Year-to-date performance for ETFs listed in South Korea reveals a stark contrast in returns, with investors betting on artificial intelligence and semiconductors reaping significant gains while those wagering on market declines through inverse ETFs faced substantial losses. However, over the past month, profit-taking and sector rotation in AI and semiconductor stocks have created a divergence between short-term yields and cumulative returns since the start of the year.
According to data released by the Korea Exchange on the 6th, analyzing the returns of 1,040 ETFs listed in South Korea from the beginning of the year to the previous trading day, the top-performing products were overwhelmingly dominated by AI, semiconductor, and IT-related ETFs. The highest return was recorded by the TIGER 200IT Leveraged ETF, which surged 235.46% since the start of the year. Following closely were the HANARO Fn K-Semiconductor (158.89%), RISE Network Infrastructure (146.45%), TIGER US Philadelphia Semiconductor Leveraged (Synthetic) (139.54%), and KODEX 200IT TR (137.60%). A significant portion of the top 20 ETFs were composed of semiconductor, IT, and AI-focused products.
Market analysts attribute this performance to the combined effect of expanding AI investments and a recovery outlook for South Korea's semiconductor industry since early this year, which has driven substantial gains in these ETFs. Nevertheless, recent increased volatility in some tech stocks and sector rotation have led to a discrepancy between short-term performance and cumulative year-to-date returns.
In stark contrast, the worst-performing products this year were all inverse ETFs betting on market declines. The bottom of the return list was occupied by the KIWOOM200 Futures 2x Inverse ETF, which plummeted 86.06%. Other inverse ETFs, such as the PLUS200 Futures 2x Inverse ETF (-85.94%), KODEX200 Futures 2x Inverse ETF (-85.85%), TIGER200 Futures 2x Inverse ETF (-85.56%), and RISE200 Futures 2x Inverse ETF (-85.32%), also suffered losses exceeding 80%, firmly securing the lower end of the rankings. Standard single-leveraged inverse ETFs also incurred losses, with the TIGER Inverse ETF (-56.62%), KODEX Inverse ETF (-55.84%), ACE Inverse ETF (-55.27%), and HANARO200 Futures Inverse ETF (-55.11%) all declining by over 50%.
This outcome is driven by the sustained strength of the broader Korean market since the start of the year, which has steadily widened losses for inverse ETFs shorting the market. The structural nature of inverse ETFs means that when the underlying index rises, the product's net asset value declines. Leveraged inverse ETFs, which track double the inverse performance, also suffer from compounding decay, amplifying losses the longer a bull market persists. However, a recent sharp increase in market volatility has led to a partial recovery in short-term returns for some inverse ETFs.
Analysts note that the structural characteristics of leveraged and inverse ETFs have also influenced first-half performance across various ETF categories. To maintain their target leverage ratios, these products undergo daily rebalancing. The larger the fund's assets under management, the greater the trading volume associated with this daily rebalancing. During periods of intense market volatility, such rebalancing trades can potentially exacerbate market swings.
A senior researcher at the Capital Market Research Institute analyzed in a report that leveraged and inverse ETFs execute daily rebalancing operations to maintain their target risk exposure. The larger the market fluctuations, the more these rebalancing positions expand. Particularly when AUM is high, rebalancing trade volumes increase with equivalent index movements, potentially amplifying market volatility. He added that from a product structure perspective, the daily rebalancing trades of leveraged and inverse ETFs have a volatility-amplifying effect, and this influence grows stronger as stock prices rise and fund net assets expand, urging investors to manage risk.
Market analysts from the Yeouido financial district in Seoul suggest that the two key determinants of ETF investment success this year have been AI and market direction. While the upward momentum in AI and semiconductor stocks has recently slowed, triggering sector rotation, AI-themed ETFs still hold a significant advantage based on cumulative year-to-date returns. The prevailing view among South Korean brokerages is that the AI investment boom is far from over.
Recent earnings reports from major global tech companies have reaffirmed continued industry investment in AI infrastructure, with global capital persistently flowing into semiconductor, AI, and tech stock ETFs. Given the rising volatility in the semiconductor sector, industry experts advise expanding investment horizons to encompass the entire AI value chain, including software, cybersecurity, and power infrastructure. An analyst at Hanwha Securities stated that the AI investment theme is gradually extending from semiconductors to software. The market has now entered a phase of verifying whether AI investments will translate into tangible corporate earnings, with the growth potential of cloud computing and software companies becoming a core variable.