[Chodong Perspective] Is Your Investment Portfolio Still Missing ETFs?

The domestic exchange-traded fund (ETF) market is growing at a remarkable pace. The total net asset value of ETFs, which surpassed 100 trillion won in June 2023, has doubled to 200 trillion won in just two years. Domestic asset management firms are fiercely competing to survive in the ETF market. They are quickly launching thematic ETFs targeting high-return-seeking investors, and have even lowered fees for long-term investors. What makes ETFs, now established as a popular means of personal asset management, so attractive? For investors who have only traded stocks through mobile trading systems (MTS) or home trading systems (HTS), now?while preparing for the "KOSPI 5000"?is the perfect time to start investing in ETFs.

The greatest appeal of ETFs lies in their diversification effect. ETFs track specific indices such as the KOSPI 200 or S&P 500, or invest in a variety of stocks within specific sectors and themes. For example, anticipating increased demand for semiconductors in the era of artificial intelligence (AI), investors can choose to invest in leading domestic semiconductor stocks such as Samsung Electronics or SK Hynix. Since the beginning of this year, Samsung Electronics has risen by 22%, while SK Hynix has surged by 70%. Investors who chose Samsung Electronics over SK Hynix may regret their decision, as their returns would have fallen short of the KOSPI's 33% rise. Leading semiconductor ETFs such as "KODEX Semiconductor" and "TIGER Semiconductor" have each recorded returns in the 30% range so far this year.

Investing in individual stocks often leads to sleepless nights due to unexpected variables. Events such as rights issues, big bath accounting (recognition of large losses), embezzlement or breach of trust, and spin-offs can increase stock price volatility, causing significant confusion for individual investors. When a board decision on a rights issue causes the stock price to plummet, investors are faced with complex decisions such as whether to buy more shares or participate in the rights issue. Shareholders of Hanwha Aerospace likely experienced considerable anxiety at the time of the rights issue decision. However, considering this year's return of 166%, the effort seems to have paid off. Investors in the "TIGER K-Defense & Space" and "PLUS K-Defense" ETFs experienced relatively less stress, with returns of 164% and 13%, respectively.

If you prefer to invest based on industry trends rather than the unique circumstances of individual stocks, ETFs can be an excellent choice. Although ETFs are funds, they can be traded in real time like stocks, and their management fees are lower than those of traditional funds. They offer easy access to specific markets or industries without complicated analysis. ETFs also provide transparency, as their holdings are disclosed daily.

Not only equity ETFs, but also bond, commodity, and real estate ETFs are actively traded. Investors can implement a wide range of strategies tailored to market conditions or their own investment objectives. Monthly dividend ETFs, which generate steady cash flow over the investment period, are gaining popularity among those preparing for life after retirement.

Recently, industry experts have been recommending a variety of ETFs. A senior executive at a major asset management firm said, "Through numerous trials and errors, asset managers are launching thematic ETFs that diversify risk and enhance returns," adding, "Unless you are truly confident in trading, investing in ETFs to reduce transaction costs is also a wise investment strategy."