'Small and Mid-Cap Funds' Shining Brighter Amid Market Volatility

3-Month Return of 5.51%
Nearly 20% Since the Beginning of the Year
Highest Among Domestic Type Funds

[Asia Economy Reporter Minji Lee] Despite the risks posed by the Delta variant and tightening policies in the US and China, domestic small and mid-cap stock funds in South Korea continue to outperform other funds.

According to financial information provider FnGuide on the 10th, the average return of 54 actively managed small and mid-cap funds launched domestically was 5.51% over the past three months. Since the beginning of the year, the return was 19.08%, the highest among domestic fund categories. The average return of all domestic equity funds since the start of the year was 9.03%.

The relative strength of small and mid-cap stocks compared to large-cap stocks this year drove the fund returns. This year, KOSPI 200 small and mid-cap stocks rose about 31%, while large-cap stocks increased by only 4%. Lee Kyung-min, a researcher at Daishin Securities, said, "In June, July, and August this year, the relative strength of KOSDAQ and small and mid-cap stocks continued, which is a phenomenon that has repeated every first half of the year," adding, "It is analyzed that the relative strength was shown more as a price gap reduction rather than fundamental momentum."

Looking at individual funds, the ‘Hana UBS Korea Small and Mid-Cap Fund’ recorded the highest return of 33.84% since the beginning of the year. The top-performing small and mid-cap funds this year mainly included Kakao and NAVER as key holdings, along with companies in the textile and apparel sector and semiconductor parts manufacturers. The Hana UBS Small and Mid-Cap Fund held stocks in the following proportions: F&F (4.55%), Kakao (4.21%), Cheil Worldwide (3.29%), Hwasung (3.14%), and Hyundai Mipo Dockyard (2.65%). Other funds with strong returns included ‘Hyundai Small Giants’ (33.6%), ‘Korea Investment Small Value’ (27%), ‘KB Small and Mid-Cap Focus’ (27%), and ‘Meritz Korea Small Cap’ (26%).

On the other hand, funds heavily invested in Samsung Electronics showed lower returns. Traditionally, small and mid-cap funds have maintained stable returns by holding a high proportion of Samsung Electronics, the largest domestic market cap company, but this year Samsung Electronics fell nearly 10% since the start of the year, failing to contribute positively to the overall portfolio returns. For example, the ‘BNK Samsung Electronics Small and Mid-Cap Fund,’ which holds undervalued small and mid-cap stocks centered around Samsung Electronics, recorded only a 6% return since the beginning of the year. This fund holds Samsung Electronics (23.55%), NCSoft (4.47%), Medytox (3.09%), and LIG Nex1 (2.62%). NCSoft, which recently experienced a sharp decline due to poor new releases, is also estimated to have negatively impacted returns.

Kim Jae-eun, a researcher at NH Investment & Securities, explained, "For small and mid-cap stocks, concerns about earnings peak-out have increased, but it is expected that earnings in the second half will increase significantly compared to the first half, so the investment attractiveness of small and mid-cap funds is likely to be maintained."

However, despite favorable returns, the assets under management in small and mid-cap funds have steadily declined. Since the beginning of the year, 377.7 billion KRW has been withdrawn, with 53.7 billion KRW leaving over the past six months.

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