Despite the Appeal of Dividends and Interest Like a Salary... 'Income Funds' Popularity Has Faded

9.237 Trillion KRW Capital Outflow Over One Year
Risk Asset Investment Sentiment Spreads in Bull Market
Lower Returns Compared to Equity Funds
Decline in Launch of Low-Interest Products

[Asia Economy Reporter Minji Lee] Income funds, which are attractive for their stable returns and steadily accumulating dividends, have struggled this year. Nearly 1 trillion won has flowed out over the past year, and their returns have been relatively low. This is interpreted as a result of the investment sentiment shifting towards risk assets such as stocks, which offer higher returns rather than stability, following the strong market trend after the COVID-19 pandemic.

According to financial information provider FnGuide on the 11th, as of the 9th, 923.7 billion won has flowed out of 112 domestic income funds over the past year. Since the beginning of the year, 781.5 billion won, and over the past six months, 745.7 billion won have exited. Income investment is a medium-risk, medium-return investment method that seeks lower risk than stocks but higher returns than savings and deposits. It refers to investments accompanied by asset price appreciation and steady cash income (interest, dividends). Typically, portfolios include bond products, blue-chip stocks, REITs, and other alternative investment assets.

Although income funds have attracted over 1 trillion won annually due to stable returns, the situation is different this year. Last year alone, amid extreme volatility in the stock market caused by the US-China trade dispute and Japan’s export restrictions, more than 1.5 trillion won flowed into income funds. This year, the preference for risk assets centered on stocks has increased since COVID-19, leading to relatively less interest in income-type assets that are easier to use for responding to economic slowdown.

The lower returns compared to equity assets also affected investor sentiment. Over the past year, the average return of domestic equity funds was 36.20%. Since the beginning of the year, they recorded a high return of 25.81%. This year, the KOSPI recorded a 25% increase, much higher than last year’s 7% rise. In contrast, income funds posted a total return of 4.55% over the past year and only 2.82% since the beginning of the year.

Due to weak investor interest, new product launches have also decreased. A total of six income-type public funds were launched in the domestic market this year. This contrasts with 18 launched last year, nine in 2018, and 17 in 2017.

Among individual funds, the largest outflow was from the 'Hana UBS PIMCO Global Income Mixed Asset Private Investment Trust.' This fund diversifies investments across over 5,300 bonds including developed country bonds, investment-grade bonds, high-yield bonds, mortgage bonds, and emerging market bonds. Last year alone, it attracted over 1 trillion won, showing the largest inflow among public funds. However, this year, 577.2 billion won flowed out, halving its assets under management. The fund recorded a low return of 3.6% over the past year and 2.7% since the beginning of the year, which likely contributed to the large outflow.

However, even among individual funds, there was a wide variation in returns depending on the assets held. The 'Woori G Allianz Income & Growth Securities Private Investment Trust' recorded a 20.63% return over one year, with North American stocks contributing significantly to the rise. Among North American stocks, it evenly held Apple (1.88%), Amazon (1.78%), Microsoft (1.76%), Alphabet (1.56%), and Facebook (1.42%).

Other funds such as 'Eastspring Retirement Pension Industry Leader 40 Securities Private Investment Trust' (14.61%), 'KTB Global Multi-Asset Income EMP Securities Investment Trust' (13.96%), and 'Midas Global Blue Chip Dividend Income Mixed Asset Private Investment Trust' (13.19%) also posted returns exceeding 10%.

The market expects that if the economic slowdown and low interest rates persist due to COVID-19, more investors will turn to income-type assets. Namjoong Moon, a researcher at Daishin Securities, said, "In the first half of this year, major countries pursued monetary easing and expansionary fiscal policies, leading to a pronounced preference for risk assets. In the long term, economic slowdown and declining interest rates may continue, so the preference for income-type assets and real assets could persist."

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