Topic: ETFs

South Korean ETF taps into one of Asia's largest economies

Samsung Semiconductor, Inc., image

We think conservative investors could hold up to, say, 10% of their portfolios in foreign stocks. One way to do that is to buy carefully chosen exchange traded funds (ETFs) that have an overseas focus.

ISHARES MSCI SOUTH KOREA INDEX FUND (New York Exchange symbol EWY; buy or sell through brokers), is an exchange traded fund that aims to track the MSCI Korea Index.

The ETF’s top holdings are Samsung Electronics, 20.9%; Hyundai Motor Co., 6.5%; Posco (steel), 4.2%; Kia Motors, 3.5%; Hyundai Mobis (auto parts), 3.4%; Shinhan Financial, 2.9%; KB Financial, 2.4%; LG Chemical, 2.3%; Hynix Semiconductor, 2.3%; and Hyundai Heavy Industries, 1.9%.

The fund’s industry breakdown is as follows: Information Technology, 30.7%; Consumer Discretionary, 18.9%; Industrials, 13.9%; Financials, 13.6%; Materials, 11.5%; Consumer Staples, 5.6%; Energy, 2.7%; Utilities, 1.4%; Health Care, 0.8%; and Telecommunication Services, 0.7%.

iShares MSCI South Korea Index Fund was launched on May 9, 2000. The ETF has an expense ratio of 0.59%.

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Exchange traded funds: North Korea has new leader, ongoing nuclear threat

South Korea has Asia’s fourth-largest economy. The country is heavily reliant on exports, and China is now its biggest market.

The death of North Korean leader Kim Jong-il in December 2011 put his son, Kim Jong-un, in charge of South Korea’s communist neighbour. North Korea’s nuclear weapons remain a threat, but the country needs the continued goodwill of China for food and military aid.

As well, the generals controlling the powerful military are unlikely to risk their favoured status in the nation of 23 million people by launching any serious attack on the south.

In the latest issue of Canadian Wealth Advisor, we balance the prospects for a strong rebound in the South Korean economy against the slowdown in the country’s exports to China, Europe and the U.S.A. We conclude with our clear buy-hold-sell advice on this ETF.

(Note: If you are a current subscriber to Canadian Wealth Advisor, please click here to view Pat’s recommendation. Be sure to log in first.)

COMMENTS PLEASE—Share your investment knowledge and opinions with fellow members

One criticism of ETFs is that they make it all too easy to invest in risky areas that smart investors avoid. Do you think this applies in the case of ISHARES SOUTH KOREA FUND? Or do you think South Korea’s economic strength and growth prospects offset the North Korean military risk? Let us know what you think in the comments section below. Click here.


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