization was 1,767.2352 trillion won, down about 436 trillion won from the end of the previous year, but the total net assets of ETFs increased by about 4.5441 trillion won during the same period.

Kim Seong-hoon, Head of the ETF Business Division at Hanwha Asset Management, said, "In a market environment where it is uneasy to invest intensively in individual stocks, ETFs that allow diversified investment in at least 10 or more stocks seem to have attracted investors' interest. Unlike individual stock investment, the ability to regularly rebalance within the ETF portfolio is also an advantage that allows flexible response to uncertain economic changes."

ETFs were first launched in the United States in 1993 and introduced domestically in 2002. Although they have about 20 years of history as investment products, they have rapidly grown in recent years as investors have paid attention to them. The total net assets of domestic ETFs increased sharply due to increased liquidity and a booming stock market during the COVID-19 pandemic. The total net assets of ETFs, which were about 15 trillion won at the end of 2012, rose to 52.0365 trillion won in 2020, 73.9675 trillion won in 2021, and 78.5116 trillion won in 2022.

Asset management companies aggressively launched various products tailored to consumer tastes, targeting the liquidity that surged during the COVID-19 pandemic, which was also a major factor in market growth. Currently, 23 asset management companies operate 668 listed ETFs domestically. As of the end of 2022, the asset management company with the largest total net asset value is Samsung Asset Management (32.9505 trillion won), accounting for 41.97% of the total ETF net assets. Following is Mirae Asset Global Investments (29.5674 trillion won) with 37.66%. Korea Investment Management (3.0527 trillion won), Kiwoom Asset Management (1.8469 trillion won), NH-Amundi Asset Management (1.4606 trillion won), and Hanwha Asset Management (1.4472 trillion won) follow.

The ETF with the largest net assets currently is 'KODEX 200' (5.6733 trillion won). Next are 'TIGER CD Interest Rate Investment KIS (Synthetic)' (4.1302 trillion won), 'KODEX KOFR Interest Rate Active (Synthetic)' (3.1254 trillion won), 'TIGER China Electric Vehicle SOLACTIVE' (3.0216 trillion won), and 'KODEX Comprehensive Bond (AA- or higher) Active' (2.4129 trillion won).

The somewhat complex ETF product names generally have two basic structures: 'Asset Manager + Region + Tracking Index + Management Method (Attribute)' or 'Asset Manager Name + Investment Asset + Management Method (Attribute)'. For example, KODEX US Nasdaq 100 TR means an ETF managed by Samsung Asset Management. TIGER is managed by Mirae Asset Global Investments, KB STAR by KB Asset Management, ACE by Korea Investment Management, and SOL by Shinhan Asset Management. In the example KODEX US Nasdaq 100 TR, Nasdaq 100 refers to the investment target. It invests in the 'US Nasdaq 100' index listed on the US Nasdaq. TR in KODEX US Nasdaq 100 TR stands for Total Return, meaning a management method that reinvests dividends. Besides this, ETF management methods include bullish investment, inverse investment that profits in a bear market, leveraged investment (bull market) that aims for multiplied returns, and inverse 2X (bear market) investment methods.

The asset management industry predicts that ETFs will be a game changer in the capital market. Last year, the average daily trading amount of ETFs recorded 2.0804 trillion won. Compared to the average daily trading amounts of the KOSPI at 6.3 trillion won and KOSDAQ at 5 trillion won, this is a considerable level. However, there are concerns that ETFs are perceived as aggressive investment products like individual stocks in the domestic market, which needs improvement. Kim Jeong-hyun, Head of the ETF Management Center at Shinhan Asset Management, emphasized, "Many investors think of ETFs as products with rapid price fluctuations like stocks, but ETFs are the best diversified investment products," adding, "Domestic investors need to shift their focus to long-term investment and portfolio diversification."

Recently, various products have emerged that can shift individual investors' investment behavior from short-term trading to long-term investment. New growth theme ETFs are expected to maintain steady net buying regardless of market changes. ETFs related to aerospace, secondary batteries, semiconductors, renewable energy, as well as grain investment and artificial intelligence, which allow sustainable investment, are also expected to continue to emerge.