Does the South Korean K-pop ETF launch signal the peak of South Korean culture? – The Average Joe

    Does the South Korean K-pop ETF launch signal the peak of South Korean culture?

    Victor Lei — Head of Research

    October 11, 2022

    October 11, 2022

    Their beats are catchy as hell, and you can’t help being mesmerized by their music videos. K-pop Daebak. South Koreans are seriously good at entertaining — and it’s difficult to ignore the growth in South Korean culture exports.

    South Korea churns out talent

    In 2020, South Korean cultural exports reached an estimated $11.9B — up 16% from the year before. Part of the growth came from rising Western popularity.

    • An online census showed that 40.5% of K-pop listeners are white and non-Hispanics.
    • BTS won the 2021 Global Recording Artist of the Year — for the second year in a row — beating Taylor Swift and Adele.

    Everyone’s trying to capitalize on South Korean culture. After several successes, streaming services, including Netflix and Disney, ramped up South Korean content investments in recent years.

    K-pop groups have loyal fanbases — who are willing to spend. In 2021, a BTS and McDonald’s collab sent McNugget sales up 250% in the weeks after launch.

    With the growth in any trend…

    …you can almost guarantee the launch of a thematic ETF to track the trend. Last month, the KPOP and Korean Entertainment ETF (NYSE:KPOP) began trading — the first ETF to invest in South Korean culture.

    • 70-80% is invested in music, film and television companies, including the studio that created the popular film Parasite.
    • The remainder is invested in interactive media and services companies like Naver (South Korean Google) and KakaoTalk (mobile messaging).

    But you’ve probably never heard of the 30 South Korean companies inside the ETF — which is down 28% since its launch. Another data point backing up what many already know — thematic ETFs tend to launch at a trend’s peak.

    Investors: The key band risk

    Many of these labels are highly exposed to star talents leaving. Hybe (KRX:352820), the agency behind popular K-pop boyband BTS, had fallen over 66% this year as:

    • BTS announced plans to shift to solo projects
    • Speculation ran wild over an ~18-month mandatory military service for the members.

    How exposed is Hybe? 70% of its operating earnings come from the label managing BTS. Government Minister Hwang Hee said the loss of BTS “would be a national loss.”

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