Offshore Korea ETFs make waves with strong returns

Amid a buoyant stock market, South Korea-focused exchange-traded funds listed on overseas bourses are attracting strong investor interest, channeling fresh capital into domestic equities.

The iShares MSCI South Korea ETF, managed by BlackRock, is currently the top-performing fund among the firm’s iShares ETF lineup this year.

Listed on the NYSE Arca, the ETF has risen 33.68 percent year-to-date based on net asset value as of Monday, outperforming the iShares S&P GSCI Commodity-Indexed Trust, which gained 32.6 percent, and the iShares US Oil & Gas Exploration & Production ETF, up 31.54 percent.

Although the Korean stock market has been weighed down by geopolitical tensions in the Middle East, the ETF remains among the top performers, supported by a sharp rally early this year.

With net assets of $17.67 billion, the fund is heavily weighted toward Korea’s leading chipmakers, including Samsung Electronics and SK hynix, which account for 22.77 percent and 20.46 percent of the portfolio, respectively, alongside a total of 81 large-cap Korean stocks.

The fund has attracted $6.26 billion in net inflows this year, ranking ninth among US-listed ETFs by asset inflows over the same period, according to ETF Check, a platform operated by Korea Exchange affiliate Koscom.

“Investors are increasingly moving away from broad emerging market allocations toward more selective, theme driven country exposures, with Korea benefiting from this shift due to its role in global AI and technology supply chains,” said Andy Ng, head of Asian-Pacific iShares equity product strategy at BlackRock.

“Korea-focused ETFs are increasingly used as precision tools rather than broad emerging market allocations.”

The Franklin FTSE South Korea ETF is another popular fund listed on the NYSE Arca that tracks the Korean market.

With net assets of $476.55 million, the fund has returned 29.85 percent year-to-date. Its portfolio is similarly concentrated, with 22.08 percent allocated to Samsung Electronics and 21.8 percent to SK hynix, alongside other blue-chip stocks.

“Investor interest has been driven by the global AI investment theme and Korea’s central role in the AI hardware supply chain, led by technology companies benefitting from demand for memory and data‑center infrastructure,” Ng at BlackRock said.

“More broadly, investors are rotating toward targeted North Asia exposures, with Korea standing out as a way to access AI growth beyond the crowded US tech trades.”

Domestic investors are also increasingly taking “reverse” positions on Korea via overseas-listed ETFs.

Over the past month through Wednesday, the Direxion Daily MSCI South Korea Bull 3X Shares was the most purchased overseas security by Korean investors, with net buying totaling $748.05 million, according to data provided by the Korea Securities Depository.

Demand for the ETF outpaced major global names such as Microsoft and Circle, which saw net purchases of $121.73 million and $94.28 million, respectively.

The appeal is partly structural. The ETF triples the daily returns of the MSCI Korea 25/50 Index of large- and mid-cap Kospi stocks.

With such products not permitted in Korea, retail investors are turning overseas for higher-risk, higher-return exposure.

Meanwhile, the iShares MSCI South Korea ETF ranked 11th, drawing net inflows of $63.33 million over the same period.

“A growing number of retail investors are turning to overseas investments to take advantage of the strong dollar and leveraged products, even when investing in Korea-related assets,” an official from a local brokerage firm said.

silverstar@heraldcorp.com