Korean corporate group EFTs delivered different returns

Group equity funds, a type of exchange-traded fund (ETF) that invests in key subsidiaries within a corporate group, have displayed varied performance outcomes.

The group EFT for Samsung Group has experienced a recent slowdown in its returns. On the other hand, the funds for Hyundai Motors Group and SK Group have delivered impressive higher returns since the beginning of this year.

According to financial data tracker FnGuide Inc. on Tuesday, the average return on group ETFs, not including Samsung, has reached 22.3 percent year to date. However, the return on the ETF for Samsung Group has remained at 8.6 percent over the same period.

Non-Samsung group stocks have witnessed a more pronounced increase in ETFs compared with Samsung. The ETFs set up as Samsung group equity funds have grown by 68.3 billion won ($52.6 million), whereas non-Samsung group ETFs have experienced a larger surge of 91.7 billion won. Samsung group funds have seen a decline of over 140 billion won on a year-to-date basis.

The trend was attributed to weak earnings reported by Samsung Electronics Co., a significant component of the Samsung Group equity fund, during the second quarter, following a similarly challenging first quarter. The tech giant‘s operating profit reached 600 billion won in the second quarter, the lowest level in 14 years since 2009.

On the other hand, other group ETFs, like Hyundai Motor Group, have demonstrated strong performance due to the support provided by their core subsidiaries. One example is the TIGER Hyundai Motor Group + Fundamental ETF, which has delivered an impressive return of nearly 25 percent year-to-date. It represents the highest return among all group stock ETFs listed in South Korea. Hyundai Motor Co., the largest holding in the ETF, has experienced a growth of over 30 percent this year.

Following a record-breaking operating profit of 3.59 trillion won in the first quarter, Hyundai Motor is expected to continue its success with another record operating profit of 3.67 trillion won in the second quarter. Kia Corp, the second-largest holding in the ETF, also reported its largest quarterly profit in the first quarter.

Market experts at Yuanta Securities Korea Co. said that Hyundai’s price-to-earnings (P/E) ratio, based on projected 2024 net income, stood at a mere four times. The market generally considers stocks with a P/E ratio of 10 times or less to be undervalued. “The current valuation of Hyundai Motor is undervalued, citing the company‘s expected strong performance driven by increasing sales volumes,” said Lee Hyun-soo, an analyst at the local brokerage firm. “Lower raw material costs and higher sales volumes will offset profit declines resulting from higher incentives.”

The KOSEF SK Group Leaders ETF, which provides diversified exposure to SK Group stocks, has delivered a return of 14.4 percent year-to-date.

The ETF includes the stocks of SK hynix Inc., SK innovation Co, SK telecom Co. and SK magic Co. Among the country’s major 3 mobile carriers, SK telecom is expected to outperform in the second quarter. “SK telecom is projected to achieve an operating profit of 472.4 billion won in the second quarter, up 3 percent on year,” Lee Seung-woong, a researcher at eBest Investment & Securities Co.

ETFs that offer investments in conglomerate shares have achieved an average return of over 9 percent this year. “The group ETFs offer high investment stability and effective diversification across core sectors, as they consist of large stocks with a market cap worth 1 trillion won or more,” said Kim Do-hyung, a senior director at Samsung Asset Management Co.