SINGAPORE - Gather around BTS and Korean pop music fans, a new exchange-traded fund (ETF) is debuting.
Contents Technologies is launching the KPOP and Korean Entertainment ETF on the NYSE Arca exchange on Thursday. KPOP is the first fund in the United States or Europe to invest in firms benefiting from Korean pop music, according to Bloomberg Intelligence.
The fund will track an index - dubbed the KPOP Index and created by CT Investment, a subsidiary of Contents Technologies - that will include 30 companies in the entertainment and interactive media industries that are listed on the Korean Exchange.
The KPOP Index aims to measure the performance of Korean entertainment companies including Hybe, the agency that manages South Korean superstar group BTS; JYP Entertainment; SM Entertainment and YG Entertainment. The index will weigh entertainment firms more, 70 per cent to 80 per cent, than others in the interactive media and services space.
"What makes us excited about this is being the first vehicle that provides global investors and global fans, who had difficulty investing in K-Pop previously, exposure to the companies they have 'fan-ship' of," said Mr Lee Jang-won, chief executive officer at CT Investments and Contents Technologies.
South Korean music has gained fans in the US since it captured the world's attention in 2012 with the hit Gangnam Style. In February, BTS was named the global recording artist of the year, beating Taylor Swift and Adele. Meanwhile, girl group Blackpink, managed by YG Entertainment, became the first musical artists to hit a record 75 million subscriber mark on YouTube in June, overtaking Justin Bieber.
Members of the KPOP Index, which will be rebalanced quarterly, are selected by a proprietary artificial intelligence (AI) algorithm that uses natural language processing technologies. The AI determines if companies are engaged in businesses related to K-pop by scanning for keywords in public business descriptions on the Internet. Companies are required to have a market capitalisation of about US$76 million (S$106.4 million) on the Korean Exchange to be considered and there is a 9.85 per cent cap for any individual company.
In recent months, shares of Hybe, JYP, SM and YG have risen from their June lows, even amid the global market downturn.
"There have been very good earnings of these companies that came due to post-Covid-19 openings of offline performances," said Mr Lee, who is 29 years old and a self-described K-pop fan. "Regardless of the general market sentiment, which is also quite bearish in South Korea, the entertainment companies under our constituents have performed very well. So, we are quite confident."
Still, the KPOP ETF faces challenges.
"Thematic ETFs are ever coming up with narrower and creative slices of investment strategies," said Mr Henry Jim, ETF analyst at Bloomberg Intelligence.
He said that although KPOP stands out in its clear focus on one industry in one country, it will have "an uphill battle in reaching a target market that is difficult to define", adding that it "may be left with only individual fans as a limited addressable target market". BLOOMBERG
