Industry Updates

Cerulli: South Korean investor appetite for ETFs shows no sign of slowing

Tom Eckett

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The ETF industry is booming in South Korea, according to a report by Cerulli Associates, driving increasing competition and innovation.

Despite ongoing uncertainties surrounding the trade war between the US and China, the South Korean ETF industry grew to $35.5bn by the end of 2018, a 15.2% year-on-year increase.

During the period between 2014 and June 2019, ETFs have seen a 112% asset growth and the number of ETFs has surged from 172 to 430.

This increasing demand is driving innovation with ETF issuers launching more and more niche products in an attempt to capture assets.

For example, Samsung Asset Management, Mirae Asset Global Investments and KB Asset Management have all launched ETFs tracking the video game industry. There has also been a boost to leveraged and inversed ETFs.

Along with innovation has come a race to the bottom with fees. ETFs have seen their prices slashed to as low as 0.001% on new product listings while Korea ETFs already have the lowest average fees across Asia ex-Japan markets at 0.26%.

According to a Cerulli survey, two-thirds of asset managers already have ETF capabilities while 40% of them are looking to hire ETF specialist to grow their ETF ranges.

For foreign issuers looking to get a piece of the action, Cerulli said one way is to form product partnerships with local providers.

Siau Kean Yung, associate analyst at Cerulli, commented: “Foreign managers who want a slice of Korea’s fund market may want to explore setting up local offices targeting institutional clients that are increasingly shifting toward passive investments such as ETFs.

“Subadvisory and product partnerships with Korean asset managers are other ways of tapping the market. As for the retail segment, the industry will need to increase awareness about the use of ETFs as investment rather than trading tools.”

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