Korean investors flock to new ETFs amid bear market

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Investors in South Korea are flocking to stable alternatives such as exchange traded fund (ETF) products amid growing uncertainty in the global financial market following the bankruptcy of Silicon Valley Bank (SVB) in the U.S. and the liquidity crisis at Credit Suisse.

According to local financial market tracker FnGuide on Thursday, KODEX 23-12 Bank Bonds, rated AA+ or higher, saw an inflow of 538 billion won ($412.3 million) over the past month. KODEX 23-12 is a bond ETF with an expiry date, similar to a regular fixed-term deposit, which allows investors to get the expected return at the point of purchase.

The product is gaining popularity among local investors in a volatile market since it has no penalty for early withdrawal, no investment limit, and can provide stable interest revenue as well as an expected rate of return until expiry. KODEX 23-12 has already surpassed 150 trillion won in net asset value.

In the past month, ETFs that invested in risk-free assets such as bonds and KOFR rates saw the most cash inflows among non-leveraged and non-inverse ETFs.

Investors are also turning to Covered Call ETFs, which generate returns through dividend payouts, in times of high uncertainty.

According to Mirae Asset Management Co., TIGER U.S. NASDAQ 100 Covered Call (Synthetic) ETF exceeded 10 billion won in individual net purchases since the beginning of the year. Covered Call is a strategy of buying underlying assets and simultaneously selling call options on those assets. Under the Covered Call strategy, the option selling premium cushions losses in the event of a fall in the underlying asset, while limiting the profitability in the event of an increase in the underlying asset.

Target Income Fund (TIF) is also recommended as an investment alternative. According to data, the domestic TIF market size recently reached 735.2 billion won, with Mirae Asset Management operating the largest fund of 660.8 billion won among investment management firms.

While Target Day Fund (TDF), a well-known pension product, focuses on raising wealth until retirement, TIF aims to delay the depletion of funds collected as long as possible. This is why TIF diversifies investments across various assets, such as domestic and foreign dividend stocks, advanced and emerging market sovereign bonds, Covered Call funds, and REITs, while maintaining a constant ratio between high- and low-risk assets to generate a stable income.