Korean Wide Mouth Frog

Korea

KIM Kindex, a subsidiary of Korea Investment Holdings, one of the largest financial services companies in Korea, is listing a new ETF that targets US companies that have robust competitive advantages. The KIM KINDEX US Wide Moat ETF will track the Morningstar Wide Moat Focus Index, in what we understand to be one of the few Morningstar indexes to be tracked by a Korean ETF issuer.

The index is proprietary. It is “composed of the most undervalued, highest-quality companies in our coverage universe. The companies in this index must have an economic moat rating of wide (meaning we think they have advantages that will fend off competitors for at least 20 years), and their shares must be trading below their fair value estimates,” Morningstar explain.

Analysis – A closet tracker, but that’s not a bad thing

Wide moats — sounds like a good idea. Also sounds safe, and like something that would appeal to advisors and the defensive-yet-growth-seeking investors they may represent. One problem with this index: its a closet tracker. Morningstar have had an ETN that tracks this index listed in the US for some time (WMW). And since 2010, the performance of the ETN and the S&P 500 (TR) have been virtually identical.

Closet trackers get a hard wrap. Yet the good side is that they can’t do worse than the market. They also allow advisors to look like they’re working harder than they are. While this index and fund may offer Korean investors little that an S&P 500 tracker doesn’t, it won’t do any harm either. And that’s no bad thing.