South Korea ETF price war intensifies
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South Korea’s KB Asset Management has slashed management fees on a trio of exchange traded funds to just 0.001 per cent, the lowest level in the domestic industry, in a bid to expand the firm’s market share against the country’s largest ETF issuers, Mirae Asset and Samsung Asset Management.
KB Asset on Monday drastically reduced total annual fees of its KBStar 200 ETF, KBStar 200 Total Return ETF and KBStar US Nasdaq 100 ETF to the near-zero 0.001% management fee per annum, according to a company announcement.
The two domestic benchmark Kospi index-linked portfolios previously had annual management fees of 0.021 per cent, while the KBStar US Nasdaq 100 ETF had a management charge of 0.039 per cent.
The fund house cut total annual charges, which also include “other fees”, for the KBStar 200 ETF and KBStar 200 Total Return ETF from 0.045 per cent to 0.017 per cent and 0.012 per cent respectively, and also marked down annual fees of its KBStar US Nasdaq 100 ETF from 0.07 per cent to 0.021 per cent.
Listed in November last year, the Nasdaq 100 product made headlines in the South Korean market for being the world’s lowest-cost product that tracks the index.
The low-cost launch triggered the country’s largest ETF player, Mirae Asset, to immediately match the reduced annual fee on its own Tiger Nasdaq 100 ETF to the exact level as offered by KB Asset. Korea Investment Management also followed suit later that month, bringing down the annual fee on its Kindex US Nasdaq 100 ETF from 0.09 per cent to 0.07 per cent.
The latest move by KB Asset to further reduce the ETF fees reflects its ambition to shake up Korea’s ETF space, which has long been dominated by two superpowers, Mirae Asset and Samsung AM.
With Won3.5tn ($3.13bn) in ETF assets under management, KB Asset is the third-largest ETF provider in the country, but it only had a 6.7 per cent market share.
That compares with almost 80 per cent held by the top two issuers in the Won52tn local ETF space. Such a market structure has grown increasingly top heavy over the past five years, with the dominant two managers increasing their domestic market share to a combined 77.3 per cent by the end of 2020, leaving the remaining domestic managers with only around 5 per cent of the market.
Kum Jeong-seop, KB Asset’s head of ETFs, told Korean publication DNews late last month that in order to “better land on [its] feet as a top ETF issuer” in Korea, the company had set its sights on doubling its total ETF assets this year.
Lee Hyun-seung, chief executive of KB Asset, said in January that with its ambition to make up ground on South Korean's largest ETF providers and become the market’s lowest-cost ETF issuer, it would reduce fees on ETFs tracking domestic indices to the “lowest level possible”.
Mr Lee also revealed plans to launch an active ETF, a strategy that only emerged in Korea last year, as well as “aggressive rollouts” of bond ETFs and the introduction of thematic portfolios linked to environmental, social, and governance principles.
Mirae Asset told Ignites Asia that it had yet to decide how it would respond to KB Asset’s latest fee cuts, but added that “every option is open to be discussed”.
“One thing we are sure of is that we have proceeded [with] multiple fee reductions for index ETFs so far in order to provide long-term profit enhancement and rational, effective investment tools to common investors. We plan to put best efforts to directly make investors better off through maintaining the lowest-fee policy of Tiger ETF from a globally investing point of view,” a Seoul-based spokesperson for Mirae Asset Global Investments told Ignites Asia.
Tiger ETF is Mirae Asset’s trademark for a locally managed suite of ETFs.
The South Korean manager added that it aimed to make ETFs “more reasonable to invest in and possible to be utilised into pension and retirement funds as long-term portfolios for the investors”.
The two other Nasdaq 100 Index ETFs available in Korea from Mirae Asset and KIM currently still charge a 0.07 per cent annual fee.
There are eight other onshore ETFs in Korea tracking the same Kospi 200 Index as KB Asset’s portfolios, levying as much as 0.09 per cent in fees per year.
“Many of the onshore market’s ETF products are quite homogenous in strategy. This is when a lower fee can really make a difference. Especially when the target audience is investors who stay long term, lower cost can bring considerable advantages,” KB Asset’s Mr Lee told local media.
*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.
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