ETFs provided safe haven

While equity funds in the Korean market were struggling with losses in the third quarter amid the Greek debt crisis and increasing volatility over a U.S. rate hike, a few funds still offered decent returns - they were exchange-traded funds (ETFs), a fund which is invested on an index, commodity or bonds.

Data from KG Zeroin, a financial information provider in Seoul, showed the top six funds between July and September were all ETFs. Samsung Asset Management’s Samsung KODEX Autos ETF ranked the top, with its returns at 11.96 percent. Following it were four funds making between 2.14 percent and 9.42 percent.

All of the funds that invested on Korean equity markets crashed during the period. JP Morgan Asset Management was ranked at the top among equity funds during the third quarter, but its earning was merely minus 1.09 percent. The bottom was KTB Asset Management, which recorded minus 17.28 percent.

Funds that invested on overseas equities also saw losses. There were only two funds making returns: Samsung India Equity Feeder Fund 2 [Class A], at 3.73 percent, and Samsung Japan Small-Mid Cap Focus Feeder Fund (Unhedged) [Class C1], at 0.6 percent.

Those invested in commodities or bonds also showed good performances. On balance, bond funds made high returns with surging bond prices as investors flocked to safer assets amid a slowed global economy.

The top in bond funds was Kiwoom Asset Management’s Kiwoom KOSEF 10Y KTB Leverage ETF, which tracks 10-year government bonds, with returns at 7.15 percent. Among commodity-related funds, Mirae Asset Management’s Mirae Asset TIGER WTI INVERSE ETF(H), tracking WTI crude prices, also hit the highest returns during the period, at 27.02 percent, amid a slide in oil, because the fund’s return was an inverse relationship with WTI prices.

As ETFs invest on specific industries or indexes regardless of the overall equity market’s fluctuation, investors can earn high returns despite a crash in overall Kospi shares. In fact, funds investing on an index of the consumer discretionary sector - referring to consumer goods that are not necessities such as automobiles, luxury goods and apparel - showed relatively higher returns than other funds. Other good performers in index funds were invested in automobile or some “low volatility” stocks, which tend to fluctuate less than other shares.

An ETF market is easier for investors to understand, as it is traded in the same way on the stock market. The Korean government has recently released a package of measures to stimulate the ETF market, including tax cuts.

But analysts warn picking a promising ETF is not a key to successful investment. A wrong choice could lead to a bigger loss than investing in other funds, such as ETFs invested in semiconductor or healthcare indexes.

“As the stock market is developing, demand for ETFs will inevitably surge,” said Yun Ju-yeong, a senior manager at Mirae Asset Global Investments.

“The government needs to vitalize asset management services to help investors make a right decision.”

BY PARK JIN-SEOK [kim.heejin@joongang.co.kr]