[Edaily Reporter Kim Kyung-eun ] SKSQUARE(402340)is emerging as a key holding in domestic semiconductor exchange-traded funds (ETFs). This is due to rising expectations of growth driven by expanding demand for artificial intelligence (AI) memory, which are spilling over to SKSQUARE, the largest shareholder of SK hynix(000660). As the concentration of investment capital in the semiconductor sector intensifies, asset management firms are seen as adopting a strategy to expand their ETFs’ exposure to large-cap stocks through SKSQUARE.

According to the financial investment industry on the 23rd, NH Amundi Asset Management added SKSQUARE to its “HANAROFnK-Semiconductor” ETF portfolio during this month’s regular rebalancing (weight adjustment). This move came after SKSQUARE was newly included in the “FnGuideK-Semiconductor Index,” which the ETF tracks.

This index is calculated using a market capitalization-weighted method, selecting stocks that belong to the semiconductor industry based on the FnGuide Inc. Industry Classification System (FICS) or whose semiconductor-related revenue accounts for more than 10% of their total revenue over the past two fiscal years. SKSQUARE was included in the index after being reclassified into the semiconductor industry under FICS at the end of last month.

Samsung Asset Management also added SKSQUARE to its “KODEX AI Semiconductor TOP2 Plus” ETF through this month’s regular rebalancing. Following the May rebalancing, when it increased the weightings of SamsungElectronics and SK hynix to more than half of the portfolio, the firm has further strengthened its portfolio by focusing on large-cap semiconductor stocks.

In the case of the “ACE K Semiconductor TOP2+” ETF, listed today by Korea Investment Trust Management, SKSQUARE accounts for 23.61% of the portfolio—a higher weighting than SamsungElectronics (20.17%). When combined with SK hynix (25.59%), the combined weighting of these three stocks reaches 70% of the portfolio.

Shinhan Asset Management also included SKSQUARE with a high weighting when it launched the “SOL AI Semiconductor TOP2 Plus” ETF last March. As of the listing date, the fund held SamsungElectronics and SK hynix at 25% each and SKSQUARE at 15%, expanding the combined weight of these three stocks to 65%.

The fact that semiconductor ETFs are successively adding SKSQUARE to their portfolios is interpreted as a result of its steep stock price rally. SKSQUARE has risen 367.3% since the beginning of the year through today, outperforming SK hynix (277.4%). This reflects expectations that the benefits of the AI memory supercycle will lead not only to improved earnings at SK hynix but also to an increase in the value of its equity stake.

It is also interpreted that asset managers are utilizing SKSQUARE to increase their exposure to large-cap semiconductor stocks. Since ETFs typically limit the weighting of individual stocks to around 25%, it is difficult to further increase the weightings of SamsungElectronics and SK hynix. Consequently, this move aims to reflect the investment benefits derived from a concentration on large-cap semiconductor stocks by including SKSQUARE, which holds a stake in SK hynix.

However, critics point out that as the majority of products are being restructured to focus on large-cap stocks, the diversification effect unique to ETFs is fading, thereby increasing market volatility. At the time of regular rebalancing, there is a risk that large-cap stocks will be sold off all at once to meet regulatory limits. On this day, the KOSPI index plummeted 9.99% from the previous day due to profit-taking centered on large-cap semiconductor stocks, and semiconductor ETFs also fell across the board.

Han Ji-young, an analyst at KIWOOM Securities, commented, “It appears that short-term side effects resulting from the concentration on semiconductor stocks have emerged,” adding, “The concentration was particularly severe the previous day amid the competition between SamsungElectronics and SK hynix for the top market capitalization spot, and volatility intensified today as profit-taking pressure, led by foreign investors, grew stronger.”