Half of October's new ETFs focus on top-tier stocks, raising market concentration concerns

Amid an expanding gap in returns between large-cap and mid- to small-cap stocks in the recent stock market, themed products focusing on a small number of large-cap stocks are increasing even in exchange-traded funds (ETFs) that aim for diversified investment.

According to the financial investment industry and IBK Securities on the 7th, six out of 12 newly listed ETFs in October were 'theme-focused ETFs' that concentrate investments in some large-cap stocks according to specific themes.

Representative products include ▲TIGER Korea AI Power Equipment TOP3 Plus ▲RISE Global Game Tech TOP3 Plus ▲RISE U.S. High Dividend Dow Jones TOP10 ▲SOL U.S. Next Tech TOP10 Active ▲HANARO Securities High Dividend TOP3 Plus ▲KODEX K-Shipbuilding TOP10, among others.

These products, as indicated by their ETF names, are structured to focus investments on top-tier stocks such as 'TOP3' and 'TOP10' along with specific themes. For example, the 'TIGER Korea AI Power Equipment TOP3 Plus' ETF invests more than 70% of its total assets in three stocks: HD Hyundai Electric, Hyosung Heavy Industries, and LS ELECTRIC.

The 'HANARO Securities High Dividend TOP3 Plus' ETF also invests more than 60% in three stocks: Korea Financial Holdings, Mirae Asset Securities, and NH Investment & Securities, while the 'KODEX K-Shipbuilding TOP10' concentrates approximately 85% in four stocks including Hanwha Ocean and Samsung Heavy Industries, among others, following a similar structure.

This trend is due to the ability to simultaneously target investment returns and marketing effects in the recent large-cap-led bullish market. According to the Korea Exchange, the KOSPI large-cap index rose 74.5% from the beginning of this year until the 6th, recording a much higher increase compared to mid-cap stocks (40.2%) and small-cap stocks (16.7%).

However, concerns are also emerging that excessive concentration in specific stocks could increase risks. Kim In-sik, a researcher at IBK Securities, said, "As major asset managers have introduced structures focused on a small number of stocks, such as 'TOP3' and 'TOP10,' there is an aspect where the market's concentration on large-cap stocks has strengthened and short-term momentum (upward potential) has expanded."

He added, "The spread of compressed theme products inherently carries the risk of exposure to volatility and can lead to greater performance deviations depending on individual events of the constituent stocks."

New ETFs Concentrate on Large-Cap Stocks