Retail investor-tracking ETFs underperformed major benchmark ETFs year-to-date, according to the Korean financial investment industry on May 27. RISE 동학개미, which tracks Korean retail investor buying patterns, rose approximately 13% year-to-date compared to RISE KOSPI's approximately 58% gain during the same period. KODEX 미국서학개미, which follows Korean retail investor holdings in US stocks, declined 2.7% year-to-date while KODEX 미국S&P500 rose 11.2%. The underperformance stems from concentrated positions in technology stocks that experienced sharp declines during recent market corrections. Retail investors' tendency to concentrate investments in preferred momentum stocks delivered outperformance during rising markets but reversed into losses when those concentrated holdings declined together.
RISE 동학개미 and KODEX 미국서학개미 Trail Benchmark ETFs Year-to-Date
RISE 동학개미, which invests in Korean stocks, rose approximately 13% year-to-date. During the same period, RISE KOSPI rose approximately 58%. The two ETFs showed similar performance trends early in the year, but the gap widened from May.
KODEX 미국서학개미, which invests in US stocks, declined 2.7% year-to-date. During the same period, KODEX 미국S&P500 rose 11.2%. Excluding April-May, KODEX 미국서학개미's performance trailed the S&P 500 throughout the year.
Portfolio Construction Tracks Retail Investor Buying Patterns and Holdings
RISE 동학개미 tracks retail investor trading trends when selecting holdings, while KODEX 미국서학개미 tracks retail investor investment amounts. RISE 동학개미's portfolio changes monthly to stocks (20 or fewer) with large retail net buying and strong upward momentum. This reflects retail investors' short-term investment tendency to chase trending stocks. The most recent rebalancing allocated high weightings to Samsung Electronics, SK Hynix, SK Square, and LS Electric.
KODEX 미국서학개미 comprises 25 individual US stocks with the largest custody amounts at Korea Securities Depository, based on Korean retail investor holdings. Larger investment amounts result in larger weightings. Nvidia and Tesla hold dominant influence, with the Magnificent 7, SpaceX, Micron, and SanDisk among key constituents.
Tech Stock Declines on May 23-24 Drive ETF Losses
The poor performance of both ETFs resulted from declining trends across their holdings.
On May 24, RISE 동학개미 plunged 8% as all 13 holdings declined. Samsung Electronics and SK Hynix both fell approximately 8%. Momentum stocks that delivered outperformance during rising markets recorded larger declines during the recent KOSPI correction, pulling down ETF returns.
Tesla and Nvidia, the top two holdings in KODEX 미국서학개미, faced unfavorable conditions. On May 23 (local time), Tesla plunged 14% following weak earnings results. Nvidia showed sideways movement throughout the year. Retail investor-preferred US stocks broadly underperformed recently.
Concentration Risk Produces Larger Drawdowns Than Diversified Benchmarks
The poor returns of retail investor-tracking ETFs expose vulnerabilities in investment strategies concentrated in specific sectors and styles. Retail investors often hold multiple stocks with high correlations, failing to achieve diversification benefits. Concentrated portfolios can lead to substantial losses when trends reverse. RISE 동학개미's drawdown from its previous peak reached approximately 38%, exceeding RISE KOSPI's 28%. KODEX 미국서학개미's drawdown from its previous peak reached 19%, exceeding KODEX 미국S&P500's 6%.
Lee Chun-kwang, CEO of Legnum Investment Advisory, stated that retail investors' concentration in technology stocks is excessive. He emphasized the need for diversification within artificial intelligence into areas such as power and optical communications, and for mixing alternative assets at the asset class level.
FAQ
Q: How did RISE 동학개미 perform compared to RISE KOSPI year-to-date?
A: RISE 동학개미 rose approximately 13% year-to-date, while RISE KOSPI rose approximately 58% during the same period. The performance gap widened from May.
Q: What caused the 8% decline in RISE 동학개미 on May 24?
A: All 13 holdings in RISE 동학개미 declined on May 24, with Samsung Electronics and SK Hynix both falling approximately 8%. Momentum stocks that outperformed during rising markets recorded larger declines during the recent KOSPI correction.
Q: Why did KODEX 미국서학개미 underperform KODEX 미국S&P500 year-to-date?
A: KODEX 미국서학개미 declined 2.7% year-to-date while KODEX 미국S&P500 rose 11.2%. The underperformance resulted from concentrated holdings in stocks like Tesla, which plunged 14% on May 23 (local time) after weak earnings, and Nvidia, which showed sideways movement throughout the year.
