South Korean exchange-traded funds (ETFs) related assets grew to $35.5bn in 2018, a 15.2% increase YoY, capping a 112% growth in assets over the five years to June 2019.
Korean investors' continued appetite for exchange-traded funds (ETFs) show no signs of slowing down despite the global sell-off in 2018 and the uncertainties surrounding the trade war, according to a survey published today by Cerulli Associates, the global research firm headquartered in Boston.
From 2014 to June 2019, ETFs recorded a 112.3% growth in assets. The number of ETFs jumped from 172 to 430 during the same period, adding to the market's diverse range of products, including leveraged and inverse (L&I) ETFs.
Two-thirds of managers already have ETF capabilities, while 40% of them are looking to hire ETF specialists to grow their product line-ups."
Managers are coming up with innovative niche ETFs to win clients' assets. In July 2018, three managers—Samsung Asset Management, Mirae Asset Global Investments, and KB Asset Management—listed three ETFs that invest in the video game industry. In December 2018, NH-Amundi Asset Management launched the first agriculture-themed ETF in Korea, the Hanaro Agriculture Fusion and Convergence ETF.
In July 2019, Samsung Asset Management launched three target risk ETFs, namely the KODEX TRF7030, KODEX TRF5050, and KODEX TRF3070. More recently, two onshore ETFs—Arirang US Short-Term Credit Corporate Bond ETF and the Arirang Long-Term Credit Corporate Bond ETF—made their debut on the Korea Exchange in August.
Managers in Korea continue to look at building and expanding their ETF product range. According to Cerulli's survey, two-thirds of managers already have ETF capabilities, while 40% of them are looking to hire ETF specialists to grow their product line-ups. Moreover, 40% of the asset managers surveyed shared that they are planning to work with digital advisory platforms to promote ETFs.
Amid the competition to raise assets, managers in Korea have been slashing fees to as low as 0.001% on new product listings. Korea's ETFs already have the lowest average management fees in key Asia ex-Japan markets, at 0.26%, according to Cerulli's analysis.
One way for foreign managers to grow their marketshare in Korea, and for local managers to capitalize on global managers' expertise, is to form product partnerships.
"Foreign managers who want a slice of Korea's fund market may want to explore setting up local offices targeting institutional clients that are increasingly shifting toward passive investments such as ETFs," said Siau Kean Yung, associate analyst with Cerulli Associates.
"Subadvisory and product partnerships with Korean asset managers are other ways of tapping the market. As for the retail segment, the industry will need to increase awareness about the use of ETFs as investment rather than trading tools."