How to Choose the Best Insurance ETF
If you want to invest in insurance companies but aren't comfortable picking individual stocks, an insurance ETF is a great option. It allows you to hold multiple insurance companies at once, which is perfect if you want to avoid being too swayed by the performance of any single company.
In this post, we'll break down how to compare domestic and U.S. listed insurance ETFs. We'll also briefly touch on some related international ETFs and REIT/infrastructure ETFs that might be worth looking into.
What Exactly Is an Insurance ETF?
An insurance ETF is an exchange-traded fund that tracks an index made up of various insurance company stocks. By buying just one share, you gain exposure to multiple companies, and just like a regular stock, you can buy and sell it on the exchange.
However, the insurance industry's performance can swing wildly based on interest rates, loss ratios, and investment returns. So, the first step is to check which insurance companies are included in each specific fund.
Comparing Domestic vs. U.S. Insurance ETFs
When choosing an insurance ETF, laying out these points side-by-side really helps you see the differences.
| Comparison Point | Domestic Insurance ETF | U.S. Insurance ETF |
|---|---|---|
| Companies Included | Primarily domestic life and non-life insurers | U.S. property & casualty, life, and reinsurance companies |
| Currency | South Korean Won (KRW) | U.S. Dollar (USD) (Exchange rate risk applies) |
| Performance Drivers | Domestic interest rates, insurance premium regulations | U.S. interest rates, healthcare costs, and loss ratios |
| Tax Treatment | Subject to domestic tax systems | Often treated as capital gains income |
These points are just guidelines to help you get started. You must check with your brokerage and tax professionals for the actual tax rates and rules.
What to Look For When Choosing an Insurance ETF
- Tracking Index: Check which index the ETF tracks. The composition will change depending on whether it follows a domestic insurance sector index or a U.S. insurance sector index.
- Top Holdings: If the weight is heavily concentrated in just one or two companies, the diversification effect will be weak.
- Expense Ratio: The lower the annual expense ratio, the less cost you'll lose over the long term.
- Trading Volume and Size: ETFs with low trading volume can experience wider bid-ask spreads.
- Underlying Sector Breakdown: Even within insurance ETFs, the performance can differ based on whether the weighting is higher in life insurance or property and casualty insurance.
Things to Watch Out For When Investing in U.S. Insurance ETFs
While U.S. ETFs offer the advantage of investing directly in American insurance companies, you must also consider exchange rates and taxes. Even if the underlying assets are the same, the tax treatment can differ between U.S.-listed ETFs that trade in the U.S. and those listed domestically.
Also, insurance sector ETFs and bank ETFs don't always move in lockstep. Instead of judging based on just one year's performance, you need to make it a habit to look at the performance over several years and examine the included holdings.
Pairing Insurance ETFs with KODEX Korea Real Estate REIT Infrastructure
The KODEX Korea Real Estate REIT Infrastructure is a product with a different nature than the insurance sector. Since it invests in REIT and infrastructure assets, it often reacts sensitively to changes in interest rates. When considering it alongside an insurance ETF, it can be helpful to look at how both products have behaved across different periods under various interest rate environments.
It's tough to predict the stock price of any specific product in advance. For the most current price, trading volume, and dividend payout methods, check your brokerage app or the fund's prospectus directly.
Frequently Asked Questions
What's the best way to compare insurance ETFs?
Start by checking the tracking index. Next, look at the top holdings and the total expense ratio. Finally, comparing trading volume and tax treatment will give you a good idea of what the product is all about.
Why does the KODEX Korea Real Estate REIT Infrastructure stock move?
REITs and infrastructure assets are affected by interest rates, the real estate market, and rental demand. Since the reason for price movement varies by product, it's wise to look at the underlying assets alongside the recent market conditions.
Are insurance ETFs high-dividend products?
The dividend payout schedule and amount depend on the specific product. If you're looking for dividends, check the distribution history and payment method in the product prospectus, and judge it alongside the stock price movements.
Wrapping Up
When choosing an insurance ETF, try making a comparison chart by noting down the tracking index, holdings, expense ratio, and tax treatment for each one. Your first step should be to pick one product and monitor its performance for a few months with a small investment.