EWY: A Comprehensive Overview of the Largest South Korean ETF

The iShares MSCI South Korea ETF (EWY) is a $5B ETF that provides exposure to around 80 stocks in South Korea. It is backed by Blackrock and issued through their iShares brand. The ETF aims to replicate the performance of the MSCI South Korea Index, which tracks the performance of the largest and most liquid Korean stocks.

The iShares MSCI South Korea ETF (EWY), backed by Blackrock and issued under their iShares brand, is a $5B ETF that provides exposure to around 80 stocks in South Korea. Launched in 2025, EWY aims to replicate the performance of the MSCI South Korea Index, which tracks the largest and most liquid Korean stocks. With an expense ratio of 0.59% and an annual yield of 1.8%, EWY offers investors a cost-effective way to gain exposure to the South Korean equity market.

EWY primarily tracks the MSCI Korea 25/50 Index (MKTI), which is designed to mitigate the concentration risks associated with the chaebol structure prevalent in South Korea. The index imposes caps on group entity stocks, limiting individual weights to 25% and aggregate weights to 50%. This approach helps in reducing the risk of over-reliance on a few large conglomerates. However, EWY does not fully replicate MKTI, with approximately 80% of its holdings mirroring the index, while the remaining 20% can include other stocks, derivative products, and money market funds.

The portfolio of EWY is heavily weighted towards large-cap stocks, with Korean giants accounting for around 55% of the portfolio. The top 10 stocks alone account for over half the portfolio, with Samsung Electronics and SK Hynix contributing one-third of the total holdings. Despite this concentration, the portfolio includes hybrid stocks that offer both growth and value qualities, making up 54% of the total.

Investors should be aware of the risks associated with EWY. The ETF is vulnerable to currency risk due to its KRW-denominated holdings, which can erode net returns for US-based investors if the KRW depreciates. Additionally, EWY has been assigned a D- risk grade by Seeking Alpha's Quant rating system, indicating that it is prone to wide gyrations in performance [1].

EWY is not suitable for investors with a low-risk appetite. The ETF's high beta of 1.41x relative to the S&P 500 means it is sensitive to movements in the broader US market. Furthermore, South Korea's high household debt levels and potential hawkish interest rate policies pose additional risks.

Investors looking for alternative South Korean ETFs can consider the Franklin FTSE South Korea ETF (FLKR) and the Matthews Korea Active ETF (MKOR). FLKR offers a wider index coverage with a more compelling cost profile, while MKOR is an actively managed product with higher yields but lower liquidity [1].

In conclusion, EWY provides a liquid and cost-effective way to gain exposure to the South Korean equity market. However, investors should be aware of the risks associated with the ETF, including currency risk, high volatility, and sensitivity to broader market movements.

References:
[1] https://seekingalpha.com/article/4818627-ewy-taking-stock-of-largest-south-korean-etf