[Practical Finance] Riskier Situations Call for More Effective 'Damabulsa (多馬不死)' Investment Strategies

EMP Fund Assets Reach 918.3 Billion KRW... Increased by 112.5 Billion KRW in 3 Months
Effective in Resolving Volatility Risks and Maximizing Stability
Investing in Overseas Real Estate via REITs Offers Portfolio Diversification Benefits
Note That Diversification Does Not Guarantee Profits

[Asia Economy Reporter Song Seung-seop] Attention is focusing on diversified investment products among financial industry workers and investors as market liquidity and volatility increase. New COVID-19 cases are surging globally due to the Delta variant, while uncertainty is growing amid the impact of U.S.-originated interest rate hikes. South Korea is also under strong pressure to raise the benchmark interest rate to manage the rapidly increasing debt. Voices are emerging that a diversified investment strategy to secure safety is necessary, especially when market outlooks are uncertain regardless of the stock.

According to financial information company FnGuide on the 25th, as of the 23rd, the domestic EMP (ETF Managed Portfolio) fund assets amounted to 918.3 billion KRW, an increase of 112.5 billion KRW from 805.8 billion KRW three months ago. Compared to 551.1 billion KRW a year ago, this is an increase of 367.2 billion KRW, or 66.6%. As the fund duration lengthened, returns also increased. The return over the recent three months was 2.82%, while it rose to 11.47% over one year and 18.64% over five years.

EMP funds are also known as "super-diversified funds." They invest 50% of fund assets in Exchange-Traded Funds (ETFs). ETFs are funds listed on exchanges and traded like stocks. ETFs themselves diversify investments across specific countries, stock markets, or industries. Because ETFs, which are diversified investment products themselves, are further diversified, the effect is maximized. Operating costs are also lower than portfolios composed of individual stocks.

This is why EMP funds are attracting attention from investors aiming to mitigate volatility risk and maximize stability. In particular, a key advantage is that returns do not drop significantly compared to the extent of stock price declines. It also aligns with the conservative tendencies of individual investors who prefer selecting countries and industries over individual stocks. In fact, EMP funds are generating profits even in bear markets.

However, EMP funds do not have unconditional advantages. Even if the countries and industries invested in grow rapidly, explosive returns are difficult to expect.

Recently, as the KOSPI has declined and stock market outlooks have become uncertain, diversified investment methods in REITs (Real Estate Investment Trusts) are also gaining attention. REITs are products that collect funds from multiple investors, invest in real estate, and distribute profits. They are a type of indirect real estate investment that earns rental income, capital gains from sales, and development profits. Listed REITs have the advantage of being easier to liquidate than direct real estate investments.

Through REIT investments, portfolios heavily concentrated in domestic real estate can be diversified. Investors can spread investments across various buildings such as houses, officetels, shopping malls, and logistics centers, or purchase REITs holding high-quality overseas real estate to achieve global diversification. According to research by Professors Lee Young-joo and Ahn Seong-pil from Sogang University's Business Administration Department, incorporating well-selected listed REITs into individual investors' portfolios can provide diversification benefits without lowering returns.

Increasing the Number of Investment Items to Hundreds Dramatically Reduces Loss Rates... Product Launches and Marketing Also Follow

In the online investment-linked finance industry (OnTu industry), diversification techniques that increase the number of investment items to hundreds are attracting attention. The OnTu industry pursues medium returns and medium risks, but the risk level decreases sharply as the number of investment items increases.

Analysis of 18 investment data sets by Lendit, which handles credit loan products, from August 2018 to January 2020 showed that the possibility of principal preservation increased as investments were spread across as many bonds as possible.

Investors handling fewer than 100 bonds had a principal loss rate of about 9.20%, but those who diversified between 101 and 200 bonds saw this rate drop significantly to 1.14%. When the number of diversified bonds reached 200, the loss rate was 0.88%, and when exceeding 300 bonds, it converged to 0.22%, effectively close to zero.

As a result, some customers have lowered the investment unit to 5,000 KRW or 10,000 KRW to invest in as many products as possible. According to the industry, some investors have invested in thousands to nearly ten thousand products with small amounts.

Even in retirement pension funds, which are basically long-term investments, globally diversified investment items showed higher returns than those limited to domestic stocks. This is because the COVID-19 recovery in the U.S. and China has been faster than in Korea, and their stock markets have grown more sharply. According to the Korea Financial Investment Association, as of the end of last month, 13 out of the top 20 retirement pension fund products with the highest 3-year returns were overseas equity funds.

Financial companies are also continuing to launch diversified investment products and related events. Meritz Securities operates the "Meritz Fund Master Lab," which diversifies investments across domestic and overseas funds. It is characterized by experts selecting funds directly. The research center analyzes global economic and market outlooks and provides asset allocation strategies, while fund managers select funds with excellent performance and management philosophy to invest capital.

Korea Citibank is running a "Diversified Investment Fund Event" until the end of this month. Customers who subscribe to two or more new funds will receive a mobile gift certificate for Shinsegae products worth up to 1 million KRW, depending on the total fund amount.

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