Kiwoom Asset Management's Lee Kyung-jun: Embracing Volatility as the New Normal in AI Investments

The domestic exchange-traded fund (ETF) market in South Korea is rapidly growing, with net assets surpassing 500 trillion won. As investment strategies become more refined, ETFs have established themselves as a primary investment vehicle. However, recent increases in market volatility have led investors to ponder how best to navigate these changes. Lee Kyung-jun, head of the ETF division at Kiwoom Asset Management, emphasized in a recent interview with Aju Economy that investment strategies must be restructured with the understanding that volatility is becoming a part of everyday life.

Lee, a seasoned expert who has led the development of various monthly dividend products like covered calls in the domestic ETF market, identified 'volatility as the new normal' as a key theme currently shaping the market. He stated, "We should not wait for volatility to decrease; in the AI era, we must accept volatility as a new investment environment." He noted that the AI industry is still in its early stages, meaning that winners and losers have yet to be determined, and the emergence of new technologies and revenue models will inevitably increase market volatility. He described this phenomenon as 'growing pains' in the development process.

Lee also clarified that volatility should not be interpreted as a negative signal for AI investments. He believes that as productivity innovations begin to take hold, there are ample long-term investment opportunities. "Currently, AI civilization investments are in their infancy," he said. "There are still many investment opportunities ahead. There is no need to rush to resolve everything at once."

Lee predicts that the focus of AI investments will shift from graphics processing units (GPUs) and memory to central processing units (CPUs). He explained, "While GPUs handle parallel processing and memory stores data, the role of CPUs will become more critical in the era of agentic AI and physical AI, which aim to solve real-world problems. It is time to pay attention to CPUs."

He raised fundamental concerns about the structure of the domestic stock market, stating that the KOSPI index resembles a semiconductor-centric thematic ETF rather than a well-diversified market index. "The KOSPI is not a well-distributed market; it is currently focused on the semiconductor AI theme," he noted, adding that its movements are not significantly different from those of U.S. AI semiconductor thematic ETFs.

Given the heavy concentration in specific industries, Lee emphasized the importance of asset allocation. He advised, "It is necessary to reduce volatility by positioning U.S. stocks as core assets or utilizing mixed bond products. A little less greed is needed to withstand volatility."

This approach is reflected in the 'KIWOOM U.S. S&P 500 Momentum' ETF, which invests in the 100 stocks with relatively strong momentum among the S&P 500 constituents. Lee assessed that a momentum strategy, which is rebalanced every six months with excellent stocks in line with market changes, aligns well with the tendencies of domestic investors.

Regarding the recent controversy surrounding single-stock leveraged ETFs, Lee expressed the need for a more cautious approach. He stated, "It is difficult to conclude that leveraged ETFs have increased volatility; the root cause of volatility lies in the structure of the Korean stock market, not in leveraged ETFs themselves."

However, he acknowledged that there are clear side effects that distort capital flows. He explained, "The issue is not the price but the distortion of supply and demand. The phenomenon of capital moving from other stocks to leveraged ETFs during market downturns leads to distorted capital flows."

Lee also pointed out that leveraged ETFs should not be viewed as the same investment products as regular ETFs. He stated, "The core of ETFs is transparency, diversification, and trading convenience, but leverage lacks diversification. They are closer to trading tools. We should create dedicated accounts for leveraged ETFs and allow only investors who have received separate training to trade them. Management measures, such as setting investment limits and restricting transactions by minors, are necessary."

Ultimately, Lee reiterated that in the AI era, risk management will become more important than high returns. He remarked, "Creating products that increase risk is easy, but designing products that reduce risk while generating returns is much more challenging. It is the role of asset managers to incorporate complex financial theories into ETFs, allowing investors to comfortably engage in long-term investments."

He also predicted that as the ETF market grows, the investment culture will mature. "Currently, trading-focused investors lead the market, but index-tracking and monthly dividend investors continue to exist steadily. Over time, as investors gain experience and learn from the market, they will gradually shift towards long-term investing and asset allocation," he forecasted.

Finally, he described the current market as a situation of 'riding a tiger,' emphasizing the importance of long-term investment. Lee stated, "Rather than trying to get off the tiger or making reckless investments in pursuit of greater returns, it is crucial to accept volatility and adopt a long-term resilience strategy." He added, "Just as electronic devices perform best when used according to their manuals, investors should choose ETFs that align with their goals and preferences for a comfortable long-term investment. Understanding the structure and characteristics of products and utilizing them appropriately is of utmost importance."

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