ETFs in Korean Market- Investment Strategies of ETF

2007. 11

This material has been prepared to propose product sales to the sales agent, and may be different from the product that is actually sold. When the actual product is launched, the indirect investment will be managed in accordance with relevant laws & regulations, trust deeds and prospectus, and any discrepancy of information stated in this material vs. relevant laws & regulations, trust deeds and prospectus is not valid. This material has been prepared only for reference purpose, in consideration of current market situation and outlook. Any potential investor who receives all or part of this material through any channel must obtain prospectus in order to fully understand product details, and make an investment decision under such investor’s judgment and responsibility. Furthermore, this material has been prepared using various sources and statistic data which are deemed credible, but contents of this material cannot be construed as a guarantee against future results.

Agenda

� Overview of Korean ETFs Market

� Market Condition

� Investment strategy

� New ETF, New Strategy

2

Overview

Developing Korean ETF MarketDeveloping Korean ETF Market

796%

0

5000

10000

15000

20000

25000

30000

Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07

Total NAV, Korean ETF Market(100MIL, KRW)

42002

222007. 8

122006

62005

42004

62003

Number of ETFs

year

� Total NAV of Korean ETF Market : \\\\ 2,469 Bil. (KRW) <$2.89 BIL (USD)>

� Total number of ETFs : 22 ETF (Running by 4 AMCs)

3

Overview

Trade Turnover(%)Trade Turnover(%) No. of Listed ETFNo. of Listed ETF

� KOREAN ETF Market : “The MOST ACTIVE MARKET IN ASIA”

USA EU

K OR E

AH

ongk

ong

S ing

apol

e

Japa

n

518

376

2219

16 13

JapanJapanJapanJapan

HongkongHongkongHongkongHongkong

EUEUEUEU

KO R EAKO R EAKO R EAKO R EA

U S AU S AU S AU S A 2965%

540%

348%

201%

65%JapanJapanJapanJapan

HongkongHongkongHongkongHongkong

EUEUEUEU

KO R EAKO R EAKO R EAKO R EA

U S AU S AU S AU S A 2965%

540%

348%

201%

65%

4

Overview

� Broad Market ETF occupying 83% out of total market

N AVB road Index ETF

S etor ETF

S tyle ETF

O verseas ETF

Broad Market ETF

83%

100%

2.6%

7.0%

7.4%

83%

%

24,691 KRW

632 KRW

1,735 KRW

1,820 KRW

20,504 KRW

Total NAV

22

1

8

8

5

No. of Product

TOTAL

Overseas

ETF

Style ETF

Sector

ETF

Broad index ETF

5

Composition of ETF investor in Korea

The trading Value by investors (1year)

The trading Value by investors (1year)

Composition of Institutional Investor

Composition of Institutional Investor

2.3981Pension

0.1

0.8

34.6

2.3

19.2

%

31Saving bank

341Bank

14,916FUND

1,001Insurance company

8,287Securities company

Size (mil. KRW)

Institution,

59.30%individual,

14.80%

foreign,

24.50%other, 1.40%

6

Investment Strategy

� FUND & Securities company

– The largest user of Korean ETF in KOREA (exclude Foreign investor)

1. FUND & WRAP ACCOUT based on Core – Satellite strategy

Core Investment

(Broad Market ETF)

Getting Market return

Individual Stocks

Tactical Stock selection

SECTOR ETF

Style investmentSTYLE ETF

50%

10%

20%

20%• Core : pursuing Benchmark return

• Satellite : Alpha return seeking

- Sector cycling trade by Sector ETF

- Style Investing by style ETF

- Momentum & Turn around stock picking

• Less load to Fund manager to beat BM

Efficient management concentrated to

Alpha seeking strategy

• Low expense and tax

(exemption of transaction tax)

• Provide easily customized investment strategy

to Individuals

7

Investment Strategy

3. Risk-Budgeting Strategy

� Asset management of Insurance and Pension focuses risk control for

stable return and conservative clients

� RISK BUDEGTING STRATEGY :

- Strategy to compose the most efficient portfolio with limited Risk

- Asset Allocation based on risk- return profile

- Efficient risk management by Risk averse customized asset allocation

� ETF is the most perfect tool to compose Risk-budgeted portfolio.

- Stable tracking error and Certainly characterized investment vehicle.

8

Investment Strategy

� Seeking OPTIMAL Portfolio with risk-return profiles on efficient frontier.

� The easiest and cheapest way to compose this portfolio : ETFs!

Portfolio

RETURN

RISK

Combination of ASSETs

: Efficient frontierIndifference

curve

Risk Budgeted

OPTIMAL Portfolio

EX) ETFs + Active Portfolio

+ etc…

9

NEW ETF, NEW Strategy

� NEW ETFs

– Samsung ITMC will continuously design and list new ETFs to Korean Stock Market

• By Region and Country

• By Asset Class (Equity , Fixed income, Commodities..)

• By Cap and Style, and Actively managed ETF

ETF MAPETF MAP

KODEX 200KODEX STYLEKODEX SECTOR

ASSET

Equity

/Fixed income

/CommoditiesActively Managed

Sector StyleCAP

StyleCAPSector

C

O

U

N

T

R

Y Broad Market

KODEX CHINA H

Broad Market

Passively Managed

R

E

G

I

ON

10

NEW ETF, NEW Strategy in Korea

� NEW Strategy

– Global Asset Allocation Portfolio

ETF by Asset

Equity, Bond,

Commodities

ETF by Region

Country, Regions

Actively Managed ETF

Short, Leveraged

Strategic Asset Allocation

Tactical Asset Allocation

Alpha Seeking Strategy

11