[Initial Insight] What Must Be Preserved Amid ETF Competition

Concerns Over Hollow Growth Due to Market Share Competition
Need for Healthy Competition to Expand the Market

The market size of exchange-traded funds (ETFs) based on net assets has surpassed 150 trillion won. It grew 26% in six months from 120 trillion won at the end of last year. As the market grows rapidly, competition among domestic asset management companies is also intensifying. Samsung Asset Management and Mirae Asset Global Investments continue an uncompromising battle for the top spot in ETF market share. The competition in the mid-tier ranks is nothing short of a silent war.

Each employee responsible for ETFs in the asset management industry strives to provide high-quality services at relatively low fees. Thanks to quickly reflecting market trends and investor interests and launching various ETFs, the market has been able to grow rapidly.

However, there are concerns that the obsession with numbers in the competition may leave only wounds. At the beginning of the year, the asset management industry was noisy due to ETF personnel movements. As competition intensified, the value of ETF management personnel increased. After personnel adjustments by each asset management company, there were murmurs about fee reductions. Samsung Asset Management and Mirae Asset Global Investments lowered fees on some ETFs, drawing criticism of "cutting their own flesh."

The chronic issue of launching ETFs just to follow trends shows no signs of improvement. As thematic ETFs gain popularity, products with no distinguishable differences are flooding the market. ETFs featuring hot keywords in the stock market such as artificial intelligence (AI) and secondary batteries help asset management companies inflate their ETF sizes. ETFs have also contributed to expanding the concentration phenomenon in certain sectors within the market.

Most asset management companies conduct ETF marketing centered on provocative keywords. They emphasize "first launch" and "highest returns." When provocative keywords run rampant, investors inevitably struggle to choose ETFs that match their investment preferences.

It is a time when competition to expand the ETF market size is needed more than the fight for market share among asset management companies. While it is important to move up one rank in market share by surpassing competitors, efforts should not be spared to ensure the ETF market can continue to grow sustainably. ETFs that pursue low cost and low volatility are relatively suitable for long-term investment compared to direct investments in underlying assets. There are quite a few individual investors who insist on "all-in" investments. Although bank deposit interest rates fail to keep up with market inflation, a significant amount of funds still lie dormant in savings and deposit accounts.

It is hoped that the asset management industry will demonstrate a spirit of partnership to nurture the ETF market. It cannot be stopped to promote brands in the style of "B ETF from B asset management company is better than a ETF from A asset management company." However, marketing is also needed to induce some of the funds sleeping in savings and deposit accounts to be entrusted to ETFs and to persuade investors who go "all-in" on thematic stocks to allocate some funds to ETFs.

Middle-class people living in the metropolitan area and young people familiar with social networking services (SNS) are accustomed to ETFs, but elderly people living in rural areas have fewer opportunities to encounter ETFs. The reason why they easily fall for coin scams and multi-level marketing is that proper investment products are far away. Due to the nature of ETFs, there are many products that are advantageous for long-term investment compared to direct investments in underlying assets. There are also many ETFs suitable for financial consumers who find it difficult to invest directly in overseas stock markets. It is hoped that the asset management industry will join forces to widely promote the advantages of ETFs and the precautions when investing.