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Investment Strategy2026-02-12
Kosdaq ETF Passive Trap
Retail investors have poured approximately 4.6 trillion won into KOSDAQ150 ETFs over the past month, driving the index higher. But with a PER of 116x signaling an overheated market and the risk of distressed constituents being automatically included, investors must be wary of the blind passive investing trap.
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As retail investors pour explosive amounts of capital into KOSDAQ ETFs, concerns are growing about the structural limitations of passive investing. Over the past month, the KOSDAQ index surged 17.37%, outpacing the KOSPI's 15.77% gain. Individual investors' net purchases of KOSDAQ150 and KOSDAQ150 Leverage ETFs reached approximately 4.67 trillion won. However, since this rally has been driven by fund flows rather than corporate earnings, investors are urged to exercise careful judgment.
4.6 Trillion Won in ETF Buying and the Mechanistic LP Purchase Structure
According to the Korea Exchange, the top two net purchases by retail investors over the past month were both KOSDAQ-tracking products. Combined, these two products attracted 4.67 trillion won in inflows. This massive capital influx is triggering a structural supply-demand mechanism that goes far beyond ordinary investment demand. Shin Han Securities analyst Park Woo-yeol noted that liquidity providers (LPs), in order to respond to additional ETF creation, mechanically purchased underlying shares, simultaneously expanding buying pressure in both the KOSDAQ spot and futures markets. The capital inflows themselves have created a self-reinforcing cycle that pushes the index higher.
PER of 116x: The Danger of Price Appreciation Without Earnings
The KOSDAQ's current price-to-earnings ratio (PER) stands at 116x — more than five times that of the KOSPI at 22.15x. Hyundai Motor Securities analyst Kim Jung-won pointed out that the KOSDAQ's PER expansion is being driven by index appreciation rather than earnings improvement. Unlike the KOSPI, which is supported by a semiconductor industry recovery and improving earnings expectations, the KOSDAQ shows limited fundamental improvement. This situation bears a resemblance to what TQQQ investors experienced — the double-edged sword of leveraged ETFs. Investors should use a rebalancing calculator to review their KOSDAQ exposure and consider reducing their allocation during overheated market conditions.
The Risk of Passive ETFs Holding Distressed Constituents
The structural limitations of passive ETFs that mechanically track an index are also coming to light. Enkimaxs, a former constituent of the KOSDAQ150, was suspended from trading after receiving a qualified audit opinion, while Cellibiry was delisted last year. Passive strategies that automatically invest in all index constituents carry the inherent risk of absorbing such distressed assets. In response, asset managers including Timefolio Asset Management and Samsung Active Asset Management are planning to launch actively managed KOSDAQ ETFs that allow for selective stock picking. Using an asset allocation calculator for more selective ETF investing could serve as a viable alternative.
The Shift of Overseas Investors to VOO and Lessons in Diversification
In contrast to the passive investing frenzy in the KOSDAQ, Korean retail investors participating in overseas markets are moving en masse into VOO (S&P 500 ETF), citing concerns over the volatility of AI tech stocks. This reflects a broader trend of capital rotating from high-volatility thematic ETFs toward stable, broad market-tracking products. With the KOSPI also breaking above the 5,300 level to reach all-time highs, the key strategy lies in optimizing asset allocation weights between domestic and foreign markets. Adhering to global diversification principles — rather than concentrating in a single market or sector — remains the cornerstone of long-term performance.
Conclusion
The explosive inflow of capital into KOSDAQ ETFs is driving short-term index gains, but it conceals structural traps inherent to passive investing — namely, PER expansion without earnings support and exposure to distressed index constituents. Investors should use a rebalancing calculator to regularly review their KOSDAQ allocation and implement defensive rebalancing during overheated market conditions. A balanced asset allocation between domestic and foreign markets, combined with an appropriate mix of active and passive ETFs, will be the key to achieving strong long-term returns.
