The domestic exchange-traded fund (ETF) market is rapidly growing, with net assets surpassing 500 trillion won. As strategies become more diversified, ETFs have established themselves as a primary investment tool. However, recent increases in market volatility have left investors pondering how to respond strategically. 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.
"Investing in AI is just beginning; there's no need to rush."
Lee, an expert who has led the development of various monthly dividend products like covered calls in the domestic ETF market, has monitored the ETF landscape for over 20 years. He identified 'volatility as the new normal' as a key theme currently shaping the market.
"We should not wait for volatility to decrease," he stated, noting that in the age of artificial intelligence (AI), investors must accept volatility as a new investment environment. He explained 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 as 'growing pains' in the development process.
Lee also clarified that volatility should not be interpreted as a negative signal for AI investments. Rather, he believes that as productivity innovations begin to take hold, there are ample long-term investment opportunities. "Currently, AI civilization investment is in its infancy," he said, adding, "There are still tremendous investment opportunities ahead. There is no need to rush to resolve everything at once."
"Focus on CPUs as the future of AI investment; KOSPI is now semiconductor-centric."
Lee predicts that the focus of AI investment 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 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 is more akin to a semiconductor-themed ETF than a typical market index. "The KOSPI is not a well-diversified market; it is currently focused on the semiconductor AI theme," he noted, adding that it does not differ significantly from U.S. AI semiconductor-themed ETFs.
Given the heavy concentration in specific industries, he stressed the importance of asset allocation. Lee advised, "It is necessary to reduce volatility by positioning U.S. stocks as core assets or utilizing mixed bond products. One must temper their ambitions 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 S&P 500 constituents. Lee assessed that a momentum strategy that is rebalanced every six months with excellent stocks will align well with the tendencies of domestic investors.
"Leverage ETFs distort capital flow; caution is needed."
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 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 flow. He explained, "The issue is not the price but the disruption of supply and demand. The phenomenon of capital moving into leveraged ETFs during market downturns, after selling other stocks, distorts capital flow."
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."
"Long-term endurance is more important than reckless investing."
Ultimately, Lee reiterated that in the age of AI, 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-following and monthly dividend investors also consistently exist," he noted. "As time passes, investors will gradually shift towards long-term investment and asset allocation as they gain experience and learn from the market."
Finally, he described the current market as a "riding the tiger situation," 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 endurance 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."
* This article has been translated by AI.
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