"Up 10% in a Month" — Fast-Moving Retail Investors Found an Edge as Dollar-Won Fell: ETF Zoom In

Dollar-Won Falls Back Into the 1,300s, Changing the ETF Playbook

Currency-Hedged ETFs Hold Up Better Than Unhedged Peers

ETFs Betting on a Drop in Dollar-Won Also Benefit

South Korea’s ETF market made history in the first half of this year, opening the era of 500 trillion won ($360 billion) in net assets. Leveraged ETFs linked to Samsung Electronics Co. and SK Hynix Inc., listed at the end of May, drew attention beyond South Korea and across global equity markets. ETFs, once seen as a supplementary investment tool, have now established themselves as core investment products. In ETF Zoom In, we take a closer look at the increasingly complex ETF market. [Editor’s note]

As the dollar-won exchange rate has fallen back into the 1,300 won range, the math for ETF investors has changed. Currency-hedged ETFs have held up better than unhedged products in terms of returns, while ETFs designed to profit from a decline in the dollar against the won have also benefited. By contrast, ETFs positioned for a rise in dollar-won have posted losses.

According to the Seoul foreign-exchange market, the won closed the previous session at 1,345.9 per dollar in daytime trading, up 6.7 won from the prior trading day. That still marked a sharp decline from early July, when the exchange rate had surged into the 1,550 won range. On September 7, it fell as low as 1,334.7 during intraday trading, entering the 1,330 won range for the first time in about two years.

Against that backdrop, currency-hedged ETFs outperformed unhedged peers. These products are designed to minimize the impact of exchange-rate swings. Data from Koscom ETF Check showed that, as of the previous day, the average one-month return for South Korea-listed S&P 500 ETFs with both hedged and unhedged versions from Mirae Asset, Samsung, Kiwoom, Hanwha and KB was minus 1.92% for the hedged products. The average return for unhedged ETFs over the same period was minus 6.46%.

By product, Mirae Asset Global Investments Co.'s TIGER U.S. S&P500(H) returned minus 1.81% over the past month, versus minus 6.52% for TIGER U.S. S&P500, a gap of 4.71 percentage points. Samsung Asset Management Co.'s KODEX U.S. S&P500(H) returned minus 1.73%, compared with minus 6.51% for KODEX U.S. S&P500, a difference of 4.78 percentage points. Kiwoom Investment Asset Management Co.'s KIWOOM U.S. S&P500(H) returned minus 2.15%, versus minus 6.37% for KIWOOM U.S. S&P500, a gap of 4.22 percentage points. Hanwha Asset Management Co.'s PLUS U.S. S&P500(H) returned minus 2.24%, compared with minus 6.44% for PLUS U.S. S&P500, a difference of 4.20 percentage points. KB Asset Management Co.'s RISE U.S. S&P500(H) returned minus 1.68%, versus minus 6.47% for RISE U.S. S&P500, a gap of 4.79 percentage points.

The same pattern appeared in ETFs tracking the Nasdaq-100. As of the previous day, the average one-month return for South Korea-listed currency-hedged Nasdaq-100 ETFs from Mirae Asset and Samsung, both of which offer hedged and unhedged versions, was minus 1.62%. The average return for unhedged products over the same period was minus 6.37%.

By product, TIGER U.S. Nasdaq100(H) returned minus 1.67% over the past month, versus minus 6.36% for TIGER U.S. Nasdaq100, a gap of 4.69 percentage points. KODEX U.S. Nasdaq100(H) returned minus 1.57%, compared with minus 6.39% for KODEX U.S. Nasdaq100, a difference of 4.82 percentage points.

ETFs that bet on a drop in dollar-won also benefited. Over the past month, the average return for major U.S. dollar futures inverse ETFs was 5.33%. KODEX U.S. Dollar Futures Inverse returned 5.26%, KIWOOM U.S. Dollar Futures Inverse gained 5.45%, and RISE U.S. Dollar Futures Inverse rose 5.30%.

Double-inverse products posted even stronger returns. The average return for major U.S. dollar futures inverse 2X ETFs was 10.64%. TIGER U.S. Dollar Futures Inverse 2X returned 10.18%, KODEX U.S. Dollar Futures Inverse 2X gained 10.84%, and KIWOOM U.S. Dollar Futures Inverse 2X rose 10.91%.

By contrast, ETFs that bet on a rise in dollar-won posted losses. Over the past month, the average return for U.S. dollar futures ETFs was minus 4.73%. KODEX U.S. Dollar Futures returned minus 4.72%, while KIWOOM U.S. Dollar Futures lost 4.74%.

Leveraged ETFs posted steeper losses. The average return for major U.S. dollar futures leveraged ETFs was minus 9.53%. TIGER U.S. Dollar Futures Leverage lost 9.54%, KODEX U.S. Dollar Futures Leverage fell 9.51%, and KIWOOM U.S. Dollar Futures Leverage dropped 9.54%.

Lee Su, Hankyung.com reporter 2su@hankyung.com