The exchange-traded fund (ETF) market has burgeoned in South Korea, attracting investors seeking its annual average yield rate topping 20 percent thanks to the booming local and global stock markets amid the economic recovery.

According to the Korea Exchange on Sunday, the market capitalization of ETFs listed on the Korean stock market totaled 30.4 trillion won ($27 billion) as of October 13, 2017, making a whopping 89-fold jump from 15 years ago when the country’s first ETF debuted on local stock market. The ETF market has also expanded by nearly 16 percent on average every year over the past five years.

Thanks to the recent frenzy, Korea’s ETF market has grown to the world’s ninth largest and Asia’s biggest based on the number of listed ETFs.

ETF is a type of fund that tracks an index like Kospi, a commodity, bonds, or a basket of assets like an index fund. It is traded like a common stock on a stock exchange and generates yields based on the performance of its underlying asset. While other types of index funds seek yields by outperforming corresponding index, the ETF matches a particular market index.

Its popularity is growing because it is less expensive to trade than other mutual funds while offering generous yields. At offshore markets, investors who seek to cut trading costs are also raising investment in ETFs, said Moon Kyung-sik, executive vice president of Samsung Asset Management.

The surge in ETF comes at a time when the local stock market is renewing record highs in recent sessions despite lingering concerns over the geopolitical risk on the Korean peninsula amid exchanges of war words between North Korea and the U.S. The main index hit a fresh intraday high of 2,481.95 in morning trade on Monday after breaching the record for three consecutive sessions since October 11. Its bull run also coincides with strong performance of its global peers amid the economic recovery.

Kospi closed Monday at 2,480.05, up 6.43 points or 0.26 percent from the previous session.

By Kim Hyo-hye

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]