Target-maturity ETFs in Korea absorb nearly $4 bn this year

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Target-maturity bond exchange-traded funds (ETFs), which offer stable returns regardless of interest rate fluctuations, have witnessed significant growth in South Korea, surpassing a total size of 5 trillion won ($3.95 billion) in less than a year. These diversified bond ETFs, allowing investments in high-grade corporate bonds and government bonds, have gained popularity, leading to a roughly 60 percent increase in the overall net asset value (NAV) of bond ETFs this year.

According to the Korea Exchange on Sunday, target-maturity bond ETFs reached a net asset under management (AUM) of 4.75 trillion won as of July 13. The introduction of various bond ETFs has contributed to the overall growth of the bond ETF market, which saw its AUM rise 57 percent from 13.96 trillion won at the end of last year to 21.92 trillion won on July 13.

Individual investors continue to show buying interest in the bond market.

According to the Korea Financial Investment Association, individual investors have already purchased bonds worth 20.63 trillion won this year, surpassing the net purchase size of 20.61 trillion won for the entire previous year.

Target-maturity bond ETFs offer high investment convenience and minimize the risk of bond price fluctuations due to interest rate changes, making them an attractive investment option.

These ETFs enable low-cost diversified investments in bank bonds, state-run corporate bonds, and high-grade private company bonds with a credit rating of AA- or above.

Yield to maturity represents the expected rate of return from bonds if held until maturity. Upon maturity, the bonds are liquidated, and bondholders receive the combined amount of interest and principal after deducting management fees and expenses.

KODEX 23-12 Bank Bond (rated AA+ or above) Active ETF, with a yield to maturity of 3.77 percent, has consistently attracted funds and grown to a net asset size of 1.81 trillion won.

KBSTAR 23-11 Corporate Bond (rated AA- or above) Active ETF, with a net asset size of around 600 billion won, is the second-largest ETF in terms of size. It allows investment in high-grade corporate bonds with an AA- or above rating. The “23-11” in the product name signifies its maturity in November 2023. Bonds from Seoul Metro, Shinhan Card, Korea Aerospace Industries, and Woori Bank have a significant allocation in this ETF.

TIGER 25-10 Corporate Bond (rated A+ or above) Active ETF, with an estimated yield to maturity of 4.34 percent, has experienced consistent net buying by individuals, except for just five days, since its listing in March.

With increasing interest in target-maturity bonds, long-term bond ETFs with residual maturities of up to 30 years have entered the market. KODEX 53-09 Government Bond Active ETF, managed by Samsung Asset Management, has a maturity date set for 2053.