The underperformance by Korean equities means that they now trade for around eight times projected 2014 profits, according to Cunningham. “That’s below the 20-year average multiple of 9.4, and well below the current multiple of the S&P 500 [roughly around 15],” he says.
But if the economic upturn anticipated this year for South Korea by the IMF comes to fruition, it could provide a boost to Korea-focused funds.
Other Choices
Along with the funds from Horizons and iShares, investors interested in South Korea can also choose from a few other ETFs, including:
• The First Trust South Korea AlphaDEX (FKO), which offers a continually re-balanced portfolio that’s re-weighted according to a set of value and growth factors. This ETF carries a fairly stiff 0.80 percent expense ratio, and has lost roughly 15 percent of its value since its April 2011 launch (while the Kospi has lost 10 percent of its value during that time).
• The WisdomTree Korea Hedged Equity (DXKW), which aims to remove currency impacts from performance. It has shed six percent of its value since its November 2013 launch, though it carries a more reasonable 0.58 percent expense ratio. The fund has a more concentrated portfolio of 51 holdings that’s squarely focused on the chaebols: Various divisions of Hyundai and Samsung account for more than 30 percent of the fund; with other exporters accounting for a large part of the rest of the portfolio.
The recently-launched Horizons Kospi 200 ETF appears to offer the best of all worlds with its low expense ratio, broader exposure to South Korea’s small- and mid-caps, and a fund sponsor with deep roots in the country and the region.
As with any new fund, it will take some time for this ETF to gain traction. It has traded more than 10,000 shares in only one trading session thus far (whereas the EWY typically trades more than one million shares daily). But with clear merits in place, look for the Horizons fund to better resonate with investors in the quarters ahead.