[Practical Finance] Active Equity ETFs Launch... Can We See the 'Korean ARK' Legend?

All About Active ETFs
Passive ETFs + Active Equity Funds
Fund Managers Include Preferred Stocks

[Asia Economy Reporter Minji Lee] Last year, the overseas stock most purchased by domestic investors was Tesla. Korean investors investing in foreign stocks, known as Seohak Gaemi, net bought 3.37 trillion KRW worth of Tesla shares last year, highly valuing Tesla's future growth potential. There was someone who recognized Tesla earlier. Known to domestic investors as the "Money Tree" sister, Cathie Wood. Cathie Wood included Tesla as a significant holding in ARK Innovation ETF (ARKK), the flagship product of ARK Investment she leads, achieving over 150% returns last year. This is a clear example of the appeal of active ETFs, where managers can select stocks.

Can we see the ARK ETF legend in the domestic market as well? Recently, domestic asset management companies have expressed their ambition to create a "Korean version of ARK ETF" legend by launching active equity ETFs that reflect their unique management capabilities. In the domestic ETF market, dominated by Samsung Asset Management and Mirae Asset Global Investments, they are determined to prove their management capabilities through active ETF funds and expand market share.

◆Management Capabilities Fully Reflected

According to the financial investment industry on the 26th, there are a total of 11 active equity ETFs listed on the domestic securities market. Samsung Asset Management and Mirae Asset Global Investments introduced three active equity ETFs last year (‘TIGER Artificial Intelligence Korea Growth Active’, ‘KODEX Innovative Technology Theme Active’, ‘KODEX K Innovation Active’), and eight more active equity ETFs were listed recently.

Active ETFs generally differ from the ETFs that investors have been buying and selling. Most ETFs traded so far have been passive (index) types that follow a constructed index. For example, the KOSDAQ150 ETF holds stocks within the KOSDAQ150 index to replicate the index's performance. Active ETFs combine the characteristics of passive ETFs with active equity fund management. While passively tracking an index, fund managers can select preferred stocks to include in the portfolio as they wish. Over 70% of assets track the benchmark index, and the remaining 30% reflect the manager's discretion. The manager's discretion is exercised while maintaining a correlation coefficient of 0.7, and fees are slightly higher than those of traditional ETFs.

Therefore, the management capabilities of the asset manager or management team are judged by the returns. For example, even among ESG public funds, returns vary depending on the stocks and weights held, so the choice of stocks in the 30% discretionary area by the fund manager can cause products of the same type to show divergent performance.

From an investor's perspective, active ETFs are expected to broaden the range of choices. In the U.S., where ETF investment is already active, demand for active ETFs is higher than for passive ones. As of last year, 56% of new ETF products in the U.S. were active ETFs. This year, 60% of newly launched ETFs were active ETFs. Sungin Jeong, head of the ETF team at Korea Investment Trust Management, said, "Following the explosive rise of ARK ETFs last year, the active ETF market has rapidly expanded and established itself as a global trend," adding, "In response to steady demand for active ETFs, asset managers will actively launch products in the active ETF market."

◆Many ESG, BBIG, and Mobility-Related ETFs... What Are the Differences?

Looking at the active equity ETFs launched by domestic asset management companies this month, many are related to ESG (Environmental, Social, Governance) and BBIG (Battery, Bio, Internet, Game). These funds focus on ESG and BBIG, which attracted strong investor interest last year.

Samsung Asset Management launched ‘KODEX K-Future Car Active ETF’ and ‘KODEX K-Renewable Energy Active ETF’. The K-Future Car fund invests in domestic stocks related to smart mobility, such as Hyundai Motor, LG Electronics, and Mando, which combine electrification and eco-friendly components. The K-Renewable Energy fund plans to invest mainly in domestic companies related to solar, wind, and hydrogen renewable energy. Hanwha Solutions and Doosan Fuel Cell are expected to be included.

Mirae Asset Global Investments launched ‘TIGER Future Mobility Active ETF’, investing in domestic mobility-related companies, and ‘TIGER Global BBIG Active ETF’, investing in the BBIG theme. The BBIG active fund targets stocks listed on the Nasdaq market. It includes 50% Nasdaq 100 tracking ETF to follow index performance and invests 10% each in five global BBIG ETFs to pursue excess returns.

Korea Investment Trust Management launched ‘Navigator Eco-friendly Car Value Chain Active ETF’ and ‘Navigator ESG Active ETF’. These invest in domestic stocks of eco-friendly car companies with high mid-to-long-term growth potential and companies with excellent ESG management. Instead of the existing ETF brand ‘KINDEX’, Korea Investment Trust Management chose ‘Navigator’ to steadily launch products across countries and thematic assets in the active equity ETF sector, aiming to enhance brand power. Timefolio Asset Management also launched ‘BBIG Active ETF’ and ‘K-Stock Active ETF’, which uses the KOSPI as a benchmark index.

Additionally, NH-Amundi Asset Management, Shinhan Asset Management, KB Asset Management, and Hanwha Asset Management are preparing to launch active equity ETFs within the year. An industry insider said, "With large asset managers dominating the market, launching active equity ETFs will be an opportunity for small and medium-sized asset managers to expand their market share."

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