Down 20%? For pension ETF investors, it may be a buying opportunity

Park, an office worker who had been consistently investing in semiconductor ETFs through his pension account since early last year, watched his returns climb quickly as expectations for AI demand growth and an improvement in the semiconductor cycle reinforced each other.

The rally did not last uninterrupted. When geopolitical risk from the Middle East intensified in late February, the Kospi — which had been on the verge of breaking through the 7,000 mark — suffered a sharp correction, and Park's ETF returns fell nearly 20 percentage points from their peak. He began to wonder whether he should sell.

A colleague with more ETF experience offered a different perspective. "Individual stocks and ETFs work differently," the colleague said. "With an ETF, index rebalancing automatically reduces the weighting of companies losing competitiveness and brings in growing ones."

The advice: even during a sharp short-term drop, if the broader industry's growth story remains intact, a strategy of regular contributions to lower the average purchase price can pay off over the long run. Park decided to stay invested. When Middle East tensions eased in mid-May and share prices recovered, his ETF returns rose roughly 10 percentage points above the previous peak. He came away convinced that patience is the cardinal virtue of ETF investing.

Q. What is an ETF, and why has it become so popular?

A. An ETF, or exchange-traded fund, is a fund listed and traded on an exchange just like a share. Most are designed to track the performance of a specific index or asset, which is why they are also called index funds. Like a conventional fund, an ETF spreads investment across multiple assets, but it can be bought and sold like a share. The key advantage is that even a small amount of money can achieve broad diversification. For pension accounts in particular — where direct investment in individual shares is restricted — ETFs offer access to indexes, bonds, gold, REITs, sectors and themes. As of end of April, total ETF assets stood at approximately 430 trillion won ($282 billion) across 1,099 products.

Q. Should I keep investing in ETFs for the long term even when markets are highly volatile?

A. Market volatility is unavoidable. But a 30 percent drop in an individual share and a 30 percent drop in a broad market index are fundamentally different things. An individual company may struggle to recover from management failures or industry disruption, whereas a broad market index is structured to drop underperforming companies and add new ones. The essence of pension ETF investing is not to avoid every downturn but to build a system that keeps you investing through downturns. Putting in a fixed amount every month means your holdings grow when markets rise, and the same amount buys more units when markets fall. Over time, the average purchase price falls, and the compounding effect in a recovery can be substantial. Ultimately, pension ETF investing is not about picking the right stock — it is about staying in the market long enough for time to do the work.

Q. Can I assume ETFs are safer than individual shares?

A. The fact that an ETF holds multiple securities does not mean all ETFs offer the same level of diversification. Broad market index ETFs spread exposure widely across many companies, but sector and thematic ETFs can be heavily concentrated in a specific industry or a handful of names. The ETF label alone is not a guarantee of safety.

Q. Still, do I need to pick the top-performing stock to generate strong returns?

A. That is precisely the trap. Nobody knows whether today's top company will still be on top tomorrow. History is full of companies that once defined the market and later fell out of the rankings entirely — just as it is full of innovative newcomers that rose to become market leaders. The advantage of ETF investing lies not in predicting the next winner but in holding a structure that naturally adjusts when winners change. Rather than entrusting retirement savings to the fate of a single company, the idea is to ride the overall growth of the market and the ongoing rotation of innovative firms. Because a pension account is a long-term retirement vehicle, concentrating in individual shares in pursuit of outsized gains is less appropriate than anchoring the portfolio in broad market index ETFs and using sector and thematic ETFs in a supporting role.

Q. I have heard pension accounts have limits on risky assets. Do ETFs fall under those limits?

A. Pension products are classified as either safe assets or risky assets depending on what they invest in. Equity ETFs and equity funds with high share weightings are generally classified as risky assets, and pension accounts cap risky asset exposure at 70 percent. Deposits, bond products, some mixed bond funds and qualified target-date funds (TDFs) can qualify as safe assets. The key question is how to use the remaining 30 percent. If the 70 percent risky-asset allocation is filled with equity ETFs or equity funds and the remaining 30 percent goes into deposits or pure bond products, actual equity exposure stays at around 70 percent. Using safe-asset-classified mixed bond funds or qualified TDFs in that 30 percent slot can raise the portfolio's effective growth-asset exposure.

For example, if a mixed bond fund holds 50 percent equities internally, placing it in the safe-asset slot adds 15 percentage points of effective equity exposure, pushing total equity exposure to roughly 85 percent. Using a qualified TDF with a high equity weighting — appropriate for investors with many years until their target retirement date — can push that figure even higher.

Q. What trends are driving the most popular ETF products right now?

A. In 2025, the strongest inflows went to maturity-matched bond ETFs, US S&P 500 and Nasdaq 100 products, physical gold ETFs and semiconductor-related ETFs. From the start of 2026 through end of April, inflows have been concentrated in Kosdaq 150, domestic semiconductor, US S&P 500 and US Nasdaq 100 products. That said, a product attracting heavy inflows is not necessarily the right product for every investor. Inflows are simply a reference indicator of market attention. Because a pension account is a long-term vehicle, the investment target, volatility, cost, diversification effect and fit with your own retirement timeline should take priority over short-term popularity.

Q. What should I check when selecting an ETF?

A. Start with fund size. If assets under management are too small, operating and maintenance costs can become a burden and questions arise about the product's longevity. Trading volume also matters — low volume can make it difficult to buy or sell at the price you want. Lower expense ratios are better for long-term investing. Tracking error and premium/discount to net asset value show how closely the ETF follows its underlying index and how tightly the market price tracks the fund's actual value. Product type is another distinction to make. Passive ETFs, which aim to replicate the performance of an underlying index, suit investors seeking long-term exposure to a broad market index. Active ETFs target returns above the underlying index but require closer scrutiny of the investment strategy and associated risks.

Q. Since a single ETF already diversifies across many stocks, is it fine to hold just one?

A. An ETF does hold multiple securities, but not every ETF is sufficiently diversified. Broad market index ETFs spread exposure across many sectors and companies, whereas thematic ETFs — covering semiconductors, AI, electric vehicles, secondary batteries, covered calls and similar themes — can be heavily influenced by a specific industry or a small number of names. For pension accounts, a core-satellite approach is advisable. The core allocation should hold products that pursue long-term market returns, such as broad market index ETFs or TDFs. The satellite allocation can make limited use of sector and thematic ETFs, monthly dividend ETFs, gold, REITs and other products with a clear purpose.

Q. How should monthly dividend ETFs be used within a pension account?

A. A monthly dividend ETF distributes income every month, drawing on interest, dividends and capital gains generated by the shares, bonds and other assets it holds. For investors in the drawdown phase who need regular cash flow, these products can be useful. Investors still in the accumulation phase should think about them differently, however. Monthly distributions can weaken the long-term compounding effect, and reinvesting those distributions separately adds complexity. Monthly dividend ETFs are best understood as products suited to the stage of investing when cash flow is actually needed.

By Seo Sang-hyeok