KOSDAQ active exchange-traded funds (ETFs) that listed in succession this March have posted disappointing results over three months. As the KOSDAQ lost momentum after peaking in April, the funds recorded double-digit declines one after another.
According to the financial investment industry Monday, four of the five KOSDAQ active ETFs have posted negative returns since their listing this year. The "KoAct KOSDAQ Active" and "TIME KOSDAQ Active," which listed simultaneously on March 10 amid expectations of a KOSDAQ boom, returned minus 12.48% and minus 13.74%, respectively. Samsung Active Asset Management and Timefolio Asset Management achieved considerable results with their U.S. NASDAQ active ETFs, but tasted bitter results with their KOSDAQ active ETFs, which underperformed even the KOSDAQ index. On a one-month basis, they posted minus 10.91% and minus 5.49%, respectively. Hanwha Asset Management's "PLUS KOSDAQ150 Active," launched March 17, also returned just minus 4.11% since its listing.
The string of losses for active ETFs is first attributable to KOSDAQ weakness. While the KOSPI surpassed the 8,000 mark on a rally in large-cap semiconductor stocks, nearly doubling from the end of last year, the KOSDAQ fell to 1,002.44 on Thursday after breaking through the 1,200 level at the end of April. Its gain this year stood at just 8.32%. As the KOSDAQ active fever subsided, the net assets (AUM) of KoAct and TIME shrank from 917 billion won and 493.8 billion won in April to 617.2 billion won and 376.4 billion won as of Thursday.
For KoAct and TIME KOSDAQ Active, an early heavy weighting in KOSDAQ leading stocks acted as a burden. In particular, TIME KOSDAQ Active had its top 10 holdings account for 47.06% on its listing day, with secondary batteries and biotech alone making up 36.45%. Neither secondary batteries nor biotech led the market, and since May the funds reorganized their portfolios around semiconductor materials, parts and equipment and robotics stocks. As of Thursday, among TIME's top 10 holdings, no company ranked within the KOSDAQ's top 10 by market capitalization except for Rainbow Robotics and Jusung Engineering. KoAct also held high weightings in stocks such as Sungho Electronics (7.5%), Tes (6.55%) and Leeno Industrial (5.27%).
Active ETFs seek higher returns than their benchmark index by adjusting holdings and weightings based on the judgment of fund managers. This contrasts with passive ETFs, which mechanically track an underlying index. In Timefolio's case, the firm rebalances its portfolio daily. For Hanwha's PLUS KOSDAQ150 Active, a bottom-up strategy of diversifying holdings into individual growth stocks at weightings in the 3-6% range, rather than directly following the KOSDAQ150's top market-cap stocks from the early stage of its listing, is interpreted as a factor that reduced losses relative to the index.
The market is watching whether the KOSDAQ can rebound when policy momentum gains full traction, including stricter delisting standards, the KOSDAQ promotion-relegation system, the cornerstone system and the National Growth Fund. This is because additional policy funds could affect supply and demand for KOSDAQ growth stocks. The KOSDAQ index itself must gain a certain degree of upward momentum for active ETFs, whose strength lies in fund managers' discretion, to expect excess returns. Yoon Jae-hong, a researcher at Mirae Asset Securities, explained, "A change in fund management evaluation criteria is expected to draw large-scale, long-term institutional capital inflows," adding, "Even an additional 5% inflow could create a supply-and-demand effect of more than 20 trillion won."
Some point out that over the medium to long term, corporate earnings must follow suit. According to FnGuide, the KOSPI's operating profit forecast for this year totals 913.4394 trillion won, projected to rise 197.8% from a year earlier. The KOSDAQ, by contrast, is expected to decline 6.3%, from 14.1222 trillion won to 13.2261 trillion won. An official in the financial investment industry said, "Policy and supply-demand factors could trigger a KOSDAQ rebound, but if earnings do not provide support, a recovery in the index as a whole is highly likely to be limited."
