FLKR: A Good Fund for Exposure to South Korea (NYSEARCA:FLKR)

South Korea has a lot to offer. The country has been a bright spot in East Asia as exports have soared in the face of global trade changes and economic headwinds. The country is a leader in various industries, such as like technology, cars and shipbuilding. The government has been actively encouraging small businesses to start up, and there’s a general sense of excitement and excitement that the future is bright. And if you’re looking at the emerging South Korean stock market, the Franklin FTSE South Korea ETF (NYSEARCA:FLKR) can be a good way to gain broad, international exposure. This exchange-traded fund attempts to track the FTSE South Korea RIC Capped Index, a market-cap-weighted index representing large- and mid-cap South Korean stocks.

Resources at a glance

The fund currently has 161 positions and is trading at 12.6x P/E and 1.03x Price to Book. The giant is Samsung Electronics, which accounts for 17.95% of the fund.

What are these companies? Samsung Electronics Co Ltd (OTCPK:SSNLF) is a global leader in consumer electronics, semiconductors, and telecommunications equipment. SK Hynix Inc. (OTCPK:HXSCF) is the world’s second-largest memory chip maker. Hyundai Motor (OTCPK:HYMTF) is a global automaker that has built a reputation for producing affordable, high-quality cars. Kia Corp. is the second-largest automaker in South Korea, after Hyundai Motor Company. And POSCO Holdings Inc. (PKX) is a supplier of high-quality steel products to the construction, automotive, and shipbuilding industries.

All good companies. I’m concerned about Samsung’s large allocation though.

Sector composition and weights

No surprises here, but this is a fund that invests heavily in the technology sector, with 35% coming from Samsung itself.

Industrials and financials are a distant 2nd and 3rd. If there’s one thing that would keep me from considering the fund, it’s the high-tech allocation, given what I see as a near-term high-risk moment for anything tech-related. Still, if you’re a true long-term investor, the tech sector is likely still a great place to ride the momentum, which would be good for FLKR.

Comparison with peers

FLKR’s main competitor is the iShares MSCI South Korea ETF (EWY). This fund attempts to track the investment performance of the MSCI Korea 25/50 Index. When we look at the price ratio of FLKR to EWY, we can see that both funds have largely tracked each other. There is no clear winner or advantage in choosing one over the other.

Pros and cons

The silver lining? It’s international (which I’m generally bullish on). FLKR gives investors exposure to a basket of stocks from the South Korean market. The portfolio is diversified across sectors and provides exposure to what’s driving South Korea’s economic growth. This ETF gives investors exposure to leading companies that play a significant role in the Korean economy. Additionally, the South Korean economy has shown strong growth and shock absorption potential thanks to its growing manufacturing sector, technological advances, and highly educated workforce.

But remember, investing in FLKR comes with risks. As with all foreign investments, investors should be aware that exposure to the US dollar and the US dollar market can impact foreign exchange returns. There can also be volatility related to geopolitical tensions and trade disputes (involving South Korea), which in turn can negatively impact the asset. Additionally, FLKR is heavily weighted in a small number of sectors, including technology and industrials, which could mean that the fund’s volatility is driven by additional risks from these industries. A decline or disruption in these sectors could have a disproportionate impact on the fund.

Application

I like the fund and the growth prospects for South Korea. I don’t like the Tech weighting, but I understand why it’s so high. For those investors who are still bullish on Tech, who want to diversify their investments outside the US into a country that is on its own growth trajectory, FLKR is a good fund to consider. I just hope Samsung doesn’t go through a major crisis, because if it does, this fund will be in trouble.

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