From Stocks to Commodities... Overseas Investment Made Easy with Exchange-Traded ETFs and ETNs

Popular for Lower Fees Compared to Off-Market Funds and Easy Investment Like Stocks

Provided by Korea Exchange

[Asia Economy Reporter Minwoo Lee] Amid the surge in overseas investment, Exchange-Traded Funds (ETF) and Exchange-Traded Notes (ETN) listed on the Korea Exchange are gaining attention. They are praised for their lower fees compared to over-the-counter funds and the ease of investing like stocks.

According to the Exchange on the 16th, as of the 11th, there are a total of 241 ETF and ETN products investing in overseas assets (125 ETFs and 116 ETNs). Since the first product was listed in October 2007, the number has rapidly increased, establishing itself as a common method for investing in overseas assets.

The largest number of overseas ETF and ETN products are those linked to major overseas stock market indices. Representative products track indices such as the S&P 500 (U.S.), Euro Stoxx 50 (Europe), CSI 300 (China), and Nikkei 225 (Japan). Investing in these market-leading index-tracking products enables global diversification. For example, if the country allocation is set as 50% Korea, 30% U.S., and 20% China, one would purchase 50% KRX300 Index ETF, 30% S&P 500 ETF, and 20% CSI 300 ETF.

There are also ETFs and ETNs that invest in specific sectors such as biotechnology or information technology (IT), as well as products that invest in commodities like energy and agricultural products. Representative commodities include energy resources such as crude oil and natural gas, precious metals like gold and silver, and industrial metals such as nickel and copper. Recently, ETFs and ETNs linked to agricultural product prices like coffee and corn have also been listed.

Leveraged products that track twice the price of the underlying asset and inverse products that track in the opposite direction at -1x or -2x are available, mainly among ETN products. However, since the starting price of ETNs based on commodity futures prices can sometimes deviate significantly from the actual index value, monitoring the tracking error is necessary.

The advantages are low costs and easy investment methods. The average fees for 125 overseas ETFs and 116 ETNs are 0.44% and 0.96%, respectively. For example, investing in the 'KODEX U.S. S&P Biotech (Synthetic)' ETF incurs a total fee of 0.25%, whereas investing in a similar over-the-counter fund, 'Franklin U.S. Biotech Healthcare A (Stock - Fund of Funds)', involves a total fee of 0.84% (with a front-end load of 1% depending on the sales channel).

Investment methods are also simple. They can be invested in through a regular stock account in the same way as stocks. Overseas ETFs, excluding leveraged and inverse products, can also be traded through pension savings accounts and retirement pension accounts (IRP, DC). Generally, overseas funds subscribed through banks or securities firms confirm the net asset value 3 to 7 trading days after subscription or redemption, but ETFs and ETNs confirm prices immediately upon trading. This allows for quick adjustments in response to sudden market changes.

A Korea Exchange official said, "As the advantages of low costs and real-time investment like stocks become more prominent, the overseas ETF and ETN market size is growing," adding, "Utilizing the various information provided on the Korea Exchange ETF Naver Post will be helpful for investment."

Korea Exchange Listed Index Fund (ETF) Naver Post Screen (Provided by Korea Exchange)

This content was produced with the assistance of AI translation services.