[The Age of Active Investing]① "70% of New US ETFs Are Active... Active vs. Passive to Reach 50:50 Balance Within 4 Years"

Paradigm Shift in Global Markets Toward Active Strategies
Investors Seeking Outperformance Prefer Active ETFs
Asset Managers Must Strengthen Research and Management Capabilities

"When the KOSPI is trapped in a box range or stagnant, simply tracking the index presents clear limits for returns. Globally, the paradigm has already shifted to an active focus where managers generate excess returns with their capabilities—60 to 70% of newly listed ETFs in the United States are active. The domestic market will also grow rapidly in line with this trend," he said.

Charn Kwak, Head of Active ETF Operations at KB Asset Management. Provided by KB Asset Management

Chal Kwak, Head of Active ETF Management at KB Asset Management, shared this outlook for the active ETF market in an interview with The Asia Business Daily.

Kwak cited the following as the major drivers behind the sharp growth of active ETFs: ▲Increased market volatility, ▲Higher investment understanding and return expectations among investors, and ▲Growing demand for a diversity of products. He noted, "In the past, when indices surged rapidly, passive ETFs were enough. However, when the index is boxed in, investors want to achieve excess returns from individual stocks and sectors through expert research. As individual investors’ abilities have reached professional levels, a natural preference has emerged for active products that deliver excess returns through a manager’s expertise." He continued, "There’s now demand for various types of sector hybrid products and option-linked products (covered calls). Active ETFs are well positioned to meet these needs."

Furthermore, the growth of active ETFs provides asset management firms with a solution that goes beyond simple quantitative expansion to drive real profitability. Due to extremely low fees, traditional passive ETFs contributed little to an asset manager's bottom line, but active ETFs have a rational fee structure while also leveraging a manager’s research capabilities to the fullest. Kwak explained, "Previously, public funds were mainstream and resource-intensive because of the high fees, but as public fund growth stalled, ETFs spread rapidly instead. In terms of scale, ETFs contributed much more than before, but their low management fees kept profit contributions below expectations. Active ETFs have become a breakthrough for this dilemma: despite being ETFs, their fees are not lower than public funds, and as investors boldly choose active strategies, asset managers are naturally compelled to concentrate their resources on active ETFs."

With the growing significance of active ETFs in the market, KB Asset Management established a dedicated Active ETF Division early this year and staffed it with experienced professionals. Kwak explained, "Rather than sticking solely to the convictions of the asset manager or portfolio manager, we’ve set a principle of reflecting market trends and the essential demands of diverse investors in our product design and management. Moreover, since many active funds are highly specialized, a key strength of our organization is that a significant proportion of our team consists of specialists."

He emphasized that, above all, the track record and credibility of the asset manager are critical for ETF market growth. Kwak stated, "Active ETFs must continuously prove in the market that they can outperform passive products. At the same time, companies must reinforce their firm-level research and asset management capabilities to timely deliver innovative and effective investment solutions in a rapidly changing market environment."

Kwak expects that active ETFs will grow to a level comparable to that of passive products in the future. "In the current domestic ETF market, which is worth 500 trillion won, equity-type actives still hold a small portion, but they are growing at a much faster rate than passive funds. Over the next four to five years, the ratio of active to passive in the total ETF market is expected to reach 4:6 or even 5:5," he predicted.

He identified technology and growth sectors—such as AI semiconductors, software, and biotech—as the areas where active management can deliver the best results. In sectors most affected by rapid industry paradigm shifts, proactive stock selection and risk management by managers can produce much greater and more substantial returns compared to mechanical index tracking.

Finally, he declared, "The Active ETF Division at KB Asset Management will not be a 'fast follower' mindlessly copying others, but will continuously launch 'first mover' products that offer innovative investment alternatives unseen in the market. Within three years, we aim to surpass 4 trillion won in domestic equity active ETF assets under management and achieve a market share of over 10%, establishing clear market leadership."

This content was produced with the assistance of AI translation services.