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South Korea is one of the Four Asian Tigers, along with Hong Kong, Taiwan, and Singapore, a group known for decades of rapid economic expansion. Since the 1960s, very few countries have boasted as consistent and explosive economic growth as South Korea, which is the fourth-largest economy in Asia behind India, Japan, and China.
The COVID-19 pandemic triggered South Korea’s worst economic performance in decades. For all of 2020, the nation’s gross domestic product (GDP) fell 1%, while the pandemic caused the global economy to shrink at a faster pace. The economy sharply rebounded in 2021, as GDP grew by 4% for the year on soaring demand for exports.
Investors seeking to gain exposure to South Korea’s economy may wish to consider exchange-traded funds (ETFs) focused on South Korean equities.
Key Takeaways
- South Korean equities have significantly underperformed the broader U.S. stock market over the past year.
- Three South Korea exchange-traded funds (ETFs) currently trade in the U.S.: EWY, FLKR, and KORU.
- The top holding of the first two funds is Samsung Electronics Co. Ltd., and the top holding of the third fund is the iShares MSCI South Korea ETF.
There are three distinct South Korea ETFs that trade in the United States. South Korean equities, as measured by the MSCI Korea Index, have significantly underperformed the broader U.S. market over the past 12 months, with a total return of -21.6% compared with the S&P 500’s total return of 18.6%, as of Feb. 3, 2022. The best-performing South Korea ETF, based on performance over the past year, is the iShares MSCI South Korea ETF (EWY). We examine all three South Korea ETFs below. All numbers are as of Feb. 3, 2022.
Leveraged ETFs can be riskier investments than non-leveraged ETFs given that they respond to daily movements in the underlying securities that they represent, and losses can be amplified during adverse price moves. Furthermore, leveraged ETFs are designed to achieve their multiplier on one-day returns, but you should not expect that they will do so on longer-term returns. For example, a 2× ETF may return 2% on a day when its benchmark rises 1%, but you shouldn’t expect it to return 20% in a year when its benchmark rises 10%. For more details, see this U.S. Securities and Exchange Commission (SEC) alert.
ETFs with very low assets under management (AUM), less than $50 million, usually have lower liquidity than larger ETFs. This can result in higher trading costs, which can negate some of your investment gains or increase your losses.
- Performance Over One-Year: -21.0%
- Expense Ratio: 0.57%
- Annual Dividend Yield: 0.80%
- Three-Month Average Daily Volume: 4,393,475
- Assets Under Management: $4.2 billion
- Inception Date: May 9, 2000
- Issuer: BlackRock Financial Management
EWY tracks the MSCI Korea 25/50 Index, which gauges the overall performance of the mid-cap and large-cap segments of the South Korean equity market. The fund follows a value-based investing strategy and may appeal to investors seeking a tactical position in the South Korean market or targeted international equity exposure. More than 37% of EWY’s holdings are allocated to the information technology (IT) sector. Consumer discretionary stocks receive the next biggest weighting, with a roughly 11.5% allocation, followed by an allocation of about 10.6% to financials stocks. EWY’s largest holdings are Samsung Electronics Co. Ltd. (005930:KRX), a manufacturer of consumer and industrial electronic equipment and products, which represents over 25% of EWY’s portfolio; SK hynix Inc. (000660:KRX), a manufacturer of semiconductor products; and NAVER Corp. (035420:KRX), a provider of web services such as search engine and online advertising.
- Performance Over One-Year: -21.4%
- Expense Ratio: 0.09%
- Annual Dividend Yield: 1.75%
- Three-Month Average Daily Volume: 21,230
- Assets Under Management: $60.0 million
- Inception Date: Nov. 2, 2017
- Issuer: Franklin Templeton
FLKR tracks the FTSE South Korea Capped Index, a market capitalization-weighted index composed of midcap and large-cap companies. The ETF follows a strategy focused on value stocks and is weighted toward large caps. Just over a third of the fund’s holdings are allocated to the IT sector, followed by consumer discretionary and financials. One attraction of FLKR is its low expense ratio, enabling direct investor access to South Korean equities at a competitive price. Its top three holdings are Samsung Electronics, SK hynix, and NAVER.
- Performance Over One-Year: -57.7%
- Expense Ratio: 1.39%
- Annual Dividend Yield: 0.01%
- Three-Month Average Daily Volume: 124,894
- Assets Under Management: $38.6 million
- Inception Date: April 10, 2013
- Issuer: Rafferty Asset Management
KORU is a leveraged ETF that seeks a return that is 300% of the performance of its benchmark MSCI Korea 25/50 Index for each single day. The index tracks the midcap and large-cap stocks of the South Korean equity market. Like most leveraged funds, losses can be amplified during adverse price moves, and KORU is not intended to provide 300% returns of the benchmark index’s cumulative return over periods longer than a single day. The top holdings of KORU include shares of the iShares MSCI South Korea ETF (EWY), a South Korea-focused ETF already on our list, as well as two institutional mutual funds: the Goldman Sachs Financial Square Treasury Instruments Fund (FTIXX) and the Dreyfus Government Cash Management Fund (DGCXX). These three holdings account for approximately 82% of the assets in KORU.
The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.
