Under The Hood: The "Other" South Korea ETF

Back in April, First Trust, the fastest-growing of the top-10 U.S. ETF sponsors rolled out 13 new ETFs, including nine additions to the firm's AlphaDEX series. Some of those funds, such as the First Trust Brazil AlphaDEX Fund FBZ and the First Trust China AlphaDEX Fund FCA, looked to be obvious shots across the bow toward existing ETFs from other issuers. Add to that list the First Trust South Korea AlphaDEX Fund FKO. FKO made its debut on April 18 becoming the third South Korea-specific ETF available to U.S. investors. The big kahuna, the iShares MSCI South Korea Index Fund EWY and the IQ South Korea Small-Cap ETF SKOR blazed the South Korea trail before FKO did. The more apt comparison for FKO is to EWY as FKO is more large-cap focused in its approach and as Benzinga previously noted, FKO was biting off a big challenge here. After all, EWY had the South Korea-specific ETF market to itself since May 2000, which has allowed the ETF to accumulate over $4 billion in assets under management. We're not going to malign FKO because the ETF has the potential to be a legitimate alternative to EWY down the road. Some of the new AlphaDEX emerging markets ETFs were looking like positive surprises against their more established rivals prior to the recent market meltdown. FBZ being a prime example. That said, FKO has attracted just $2.5 million in AUM to this point, and its expense ratio of 0.8% is far higher than the 0.61% offered by EWY. Beyond that, FKO is home to 50 stocks while EWY offers broader exposure to the South Korean growth story with 105 stocks. FKO does go about its business in far different fashion than EWY. For example, information technology stocks account for 12.6% of the new ETF's sector weight. That group accounts for over 24% of EWY's weight. Materials receive an allocation of over 24% in FKO, but that number drops to 15.4% in EWY. Consumer discretionary names make about 20% of FKO and just over 18% of EWY. FKO's big problem to this point has been performance as the ETF is down almost 22% since its debut while SKOR is flat and EWY is up 10% over the same time. EWY and SKOR have the looks of solid buy-on-the-dip candidates because of South Korea's relative steadiness compared to other emerging markets. If the tide rises rapidly enough, perhaps FKO goes along for the ride, but at this point it's safe to say FKO still has a lot to prove.