[Practical Finance] Dual Income from Interest and Dividends... 'Income Fund' Shines Brighter in Crisis

Stable Income Amid Rapidly Changing Investment Environment
Income Funds Focused on Regular Earnings

[Asia Economy Reporter Oh Ju-yeon] In the global stock market gripped by the fear of the novel coronavirus infection (COVID-19), investors' funds have lost their way. Even gold, which was considered a safe asset, is being shunned, leading to capital outflows from gold funds. Overseas stock funds, which delivered double-digit returns last year, have seen returns drop by more than 20% in just one month. Investment sentiment is shrinking across both risky and safe assets. In this atmosphere, income funds are gaining attention.

Income funds focus on regular income. They invest in products such as bonds, high-dividend stocks, preferred stocks, and REITs to pursue steady earnings through interest, dividends, and rental income.

Recently, coupled with the low-interest-rate environment, income funds have the advantage of being usable for pension receipt purposes. In a market with increased uncertainty like now, there is growing interest in income funds from the perspective that a diversified asset allocation strategy is needed rather than a portfolio centered on stock assets.

According to financial information provider FnGuide on the 16th, income funds saw a net inflow of 171.4 billion KRW over the past month. This contrasts with other thematic funds, which experienced capital outflows.

During the same period, Samsung Group funds saw 51.7 billion KRW withdrawn, and KOSDAQ venture funds had a net outflow of 10.6 billion KRW. Value stock funds and public offering stock funds experienced capital outflows of 73.5 billion KRW and 54.3 billion KRW, respectively.

As commodity prices plunged, commodity funds also saw a net outflow of 14.1 billion KRW. Gold prices, which had been rising toward their highest levels this year as a safe asset, fell back, causing 9.3 billion KRW to exit gold funds.

Despite the rapidly changing investment environment, the inflow into income funds continues because, although income funds cannot guarantee high returns, they can hedge against uncertainty and volatility through stable income.

Income funds are categorized into bond-type, stock-type, and real estate-type. Bond-type funds are suitable for investors seeking stable returns. Stock-type funds mainly invest in high-dividend stocks or preferred stocks and can also expect capital gains from stock price appreciation. Real estate-type funds can expect regular rental income.

Domestic income funds are classified into various types such as overseas stock-type (global stocks, emerging market stocks), domestic stock-type (active dividend stocks, active general stocks), overseas bond-type (global bonds, North American bonds, European bonds, emerging market bonds, Asia-Pacific bonds), domestic bond-type (general bonds, ultra-short-term bonds), overseas mixed-type (overseas stock mixed, overseas bond mixed, overseas asset allocation), domestic mixed-type (bond alpha, bond mixed), and overseas alternative-type (overseas special assets, global REITs indirect).

Among these, the growth of 'multi-asset income funds' investing in diverse assets is expected to be remarkable. According to Shin Young Securities, multi-asset income funds were already very popular in Japan in 2005, where they invested one-third each in high-yield bonds, high-dividend stocks/preferred stocks, and REITs, earning the nickname 'three-part funds.' Similar multi-asset income funds have been launched domestically as well, investing in bonds, stocks, REITs, and various other assets, and are expected to continue growing.

However, although income funds can provide stable returns, they cannot be considered 'safe.' Investment strategies may vary depending on the target assets, and economic variables, monetary policies of various countries, domestic and international government policies, corporate performance, and global capital flows can all influence outcomes.

For example, the representative income product, the S&P 500 High Dividend Index, fell 71% from its peak during the 2008 financial crisis, showing a larger drop than global stock indices. Researcher Cho Seung-bin of Daishin Securities emphasized, "Income-type investments should diversify investment products rather than investing in a single product to reduce return volatility and establish a foundation for stable long-term performance."

Researcher Oh Kwang-young of Shin Young Securities said, "With low interest rates and an increasing elderly population, the importance of income-type investments will grow even more." He added, "Since the effect of income is maximized with long-term investment, rather than pursuing income returns through a single asset, investing through asset allocation across various assets will allow for more stable income returns."

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