Profits in 2016 were found in safe havens like bond funds

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Profits in 2016 were found in safe havens like bond funds

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Defensive investments turned out to have made larger profits in the first half of the year, according to an analysis by the JoongAng Ilbo and Zeroin.

In a study of funds that have been managed for more than three months and has a net investment of over 10 billion won ($8.7 million), bond funds enjoyed the highest profit rate among local funds.

The average rate of profit on investment in a bond fund was 1.87 percent, while the more aggressive equity fund suffered a loss of 1.67 percent. The equity-balanced fund profit rate was 0.05 percent, while the bond balanced fund saw 0.43 percent.

Overseas investments did better than those betting on the local market. Bonds investing in overseas commodities including gold and crude oil enjoyed a profit rate of 16.37 percent. Overseas bond funds did well, with the profit rate at 4.94 percent.

But more interestingly, it was clear that local investors have been increasing their interest in bond funds. In the first half, local bond funds were able to attract a net investment of nearly 3.25 trillion won. That’s quadruple the net 899.7 billion won investment that flowed into bond funds in 2015.

Even the absolute return fund, which is mostly made of bond investments, attracted nearly 1.09 trillion won, while overseas bond funds attracted 295.8 billion won in the first six months of this year.

The increased attention to bond investments largely comes from low interest rates coupled with growing concern over securing a stable life after retirement as Korean society is rapidly aging.

With low yields from the traditional investment strategy of bank deposits because of record-low interest rates, many Korean households are starting to take a more aggressive approach on their investment plans.

But they are still cautious, and hence, many are attracted to bond funds, considered a safer investment practice than equity funds.

Kiwoom Asset Management’s KOSEF 10-year Treasury Bond Leverage ETF enjoyed the highest profit rate among bond funds, at 11.54 percent. Second place went to the same company’s KOSEF 10-year Treasury Bond, with a profit rate of 6.1 percent.

When excluding exchange-traded funds, NH-Amundi Asset Management’s Allset Treasury Bond 10 years Index enjoyed an average profit rate of 5.95 percent, the highest among general funds, followed by Samsung Asset Management’s Samsung ABF Korea Index Securities Investment Trust with 4.67 percent.

Among overseas funds, Mirae Asset Emerging Local Bond topped the list with 9.79 percent followed by Fidelity Emerging Market Bond Fund with 9.34 percent.

The equity fund on the other hand has been struggling throughout the year. It has been losing investors, with net investments withdrawn amounting to 2.25 trillion won.

Other than the Kospi 200 Index equity funds, which reported an average profit return of 1.49 percent, other types of equity fund has been seeing losses. Small and mid-cap equity funds especially, which enjoyed strong growth last year, reported an average loss of 506 percent.

Among the 40 asset management companies with net investment exceeding 30 billion won, only 12 made profit, including NH-Amundi with 1.47 percent, Barings with 1.46 percent and Kyobo Axa with 1.24 percent.

Among small and midsize asset management companies, Yukyung PSG Asset Management did fairly well. This company was not included in the average profit rates in the analysis, as its investment size fell below the 30 billion won bar.

However, the individual equity fund products ranked top on the list of equity funds with investment larger than 10 billion won.

“In the first half, there was clearly a preference for safer assets, and as the Bank of Korea’s key interest rate cut overlapped [unexpectedly in June], the interest rates on bonds dropped significantly, which helped bond funds’ profit rates to relatively improve,” said Lee Kyu-hong, chief investment officer at NH-Amundi Asset Management.


BY PARK JIN-SEOK, LEE SEUNG-HO [lee.hojeong@joongang.co.kr]

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