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Samsung Investments has dominated the ETF market in Korea since it was launched five years ago. Domestic ETFs now account for W6 trillion ($6.4 billion) of assets under management, of which Samsung has a 40% market share. If measured in terms of net asset value, SamsungÆs Kodex series is even more dominant, accounting for 79% of the W1.6 trillion NAV for all ETFs.
The firm is also proud that ETFs have outperformed most active funds in Korean equities. Bae Jae-kyu, a portfolio manager at the firm who heads its index and structured products group, says the Kodex 200, which tracks the Kospi blue-chip benchmark, has enjoyed returns in the top 30% of all active funds. The Kospi 200 has also consistently outperformed the MSCI Korea index.
But over the past year, investors have demonstrated more interest in international exposures, with some $25 billion moving into international equity portfolios, either onshore or offshore.
Bae says Samsung is now working on ETFs that will track regional indices, such as the Nikkei series. As long as the time zones are similar to KoreaÆs, the firm can manage a fund in which brokers (aka authorised participants) buy and sell baskets of the underlying stocks at the same time investors are creating or redeeming units in the ETF. The firm also wants to introduce more sector indices (it already has them for technology and automobiles, for example).
But Lyxor Asset Management, the structured-products management arm of Societe Generale, is racing to be the first to introduce foreign ETFs to Korea. It has signed a memorandum of intent with Korea Exchange to cross-list its line of ETFs. Laruent Seyer, LyxorÆs CEO, says the agreement with Korea Exchange will offer local investors a cost-effective route to international diversification.
In an interview with AsianInvestor in 2005, Robert Haber, San Francisco-based CEO of Asia ex-Japan, said Korea offered AsiaÆs most promising ETF market despite the small AUM size because it was the one place where ETFs were commercially driven, as opposed to being seeded by governments.
But so far, BGI û which advised Samsung on its initial ETF û has not cross-listed its iShares series onto Korea Exchange. Nor has State Street Global Advisors, another big ETF provider which had advised LG Investment Trust with its ETF debut in 2002.
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