Investors Flock to Index ETFs Amid KOSPI Surge

"Nearly 900 Billion KRW Flows Into Index-Based ETFs"

Last month, as the KOSPI surged by nearly 20%, individual investors flocked to index-based Exchange Traded Funds (ETFs).

According to the Korea Exchange on November 5, the KOSPI, which hovered around 3,400 at the beginning of last month, surpassed the 4,200 mark during trading on the 4th.

With the index soaring, individual investors poured funds into ETFs tracking the KOSPI 200. Among ETFs with net assets exceeding 500 billion KRW, KODEX 200 ranked first in net purchases by individuals last month, attracting 625.3 billion KRW. The net purchase amount in the previous month was 79.5 billion KRW. Similarly, TIGER 200 saw a sharp increase in net purchases, rising from 51.7 billion KRW in September to 230.5 billion KRW last month. In addition, RISE 200 and PLUS 200 recorded net purchases of 26.2 billion KRW and 7.5 billion KRW, respectively.

An official from an asset management company explained, "The KOSPI rally tends to be driven by leading sectors such as semiconductors, electric power, and shipbuilding," adding, "In this kind of market, index-based ETFs are considered the most effective investment vehicle, which is why funds have concentrated there."

As of November 3, TIGER 200 posted the highest one-month return at 21.38%. KODEX 200 followed with 21.37%, while RISE 200 and PLUS 200 recorded 21.38% and 21.34%, respectively.

The asset management industry advises that when buying index-based ETFs, both the total expense ratio and the effective cost ratio are important. The total expense ratio is the sum of the management fee charged by the asset management company, plus sales, custody, and administrative fees. The effective cost ratio adds brokerage commission rates to the total expense ratio, representing the final cost actually borne by the investor.

Among KOSPI 200 tracking ETFs with net assets over 500 billion KRW, KODEX 200 had the highest total expense ratio at 0.15%. TIGER 200 and KIWOOM 200 followed at 0.05%, while RISE 200, PLUS 200, and ACE 200 were at about 0.017%. When including brokerage commissions in the effective cost ratio, the rankings changed. On an annual basis, KODEX 200 still had the highest effective cost ratio at 0.1887%, followed by KIWOOM 200 (0.0966%), TIGER 200 (0.0855%), and ACE 200 (0.0615%).

For example, if an investor puts 100 million KRW into KODEX 200 and TIGER 200, the leading domestic index-based ETFs, and earns a 7% annual return, after 15 years, the TIGER 200 investor would gain approximately 272.61 million KRW, excluding the total expense ratio. In contrast, the KODEX 200 investor could expect a return of 268.94 million KRW. The difference in management fees alone would result in a gap of about 4 million KRW.

An asset management company official noted, "Although ETFs are 'products that track the index exactly,' performance can vary depending on management efficiency and cost structure," adding, "For index-based ETFs suitable for long-term investment, even a 0.1% difference in expense ratio can lead to significant performance differences over several years."