South Korea metaverse ETF performance slumps

South Korea has seen a host of metaverse-focused exchange traded funds launched over the past eight months, but while the hype for the metaverse helped create a successful start for the new funds, their performance has slumped.

The metaverse purports to be a new iteration of the internet, creating new virtual realities that may allow users to immerse themselves in a range of possible activities. New technologies and companies have emerged as the metaverse rose as an alternative to in-person work and social life last year when the Covid-19 pandemic kept many people cooped up in their homes.

Mark Zuckerberg, chief executive of Meta, gave a virtual presentation in October last year and changed the parent company’s name from Facebook, instantly sparking wider global interest in the virtual universe.

In South Korea, asset managers quickly moved to bet on the virtual universe, listing the four first metaverse ETFs in the country in October, and four more by December. The eight ETFs attracted Won1.5tn ($1.7bn) in combined assets in just two months, according to Korea Exchange data. Two more have been launched this year.

The top three locally listed metaverse ETFs, the Mirae Asset Tiger Fn Metaverse ETF, Samsung Kodex K-Metaverse Active ETF and KB KBstar iSelect Metaverse ETF, account for more than two-thirds of the collective assets of the 10 such strategies in South Korea.

But these largest three metaverse ETFs have slumped disastrously, posting median losses of around 29 per cent since their respective launches, according to data from the Korea Exchange.

Top holdings in most metaverse ETFs include Korea-headquartered tech, game, media and entertainment companies such as LG Innotek, an e-mobility solutions provider, Naver, a search giant, and Hybe, the entertainment agency behind K-pop sensation BTS.

Nathan Kim, head of ETF portfolio management at Mirae Asset Global Investments, said the weak performance of metaverse ETFs stemmed from damped investor appetite for growth stocks.

Imm Taihyuk, head of ETF management at Samsung Asset Management, also argued that the recent decline in metaverse ETFs did not stem from any kind of “flaw” in the concept or development of the metaverse industry itself but was only due to macro factors.

“The metaverse industry will continue to make progress and move forward,” Imm said.

“I don’t think there are that many countries where thematic ETFs are as popular as South Korea,” he added.

Macroeconomic challenges that have affected metaverse ETFs are not unique to South Korea, as these strategies have experienced lacklustre performance in many other markets.

Rahul Sen Sharma, managing partner at New York-headquartered index provider Indxx, which launched its first suite of thematic indices in 2016, said similar patterns could be detected for many thematic ETFs.

“In the case of many early-stage themes, especially with more concentrated portfolios, we often see volatility during certain periods, especially in the short term,” he said.

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