South Korea ETFs remain little phased by US President Donald Trump’s strong words about the dictatorship north of the border and show healthy longer-term returns for investors.
Speaking at the United Nations General Assembly in New York, the US President labelled North Korean leader Kim Jong-un “rocket man” and warned of dire consequences if he continued to build up his nuclear capabilities.
Strong words do not shake ETFs
“The United States has great strength and patience, but if it is forced to defend itself or its allies, we will have no choice but to totally destroy North Korea,” he said.
“Rocket Man is on a suicide mission for himself and for his regime. The United States is ready, willing, and able, but hopefully this will not be necessary.”
ETFs tracking liberal-leaning South Korea, which is most immediately at risk from its neighbour’s aggression, were virtually unaffected on Tuesday after Trump’s speech. The Deutsche X-trackers MSCI South Korea Hedged Equity ETF (DBKO) was up 0.1%, while the iShares MSCI South Korea Capped ETF (EWY) rose less than 0.1%.
Longer-term performance has not been hurt either. DBKO, which has $30.3 million in assets, is up 23% in USD terms since 1 January. The $3.9 billion EWY, which launched in 2005, is up more than 31% year to date in USD terms, and is up 4.1% over the last month.
DBKO invests in 113 holdings, with 40.2% in information technology, 14.2% in financials and 11.5% in consumer discretionary exposures. It costs 0.58%. EWY costs 0.62% and has a similar underlying makeup.
Both funds represent a big bet on electronics company Samsung at more than 22% of the fund, with a massive jump down to the second largest holding, SK HYINX, the world’s second largest memory chip maker, at less than 5%.
The competing $5.4 million First Trust South Korea AlphaDEX Fund (FKO) launched in 2011 and costs 0.80%. It is up 25.7% year to date in USD terms and almost 3% in the last month. It is more concentrated at 51 holdings with around 54% in financials, industrial and consumer discretionary stocks. The top investments are not so concentrated, however. The number one spot goes to Hanwha Chemical Corp at 3.5%.
South Korea ETFs betting on diplomacy?
South Korean leader Moon Jae-in has welcomed US support but has so far resisted calls to bring back tactical weapons to the country in a bid for diplomacy over military might.
The US and South Korea have recently staged joint military exercises over the Korean Peninsula and near Japan, practising formation of fighter planes and dropping live weapons at targets in South Korea.
Jong-un says his sixth nuclear test earlier this month, as well as flying a missile over Japan, are retaliation to what he described as the US and Japan’s “rehearsal for invasion”.
For cautious investors, the iShares Asia 50 ETF (AIA) invests in six countries, including 24.6% in South Korea. It is also cheaper at 0.50% fees and is up 33.4% year to date.
