An exchange-traded fund (ETF) tracking Korean government bonds, launched on expectations of global bond index inclusion, is set to be delisted. Despite the structural tailwind of inclusion in the FTSE World Government Bond Index (WGBI), delayed fund inflows and shifting market conditions have made the product's survival untenable, analysts say.
According to the Korea Exchange on Thursday, Korea Investment Management's "ACE FTSE WGBI ETF," listed last year, will be delisted on the 21st. The product tracks the FTSE Korean Government Bond Index, investing in Korean treasury bonds included in the WGBI sub-index on a market-capitalization weighted basis. It incorporates treasury bonds with remaining maturities of more than one year and issuance sizes of at least 1 trillion won ($720 million), and was the first ETF to track the index, designed to directly reflect the benefits of WGBI inclusion.
Contrary to expectations, however, fund inflows were delayed. The WGBI inclusion schedule, originally expected in November last year, was pushed back to April this year, delaying the timing of foreign passive fund inflows that were the core investment thesis. Compounding this, expanded volatility in the won-dollar exchange rate and a strengthening preference for equities over bonds in global asset allocation increased outflow pressure across bond ETFs.
The product structure also posed limitations. As a passive ETF, strategic responses beyond index-aligned treasury bond holdings were restricted, making it difficult to maintain investment appeal in an environment of rising interest rate and exchange rate volatility, analysts said.
Ultimately, more than a year after launch, the net asset value remained below 5 billion won ($3.6 million) for over a month, triggering grounds for trust termination under the Capital Markets Act and initiating delisting procedures. "The index inclusion itself was achieved, but passive fund inflows did not gain full momentum, and persistent skepticism in the market led to continued outflows," a Korea Investment Management official said. "We decided on the delisting after comprehensively considering these circumstances."
Some analysts also note that the WGBI inclusion effect has been less pronounced than expected. "Foreign fund inflows into treasury bonds are being observed following WGBI inclusion, but it is difficult to isolate the scale of pure WGBI-tracking funds," said Kim Sung-soo, an analyst at Hanwha Investment & Securities. "Despite buying concentrated around month-end and month-start, interest rates have not declined notably, indicating the market impact has been limited."
