Money is flowing into defensive exchange-traded funds as South Korea's stock market enters a period of sharp swings between selloffs and rebounds. Leading the inflows are money market active funds, which invest mainly in short-term high-grade bonds, and covered-call products, which generate extra income by selling options. Securities analysts expect low-risk financial products and defensive stocks to draw attention for some time.
Two of the five domestically listed ETFs with the largest increases in net creations minus redemptions between the 9th and the 16th of this month were money market active funds, according to Koscom's ETF CHECK and financial data provider FnGuide on the 19th. KODEX Money Market Active drew 574.4 billion won ($400 million), ranking second overall. TIGER Money Market Active took in 304.3 billion won, placing fifth. Money market active funds invest in short-term high-grade bonds and commercial paper, offering both stability and liquidity. They are classified as "parking" products, where investors place short-term cash before committing to longer-term bets. Net creations minus redemptions, calculated by subtracting redemptions from ETF creations, shows the scale of inflows and outflows of investor money.
Covered-call products also saw heavy inflows. KODEX 200 Target Weekly Covered Call posted weekly net creations of 359.8 billion won, ranking fourth. On the 13th, when share prices fell more than 5% in a single day, the fund drew 137 billion won, the largest amount among all ETFs. Another 72.2 billion won came in on the 15th. A covered-call strategy involves holding stocks while selling call options, which give the buyer the right to purchase shares at a preset price, to earn additional income. Because the premium received from selling the options partly offsets losses from falling share prices, these funds are considered defensive ETFs, much like money market active products.
Behind the shift into defensive products was a plunge in the stock market. The KOSPI fell for seven straight sessions from the 6th through the 15th of this month, its first such streak since September 2024. On the 15th in particular, Samsung Electronics and SK hynix tumbled 9.48% and 11.06%, respectively, sending the KOSPI down 7.57% to close at 5,554.22. On the 16th, foreign investors turned net buyers for the first time in nine sessions and the index closed 2.05% higher at 5,668.05, though an intraday gain of as much as 4.6% narrowed late in the session.
Elsewhere in the market, money is also betting on a rebound. KODEX Leverage drew 642.7 billion won, the largest increase in net creations, while KODEX 200 ranked third with 407.5 billion won. By contrast, KODEX 200 Futures Inverse 2X and KODEX Inverse saw outflows of 161.6 billion won and 115.9 billion won, respectively. Money wagering on gains in the index increased, while demand betting on further declines fell.
"With volatility rising, funds will flow into low-risk financial products for the time being," an official in the securities industry said. "Among individual stocks, defensive names deserve attention."
