When investing in exchange traded funds (ETFs), especially country-specific ETFs, it is important to know what is going on in that country. While iShares MSCI South Korea Fund (EWY) gives one of the lowest price-to-earnings growth ratios around, there are other things to take into consideration. Gary Gordon of ETFExpert also points out that with EWY, you are getting emerging-market type GDP from a technologically advanced and finely tuned "Asian Tiger". South Korea is considered a developed country by Dow Jones Indexes, but is still considered emerging on other indexes (it is on their watch list to be found fully emerged).
EWY’s top holding, Samsung now has a larger market cap than the giant opponent Sony. Investors should note EWY is a highly concentrated ETF, with 50% focused on the top 5 holdings. Around 25% of the ETF relies on the movement of Samsung. We should not forget about the ever-looming threat of Kim Jong’s missile tests and his middle-eastern-like tyranny regime.
If you want exposure to South Korea without the direct risk, there is iShares MSCI Emerging Market Fund (EEM). South Korean stocks make up 15% of the holdings and EEM helps dodge the single-country risk. EWY is up 51.4% year-to-date and EEM is up 46.0%.
For full disclosure, some of Tom Lydon’s clients own EEM.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.