Korean ETP market doubles amid increasing distrust of fund managers

South Korea’s exchange-traded product (ETP) market has doubled in four years as more investors preferred their own trades to discretionary investments made by fund managers.

The assets of ETPs – types of securities that track underlying securities, an index of other financial instruments – totaled 100.1 trillion won ($77 billion) as of the end of February, according to the local financial investment industry on Sunday. The market topped 50 trillion won in 2019.

ETPs, which trade on exchanges similar to stocks, are benchmarked to a myriad of investments, including commodities, currencies, stocks and bonds. ETPs for bonds in South Korea became more popular this year given the sluggish stock markets, industry sources said.

DOUBTS OVER FUND MANAGERS

ETPs are classified as exchange-traded funds (ETFs) and exchange-traded notes (ETNs) depending on the issuers. ETFs contain a basket of investments that can include stocks and bonds.

An ETF usually tracks an underlying index such as the Kospi but can follow an industry, sector, commodity or even currency. ETNs, like ETFs, also track an underlying index of securities and trade on major exchanges. However, ETNs are baskets of unsecured debt securities.

Assets of ETPs in South Korea have increased by some 11.1 trillion won so far this year. The net assets of ETFs grew to 90 trillion won last month from 344.4 billion won in 2002 when they were introduced. The assets of ETNs, which were launched in 2014, exceeded 10 trillion won in January.

That came as more growing preference for direct investments amid increasing doubts over active funds operated by fund managers. The number of local stock investors more than doubled to 14.4 million last year from 6.2 million in 2019.

Write to Eui-Myung Park and Sang Hoon Sung at uimyung@hankyung.com
 
Jongwoo Cheon edited this article.