Horizons ETFs Group, one of the largest ETF families in the world, earlier this month launched its third fund in the U.S. market and its first country-specific one: Horizons Korea Kospi 200 ETF (HKOR).
While other ETFs track the South Korean stock market, including iShares MSCI South Korea Capped ETF (EWY), First Trust South Korea AlphaDEX Fund (FKO) and WisdomTree Korea Hedged Equity Fund (DXKW), Horizons’ new fund is the first to track the Korean blue chip benchmark.
“What makes this significant is that it’s the first U.S. ETF to track an index whose point of origin is South Korea, as opposed to MSCI,” said Arlene C. Reyes, chief operating officer of exchangetradedfunds.com, a site that follows the global ETF market. “The Kospi 200 is to Korea what the DAX is to Germany. It’s important because it’s the index of choice for the South Korean stock exchange.”
Samsung Electronics makes up 21% of the index, with Hyundai Motor at 5.5% and Kia Motors at 2.3%. The information technology sector comprises 32% of the index, followed by consumer discretionary at 17%, industrials and financials at 13% each.
With more than $4 billion in assets, the iShares ETF, which tracks the MSCI Korea 25/50 Index, is the 800-pound gorilla tracking Korea. Its top-10 holdings and sector allocations are similar to the Horizons Fund. EWY has 20% in Samsung Electronics, for example. But the Kospi 200 ETF tracks a more diversified swatch of the stock exchange and 93% of its market capitalization, holding 200 companies vs. iShares’ 105.
Furthermore, HKOR is the cheapest of the bunch, with an expense ratio of 0.38%.
Officially listed in the emerging markets category, South Korea has fallen along with the other emerging-market economies over the past year. EWY is down 7% this year. Topping the reasons for the broad decline are worries about the U.S. Federal Reserve tapering its quantitative easing program and the falling yen, which will make Japan’s pricing more competitive to South Korea.
“Korea is more of an emerged market, as opposed to an emerging market,” said Joe Cunningham, executive vice president at Horizons ETFs Management, Horizons’ U.S. unit. “Compared to the other emerging markets, Korea has greater growth in per capita income, a larger consumer market, a very diversified economy, lower debt levels and the companies are household names.”
Cunningham says another advantage to HKOR is that while options are traded on the iShares ETF, no futures are traded on its index. But options and futures are traded on the Kospi 200, making it the most liquid index in Asia. This gives investors in HKOR 24-hour exposure, which the other ETFs don’t have.
Read more at Investor’s Business Daily.