[Getty Images Bank]
[Getty Images Bank]

Under the sweeping theme of AI, South Korea's ETF market is evolving toward ever-narrower portfolios concentrated in a handful of stocks. Products with as few as 10 holdings — where the top two names alone account for half the portfolio — are arriving in rapid succession. Investors should exercise caution, however, as the highly concentrated structure can amplify losses during downturns or corrections when individual stocks swing sharply.

Four AI and semiconductor-themed ETFs listed simultaneously Tuesday, according to the financial investment industry: Samsung Asset Management's KODEX US AI Memory TOP2 Plus, NH-Amundi Asset Management's HANARO US Agentic AI TOP2+, and Hanwha Asset Management's PLUS Korea HBM Semiconductor and PLUS AI Semiconductor Materials & Components Active.

What stands out is how these products are built. Three of the four allocate 50 percent of their portfolios to just two stocks. KODEX US AI Memory TOP2 Plus holds SanDisk and Micron at 25 percent each; HANARO US Agentic AI TOP2+ holds Microsoft and Alphabet at 25 percent each; and PLUS Korea HBM Semiconductor holds Samsung Electronics and SK hynix at 25 percent each.

All three fill the remaining 50 percent across eight stocks, keeping total holdings at no more than 10. ETF listing rules require a minimum of 10 holdings, and these products do just enough to meet that threshold — making them, in effect, vehicles for concentrated bets on a small number of names.

KODEX US AI Memory TOP2 Plus allocates the remaining 50 percent across eight major memory chip companies, including Western Digital and Seagate. HANARO US Agentic AI TOP2+ selects its remaining holdings from agentic AI-related companies divided into two categories — large language models and AI hardware and infrastructure — compressing the total portfolio to 10 stocks.

PLUS Korea HBM Semiconductor fills its remaining 50 percent with domestic equipment, materials, components and substrate companies involved in HBM and memory chip production, excluding Samsung Electronics and SK hynix, also capping the portfolio at 10 stocks.

The pattern is clear: under the broad AI umbrella, fund managers are slicing the theme into ever-finer sub-segments — memory, agentic AI, HBM, materials and components — and then concentrating further within each segment on the top names.

Concentrated ETFs have been consistently gaining ground. According to a research note on ETF strategy published by Mirae Asset Securities, the share of net assets held by "concentrated" Korean equity ETFs — those with between one and 20 holdings — nearly doubled from 20 percent in 2024 to 38 percent as of the end of August this year.

As ETF holdings in individual stocks have grown larger, ETF rebalancing has begun to drive short-term supply-demand dynamics and performance for those stocks. When SK Square was reclassified from "diversified industrials" to "semiconductors and related equipment" under FnGuide's sector taxonomy, it was added to 25 ETFs between June 12 and July 2, and the rebalancing process channeled 6.1 trillion won ($4.53 billion) in net ETF inflows into SK Square in roughly 20 days.

Over the same period, foreign investors net sold 5.9 trillion won of the stock, yet the share price still rose 24.2 percent. "ETF buying from the inclusion offset foreign selling during that period," said Yoon Jae-hong, a researcher at Mirae Asset Securities. "It is a case where short-term relative outperformance was observed during the ETF inclusion and rebalancing inflow process."

Some in the industry warn that the ultra-concentrated design is a double-edged sword. Riding the right stock within a targeted sector can generate returns well above the broader index, but a single piece of bad news hitting a top holding can send the entire ETF sharply lower.

KODEX AI Semiconductor TOP2 Plus posted a one-year return of 218.97 percent, but its three-month return has fallen to minus 23.94 percent as market volatility has increased. TIGER Semiconductor TOP10 similarly recorded a one-year gain of 165.25 percent, while its three-month return stood at minus 34.61 percent.

"Individual stock trading feels risky because of single-stock setbacks and volatility, but a plain vanilla ETF spread across dozens of names makes it hard to fully capture a rally in market leaders — this is where retail demand and asset managers' strategies have converged," said an official at one asset management firm. "That said, investors should be aware that in a volatile environment, the drawdown can be steeper than with an index fund."


jiyun@heraldcorp.com