South Korea is one of the Four Asian Tigers, along with Hong Kong, Taiwan, and Singapore, a group known for decades of rapid economic expansion. Since the 1960s, very few countries have boasted as consistent and explosive economic growth as South Korea, which is the fourth-largest economy in Asia behind India, Japan, and China.
South Korea’s economy grew 4% in 2021—the biggest increase in 11 years—coming against the backdrop of strong exports and corporate investments. For all of 2021, the nation’s gross domestic product (GDP) expanded to $1.6 trillion. More recently, in Q2 2022, South Korea’s GDP growth beat estimates to increase by 0.7%. Household and government spending fueled this growth despite inflation and the impacts of the ongoing Russian invasion of Ukraine.
Investors seeking to gain exposure to South Korea’s economy may wish to consider exchange-traded funds (ETFs) focused on South Korean equities.
Key Takeaways
- South Korean equities have significantly underperformed the broader U.S. stock market over the past year.
- Two South Korea exchange-traded funds (ETFs) currently trade in the U.S.: EWY and FLKR.
- The top holding of each of these funds is Samsung Electronics Co. Ltd.
There are two distinct South Korea ETFs that trade in the United States, excluding inverse and leveraged funds and those with under $50 million in assets under management (AUM). South Korean equities, as measured by the MSCI Korea Index, have significantly underperformed the broader U.S. market over the past 12 months, with a total return of -32.1% compared with the S&P 500’s total return of -3.7%, as of Aug. 10, 2022. The best-performing South Korea ETF, based on performance over the past year, is the iShares MSCI South Korea ETF (EWY). We examine both South Korea ETFs below. All numbers below are as of Aug. 11, 2022.
- Performance Over One Year: -29.2%
- Expense Ratio: 0.57%
- Annual Dividend Yield: 0.80%
- Three-Month Average Daily Volume: 3,381,728
- Assets Under Management: $3.1 billion
- Inception Date: May 9, 2000
- Issuer: BlackRock Financial Management
EWY tracks the MSCI Korea 25/50 Index, which gauges the overall performance of the mid-cap and large-cap segments of the South Korean equity market. The fund follows a value-based investing strategy and may appeal to investors seeking a tactical position in the South Korean market or targeted international equity exposure.
Nearly 33% of EWY’s holdings are allocated to the information technology (IT) sector. Consumer discretionary receives the next largest weighting, at about 12.2%, followed by industrials stocks at 11.7%. EWY’s largest holdings are Samsung Electronics Co. Ltd. (005930:KRX), a manufacturer of consumer and industrial electronic equipment and products, which represents roughly 20% of EWY’s portfolio; SK hynix Inc. (000660:KRX), a manufacturer of semiconductor products; and Samsung SDI Co. Ltd (006400:KRX), a battery and electronic materials maker.
- Performance Over One Year: -29.6%
- Expense Ratio: 0.09%
- Annual Dividend Yield: 1.75%
- Three-Month Average Daily Volume: 12,320
- Assets Under Management: $53.4 million
- Inception Date: Nov. 2, 2017
- Issuer: Franklin Templeton
FLKR tracks the FTSE South Korea Capped Index, a market capitalization-weighted index composed of mid-cap and large-cap companies. The ETF follows a strategy focused on value stocks and is weighted toward large caps.
About 32% of the fund’s holdings are allocated to the IT sector, followed by industrials and consumer discretionary. One attraction of FLKR is its low expense ratio, enabling direct access to South Korean equities at a low price compared to other alternatives. Its top three holdings are Samsung Electronics, SK hynix, and NAVER Corp. (035420:KRX), a provider of web services such as search engine and online advertising.
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