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
While other ETFs track the South Korean stock market,
including iSharesMSCI South Korea Capped ETF (
),First Trust South Korea AlphaDEX Fund (
) andWisdomTree Korea Hedged Equity Fund (
), Horizons' new fund is the first to track the Korean blue chip
"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 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.
As the fourth-largest economy in Asia, South Korea will see a
bigger boost from a recovery in Western nations than the other
emerging markets. In January, the Bank of Korea predicted its
economy will grow 3.8% this year.
In addition, the decline in emerging markets has created an
attractive entry point into the South Korean market. Cunningham
says it was trading at 8.7 times earnings on Dec. 31,
significantly below its recent average of 9.4 times and its
20-year average of 11 times.
As of January, 10-year-old Horizons ETFs Group had $8.8
billion in assets under management in 140 ETFs listed worldwide.
The company is a unit of Korea-based Mirae Asset Global