[Attack on ETF] Active ETF Total Assets Increase Tenfold in 3 Years

Unlike Passive ETFs, Fund Managers Adjust Investment Items and Weights
25 of 30 Bond and Interest Rate ETFs in the First Half of the Year Are Active Products
Many Thematic and Sector ETFs Like Secondary Battery and AI Also Adopt Active Strategies

The domestic Exchange-Traded Fund (ETF) market continues to grow, with the growth of active ETFs standing out in particular. According to the Korea Exchange on the 18th, out of 94 newly listed ETFs this year, 46 were active ETFs.

Assets of domestic active ETFs increased from 2.1292 trillion KRW at the end of 2020 to 12.4 trillion KRW at the end of last year, and further expanded to 22.4 trillion KRW by the end of June this year. This represents a 1000% increase over three years. Notably, net assets grew by more than 10 trillion KRW just this year. Meanwhile, net assets of passive ETFs rose by 64%, from 49.9073 trillion KRW at the end of 2020 to 78.3869 trillion KRW at the end of the first half of this year.

Active ETFs are products that combine the characteristics of both active funds and ETFs. Unlike passive ETFs that simply track the underlying index, fund managers adjust the investment stocks and weights. They are designed to pursue excess returns above the benchmark index at the discretion of the fund manager.

Jinyoung Kim, a researcher at Kiwoom Securities, stated, "The share of active ETFs within the ETF market grew from 4.1% at the end of 2020 to 16% at the end of last year, and 22% as of June this year," adding, "This growth trend is due to the domestic equity active ETF market beginning to grow in earnest after COVID-19, and since last year, bond-type active ETFs have also been actively launched."

From the second half of last year to the first half of this year, many bond and interest rate ETFs were launched, adopting active strategies. Among the 30 bond and interest rate ETFs launched in the first half of this year, 25 were active products. The net assets of bond-type active ETFs reached 15 trillion KRW by the end of June, accounting for about 68% of the 22 trillion KRW in bond ETF net assets.

The popularity of thematic ETFs such as secondary batteries also contributed to the increase in active ETFs. Researcher Kim said, "With the stock market recovery this year, many thematic and sector ETFs including secondary batteries and artificial intelligence (AI) have been introduced, and among them, 12 products utilize active strategies," adding, "With improved market supply and demand conditions, thematic and sector active ETFs are expected to continue increasing."

The KoAct Biohealthcare Active ETF, launched by Samsung Active Asset Management on the 3rd, saw net purchases approach 50 billion KRW within just six days after listing.

Taehyun Seol, a researcher at DB Financial Investment, explained, "As the active share among thematic ETFs grows, active methods have outperformed passive ones since the beginning of the year," adding, "Given the renewed increase in market volatility, active ETFs, which can respond nimbly depending on management capabilities, can be considered as an alternative."

There are opinions that improving management capabilities is necessary as a condition for the growth of active ETF products. Minki Kim, a research fellow at the Korea Capital Market Institute, said, "Ultimately, active ETFs are designed to exceed the benchmark index returns. Although there are forecasts that active ETFs, currently in their early stages, will replace domestic public funds, this depends above all on the 'alpha' generated by active ETFs," adding, "Considering that one of the main reasons for the poor performance of domestic public funds is low investment returns, enhancing management capabilities in the asset management industry will be the most important factor."

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