ETFs Flooded with Funds in the “Cheonsdaq” Trade, Now Priced Above Fair Value and Flashing Overheating Signals

Helped by the government's policy support, investor money has been pouring into Kosdaq-linked exchange-traded funds (ETFs) that have broken through the 1,000-point level, pushing the tracking error, a risk indicator, into positive territory. Since this shows that investors are buying ETFs at prices higher than their actual asset value, some experts advise closely monitoring how this trend develops.

According to the Korea Exchange on February 4, the tracking error of "KODEX Kosdaq 150," the largest domestic ETF by net assets among those tracking the Kosdaq 150, stood at 0.15% the previous day. The tracking error, which had been negative from January 5 to 22, turned positive at 0.16% on January 23. Since then, it has remained positive for seven days, except on February 2, when it briefly fell to -0.32%. On January 26, it even climbed to as high as 0.44%.

원본보기 아이콘

The situation is similar for other large Kosdaq 150-related ETFs. The tracking error of "KODEX Kosdaq 150 Leverage," which has the second-largest net assets, was 0.22% as of the previous day. Its tracking error, which had been negative throughout this year, turned positive for the first time on January 26, rising to 0.12%. It then remained positive for four consecutive trading days on January 29 and 30 and up to the previous day.

"TIGER Kosdaq 150," which ranks third by net assets, also had a negative tracking error from January 5 to 22, before it widened to 0.09% on January 23. Like KODEX Kosdaq 150, it maintained a positive tracking error except for a single day on February 2. The tracking error of TIGER Kosdaq 150 stood at 0.16% as of the previous day.

Given that the average tracking error of these ETFs was negative last year, this recent shift into positive territory warrants attention. A positive tracking error means that the ETF's market price is trading above its net asset value (NAV), which is a warning signal. A negative tracking error indicates that the ETF is undervalued relative to its market value. Last year, the average daily tracking error of KODEX Kosdaq 150 was -0.33%, and that of TIGER Kosdaq 150 was -0.26%.

This recent turn into positive tracking error for Kosdaq-tracking ETFs is generally seen as the result of a rapid surge in demand. According to ETFcheck, the top three ETFs by net inflows over the past week were all Kosdaq 150 ETFs. A massive 4.2969 trillion won flowed into KODEX Kosdaq 150 (1st place), 1.7994 trillion won into KODEX Kosdaq 150 Leverage (2nd place), and 1.2095 trillion won into TIGER Kosdaq 150 (3rd place).

원본보기 아이콘

Lim Eunhye, a researcher at Samsung Securities, said, "It is very unusual for the tracking error of Kosdaq 150 ETFs to be positive," adding, "This reflects how strong the buying demand flowing into these ETFs currently is." She went on to say, "From the buyer's perspective, a positive tracking error means having to pay more than the net asset value by the amount of that tracking error, which in turn indicates an overheated market," and added, "Accordingly, it also seems important to select ETFs whose tracking error is relatively stable."

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.