[Finance Barometer] Asset Allocation ETFs: Capturing Both Risk Management and Returns

Popularity of Asset Allocation ETFs Including Samsung Electronics·SK hynix Bond Mixed Products
Strengths in Risk and Return Management Amid Market Volatility
Especially Noteworthy for Use in Retirement Pension Accounts

As the stock market rally continues, volatility is also increasing, prompting heightened interest in safe investment options. In particular, asset allocation ETFs, which aim to capture both safety and returns, are gaining attention as investment vehicles that can achieve both goals.

According to the Korea Exchange on June 18, the net asset value of RISE Samsung Electronics·SK hynix Bond Mixed 50 stood at KRW 3.9405 trillion as of June 17, making it the second largest among ETFs listed this year. This figure surpasses that of single-stock leveraged ETFs, which previously drew significant market interest and capital inflows. This ETF also set a record as the fastest domestic bond-mixed ETF to surpass KRW 3 trillion in net assets. KODEX Samsung Electronics·SK hynix Bond Mixed 50 has also seen its net asset value increase to KRW 1.3394 trillion in just over two months since its listing.

Asset allocation refers to the proportion of stocks, bonds, and other assets included in a portfolio. Asset allocation investing means deploying capital in accordance with predetermined ratios. Asset allocation ETFs are instruments that implement this strategy in ETF format. When utilized appropriately, asset allocation ETFs enable investors to control volatility effectively while simultaneously pursuing returns.

Eunhye Lim, a researcher at Samsung Securities, cited the following characteristics of asset allocation ETFs: a) clear investment objectives and outcome-driven strategies, b) the ability to manage assets dynamically in response to market conditions, c) the capacity for the fund itself to respond to market changes, d) professional management of asset allocation positions by fund managers, and e) low management fees and trading convenience. She said, "It is virtually impossible for investors to perfectly time their buying and selling decisions to cope with market downturns and volatility throughout the year. Asset allocation ETFs help mitigate equity market volatility by mixing stocks with bonds or alternative assets, allowing investors to avoid exiting the market and encouraging long-term investing. These ETFs maintain a preset target allocation based on either rule-based algorithms or the discretion of portfolio managers. As a result, during periods of market decline, they naturally acquire undervalued assets while taking profits on those that have surged, making this an attractive investment approach."

The popularity of asset allocation ETFs is rising further as ETFs become core investment assets for retirement pensions. This is because, for retirement pensions designed for the long term, consistent returns and stability are paramount. Researcher Lim explained, "The essence of ETFs lies in diversification across multiple underlying assets, which gives them a strong advantage in asset allocation. Especially in a year like this, when both macroeconomic and geopolitical variables are causing heightened market volatility, simply leveraging asset allocation strategies can be a major strength for risk and return management within a portfolio. Even investors who take aggressive positions in their regular stock accounts should not overlook asset allocation ETFs from a retirement asset investment perspective."

Insik Kim, a researcher at IBK Investment & Securities, also noted, "Whereas safe assets in the past meant primarily bonds or deposits, the pension ETF market is now evolving by increasing allocations to domestic growth stocks through bond-structured products."

Another reason asset allocation ETFs are attracting attention in retirement pension accounts is their ability to indirectly increase exposure to risky assets. Currently, defined contribution (DC) and individual retirement pension (IRP) accounts are subject to a 70% investment cap on risky assets, requiring the remaining 30% to be invested in safe assets such as bonds. However, the situation changes when utilizing bond-mixed ETFs, which are classified as non-risky assets. By fully allocating the 70% limit to equity ETFs and using the mandatory 30% safe asset portion for mixed ETFs with a '40% equity + 60% bond' structure, the actual equity exposure of the entire account can be raised to as much as 82%.

Researcher Lim explained, "Many bond-mixed ETFs listed in Korea are classified as non-risky assets, making them eligible for inclusion in pension accounts. As a result, these bond-mixed ETFs are gaining popularity as a tool to indirectly expand exposure to risky assets and maximize portfolio efficiency. In fact, 12 new bond-mixed ETFs have been launched just this year, and this aggressive rollout is a reflection of investors seeking greater flexibility in managing their pension accounts by utilizing bond-mixed ETFs."

This content was produced with the assistance of AI translation services.