Korean exchange-traded funds focusing on value stocks and ESG themes are holding combined positions in SK Hynix and SK Square exceeding 40% of portfolio weight, according to data from KOSCOM ETF Check. Asset managers are using SK Square—SK Hynix's parent company holding a 20% stake—to circumvent regulatory caps, as SK Square's classification as an IT/software stock allows it to bypass the 30% single-stock concentration limit applied to semiconductor holdings under Korean capital markets law. The practice has created what industry observers call 'Nicksquare' (SK Hynix + SK Square) portfolios, with some funds allocating nearly half their assets to the two stocks despite mandates emphasizing diversification.
KODEX AI Semiconductor TOP2 Plus Records 50.4% Combined Holdings
KODEX AI Semiconductor TOP2 Plus holds the highest concentration among domestic ETFs, with SK Hynix at 25.9% and SK Square at 24.5%, totaling 50.4% of portfolio weight. The fund recorded a 160% return year-to-date with ₩1.84 trillion in net inflows. HANARO Fn K-Semiconductor follows with 49.3% combined holdings, achieving a 212.0% return and ₩1.40 trillion in inflows. TIGER 200 IT holds 49% combined, while KODEX 200IT TR maintains 46%.
Funds marketed under ESG and value themes show similar concentration patterns. TIGER MSCI KOREA ESG Leaders holds 40.8% combined, RISE ESG Social Responsibility Investment holds 38.8%, and KODEX Value Stocks holds 36.3%. PLUS KOSPI50 allocates 40.3% to the two stocks.
SK Square IT Classification Enables Regulatory Cap Circumvention
SK Square's classification as an IT/software company in index calculations allows asset managers to exceed concentration limits applied to semiconductor stocks. Korean capital markets law restricts single-stock holdings in ETFs to 30%. By holding SK Hynix at the regulatory maximum and adding SK Square—which exhibits high price correlation with SK Hynix—managers effectively double their exposure to SK Hynix's performance while remaining compliant with sector-specific caps.
The mechanism also stems from ESG and value indices' reliance on market capitalization weighting. When SK Hynix meets ESG or value screening criteria, its index weight automatically increases based on market cap, mechanically raising concentration regardless of diversification principles stated in fund mandates.
ESG and Value Funds Show Performance Divergence Despite Similar Holdings
Funds with comparable Nicksquare allocations showed divergent investor reception based on branding. Semiconductor-titled products attracted significant capital, while ESG and value funds remained overlooked. RISE ESG Social Responsibility Investment gained 121% year-to-date with ₩397.3 billion in inflows. TIGER MSCI KOREA ESG Leaders returned 95% but experienced ₩4.9 billion in outflows. KODEX Value Stocks posted 108% returns but maintains only ₩34.4 billion in assets under management.
A financial industry official stated, "If the semiconductor cycle reverses, even value and ESG funds face synchronized crash risk. Investors must verify actual holdings rather than relying on product names alone."
FAQ
What percentage of Korean ETF portfolios do SK Hynix and SK Square occupy?
KODEX AI Semiconductor TOP2 Plus holds 50.4% combined (SK Hynix 25.9%, SK Square 24.5%), the highest concentration among domestic ETFs. ESG and value funds including TIGER MSCI KOREA ESG Leaders (40.8%) and KODEX Value Stocks (36.3%) also maintain combined holdings between 36% and 41%.
Why do Korean ETFs use SK Square to increase semiconductor exposure?
SK Square's classification as an IT/software stock allows asset managers to bypass the 30% single-stock concentration cap applied to semiconductor holdings under Korean capital markets law. Managers hold SK Hynix at the regulatory maximum and add SK Square—which holds a 20% stake in SK Hynix and shows high price correlation—to effectively double exposure while remaining compliant with sector-specific limits.
