The Korea Exchange has witnessed the outperformance of the “Momentum” Strategic Exchange Traded Fund (ETF) compared to the general market. This year, the ETF has shown remarkable results, surpassing the overall index. The strategy behind this success lies in targeting sectors such as defense, finance, and bio, identified as promising through momentum strategies.

Momentum investing revolves around the concept that assets with increasing prices tend to sustain their upward trajectory. The Korea Exchange reports the presence of three momentum strategy ETFs on the local stock market: “TIGER Momentum,” “KODEX MSCI Momentum,” and “KODEX Momentum Plus.” Among these, TIGER Momentum has yielded a return of 15.72 percent this year, outperforming the KOSPI index, which rose by 9.02 percent during the same period.

The selection process for the Momentum ETF involves investing in stocks exhibiting high price momentum after thorough consideration of factors like price returns, earnings per share (EPS), and growth in average transaction value over the past 6 to 12 months. Notably, the defense sector dominates the components of TIGER Momentum, with companies like Hyundai Rotem, Hanwha Aerospace, and Korea Aerospace holding significant shares.

The defense industry in South Korea is anticipated to benefit substantially from adjustments in U.S. defense expenditure aligned with President Donald Trump’s America-first policy. Projections suggest a considerable rise in European defense spending by 2030, coupled with increased defense budgets in the Middle East due to heightened political instability.

In addition to defense, finance emerges as a key sector in both TIGER Momentum and KODEX MSCI Momentum ETFs. Securities firms like Mirae Asset Securities and Meritz Financial Group, along with banking giants KB Financial Group and Shinhan Holdings, feature prominently in these ETFs. The positive momentum observed in securities stocks can be attributed to factors like enhanced transaction volumes post the introduction of an alternative exchange, while banks witness steady shareholder returns and expectations of foreign net buying inflows post the resumption of short selling on the stock market.

Furthermore, bio stocks, including Alteogen and Samsung Biologics, hold substantial weightage in KODEX MSCI Momentum. Analysts predict a promising outlook for the domestic biopharmaceutical industry, foreseeing visible profit generation following a growth phase last year.

In conclusion, the “Momentum” strategy adopted by the Korea Exchange ETFs underscores a proactive investment approach that capitalizes on sectoral momentum trends, positioning these funds favorably against the broader market indices.