Retail investors are buying into metaverse ETFs in South Korea

Metaverse exchange-traded funds are booming in South Korea as retail investors buy into funds focused on tech’s new frontier.

The metaverse refers broadly to a virtual world where humans interact through three-dimensional avatars. In the metaverse, users can engage in activities like gaming, concerts or live sports using virtual reality headsets like Oculus.

South Korea’s metaverse ETFs were the first to launch in Asia as the buzz around the next generation of the internet grew last year. ETFs are a basket of stocks or bonds that broadly track market indices, and offer investors more diversification.

South Korea’s first four metaverse ETFs launched in October and drew inflows of $100 million in just under two weeks, according to Rahul Sen Sharma, managing partner of index provider Indxx.

South Korea isn’t alone though. Metaverse ETFs have also been cropping up in the U.S. and analysts noted more will launch soon.

As of Jan. 19, there were eight metaverse ETFs listed in South Korea, drawing over $1 billion in inflows, according to data from Samsung Asset Management, which launched two of the ETFs.

Of that amount, over $800 million has gone into four ETFs focused on South Korean metaverse-related stocks, while more than $338 million has been funneled into more global metaverse ETFs, the data showed.

Some of the ETFs include Samsung Asset Management’s KODEX K-Metaverse Active, NH Amundi Asset Management’s Hanaro Fn K-Metaverse MZ, KB Asset Management’s KBSTAR iSelect Metaverse and Mirae Asset Global Investment’s Tiger Fn Metaverse.

Top holdings in the ETFs include tech companies and chipmakers as well as stocks associated with South Korea’s entertainment industry. Samsung’s metaverse ETF, for instance, includes shares of Hybe, which owns the music label for hugely popular K-pop group BTS, as well as video game makers such as Pearl Abyss.

Indxx’s Sharma said the K-pop industry, with its global popularity, is expected to play an “integral” role in developing the metaverse. He noted a number of recent announcements related to K-pop metaverse infrastructure projects and non-fungible tokens. NFTs are digital tokens that represent proof of ownership of assets such as art, collectibles or memes. K-pop groups and labels have launched NFT merchandise and have also held concerts and fan events in the metaverse, according to media reports.

As metaverse ETFs launch in South Korea, retail interest has followed. More than 70% of the inflows into both domestic and global metaverse ETFs in South Korea are from retail investors, according to the Samsung Asset Management data.

“The metaverse is touted as one of the most talked-about key topics of 2021 in South Korea,” said Sharma from Indxx.

“These high fund flow numbers represent a generally positive outlook towards the metaverse theme, additional to the developments that illustrate the growing popularity among the citizens and the government of South Korea,” Sharma said.

Sharma said retail investors in Asia-Pacific have been driving growth within ETFs more broadly. He noted the number of Australian retail investors in ETFs surged 33% last year.

Sharma, citing a recent Euroclear report, said demand in Asia-Pacific for ETFs is set to rise from $1.5 trillion to $5 trillion over the next five years.

In contrast, U.S. retail investor ownership of ETFs has slipped behind that of institutional investors. Investment advisors now own nearly 40% of U.S.-listed ETFs, compared with just over 35% five years ago, according to data from Citi. Meanwhile retail ownership has slipped from 40% five years ago to 38.5% now.

Overall, institutional investors still eclipse retail investors when it comes to total trading volume. While in the U.S., retail investors make up about a quarter of trading activity, they constitute just 5% to 7% of Europe’s total trading volume, according to Vanda Research. In China, retail participation is over 60%.