Seoul, South Korea – South Korea's exchange-traded fund (ETF) market has experienced explosive growth, with its total assets under management surging to 177 trillion won ($130 billion), according to data from the Korea Exchange. This represents a threefold increase from 2020 when retail investors first flocked to the stock market.

While the expansion has provided investors with a wider array of investment options, concerns have emerged over excessive competition, including price wars and a lack of truly innovative products.

As of mid-April, there are 937 ETFs listed on the Korean exchange, with a combined asset value of 176.9 trillion won. This marks a 46.1% increase from the end of 2023. The number of listed ETFs has also jumped by 15.3% to 937 from 812 during the same period.

"Although the Korean ETF market is still relatively small compared to the global market, which is worth over 2 quadrillion won, its growth rate is among the fastest in the world," said an asset management industry official.

Shifting Landscape

Over the past two decades since the introduction of ETFs in 2002, the ETF market has undergone significant changes. Leveraged ETFs, which invest more than 10% of their assets in derivatives, and active ETFs, which aim to outperform benchmark indices like the KOSPI and S&P 500, have become increasingly popular.

In particular, ETFs investing in overseas assets have seen remarkable growth. While the total assets under management of ETFs investing in domestic assets increased 2.9 times from 37.6 trillion won in 2018 to 106.7 trillion won by the end of last year, those of overseas ETFs surged 24.3 times from 2.7 trillion won to 64.8 trillion won over the same period. This surge was largely driven by the robust performance of the U.S. stock market in 2023 and 2024, in contrast to the sluggish domestic market.

Intense Competition

The competitive landscape among asset management firms has also evolved. Samsung Asset Management, which launched the first ETF in Korea and has long held the largest market share, saw its market share decline to 38.17% at the end of last year, narrowing the gap with its closest competitor, Mirae Asset Global Investments, which had a 36.09% share. KB Asset Management and Korea Investment & Securities are also vying for the third spot.

This intense competition has led to a decline in management fees. A study by researchers at the Capital Market Research Institute found that the average asset-weighted management fee for the entire market had fallen from 31.6 basis points (1 basis point = 0.01%) in 2011 to 16.3 basis points in June 2023.

Lack of Innovation

Despite the impressive growth, some critics argue that the market lacks innovation. As competition intensifies, asset managers have been launching "me-too" products, replicating ETFs that have gained traction in the market, such as those tracking batteries, semiconductors, and artificial intelligence.

Moreover, the introduction of physical bitcoin ETFs, which have become popular in the U.S., remains a distant prospect in South Korea. While bitcoin ETFs listed on the New York Stock Exchange have grown to rival gold ETFs within a year of their launch, South Korean regulators have adopted a cautious stance. 1    

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