Energy-linked ETFs perform strong in Korea on rising oil prices

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South Korea’s exchange-traded fund (ETF) market has witnessed significant gains in products investing in energy-related assets such as oil futures and nuclear power in the third quarter as energy prices surge globally.

According to the Korea Exchange on Sunday, only seven out of the listed ETFs posted returns exceeding 20 percent as of the third quarter. Among them, only two ETFs achieved returns of over 30 percent, both of which were energy-related ETFs.

Currently, there are 770 ETFs listed in Korea, with a total net asset value reaching 109 trillion won ($816 million) as of September 21.

The price of West Texas Intermediate (WTI) crude oil, which fluctuated around $70 per barrel in June, recently surpassed $90 per barrel, with forecasts suggesting it may soon breach the $100 mark.

Correspondingly, the KODEX WTI Crude Oil Futures (H) ETF soared 33.2 percent in the third quarter.

The KBSTAR Global Nuclear Power iSelect ETF also gained 30.7 percent. The ETF holds a significant stake in Canadian uranium mining company Cameco, along with Korean companies such as Doosan Enerbility and HD Hyundai Electric.

Investment in funds targeting the Vietnamese market has also gained momentum in the third quarter.

The ACE Vietnam VN30 Futures Bloomberg Leverage (H) ETF, which delivers twice the performance of the VN index, achieved returns of over 20 percent during the quarter.

According to fund information provider FnGuide, the three-month average return for Vietnamese funds stood at 11.4 percent.

This figure significantly outperforms the returns of funds investing in major economies such as Europe (2.2 percent), North America (2.7 percent), and Japan (2.4 percent) during the same period.

While global fund assets under management decreased by over 220 billion won during the past three months, assets invested in Vietnamese funds increased by more than 20 billion won.

The surge in the Vietnamese market can be attributed to its robust economic growth, despite the global economic slowdown caused by the pandemic.

While many countries have struggled to recover from sluggish economic growth following the pandemic, Vietnam achieved a remarkable 8 percent economic growth rate last year.

Furthermore, with efforts to bolster its manufacturing sector, Vietnam is gaining recognition as a global factory alternative to China along with India.

In contrast, funds investing in the Chinese market have struggled to rebound as China grapples with prolonged economic downturns.

China-related ETFs ranked among the lowest performers in the third quarter, leading to increasing losses for individual investors.

The TIGER China Electric Vehicle Leverage (Synthetic) ETF, which tracks Chinese electric vehicle-related stocks to deliver twice their performance, fell by nearly 30 percent in the third quarter alone.

Individual investors showed active interest in secondary battery-related stocks, with significant investments in the TIGER Secondary Battery Materials Fn ETF, totaling 640.9 billion won.

Over the same period, more funds were allocated to leading companies like SK innovation (587.6 billion won) and Kia (287 billion won) than to premium stocks. However, this ETF experienced an estimated 13 percent decline during the period, resulting in substantial losses for investors.

Investors also displayed a trend of acquiring products related to long-term bonds in the United States and certificates of deposit (CDs) offering stable capital preservation options.

Individual investors purchased more than 130 billion won worth of the KODEX CD Interest Rate Active (Synthetic) ETF in the third quarter. The influx of funds into short-term parking products is attributed to investors seeking to park their excess funds amidst volatile market conditions.