The Key to Next Year's Fund Market Following This Year: 'E.T.F'

E: ESG Boom
T: TDF Growth
F: Ant Investors' Shift

[Asia Economy Reporter Junho Hwang] The keyword for this year's fund market can be identified as E.T.F. It was a year when ESG (Environmental, Social, Governance) emerged as an important factor in investment. There was a rediscovery of the use of retirement pensions such as Target Date Funds (TDF), and it was also a year when frustrated individual investors (retail investors) knocked on the fund market. In particular, the market rapidly expanded as individual investors flocked to Exchange-Traded Funds (ETFs), which can be traded like stocks.

According to the Korea Financial Investment Association on the 24th, as of the 23rd, the net assets of the domestic fund market recorded 328.2126 trillion won, an increase of 17.56% compared to the previous year. Although the direct investment craze that arose after COVID-19, producing various new terms such as Donghak Ants and stock market beginners, continued, the fund market grew steadily.

ESG Investment Boom

One of the main drivers of market growth is the ESG boom. The ESG fund market has grown rapidly both domestically and internationally. According to financial information provider FnGuide, 970.6 billion won flowed into domestic equity-type ESG funds since the beginning of the year. Over the past five years, about 1.3 trillion won has been gathered in ESG funds. Son Miji, a researcher at Shinhan Asset Management’s ESG Strategy Team, analyzed, "Net inflows of funds are expected to continue next year, but due to the spread of caution against greenwashing and strengthened ESG regulations, a process of 'separating the wheat from the chaff' is anticipated. It is expected that diversified ESG financial products such as alternative investments and carbon offset credit investments, beyond traditional assets, will continue to be launched."

TDF Doubles in Size

As the direct investment craze grew, interest in retirement pensions increased, and the scale of funds that can be invested through pension accounts also grew rapidly. The net assets of TDF, a representative pension product, doubled compared to the beginning of the year. With the passage of the default option bill this year, awareness of pension investment is expected to increase further next year. Ryu Kyung-sik, head of WM Pension Marketing Division, stated, "As interest in retirement asset management rises, demand for investment products is also increasing, and inflows into TDFs, which allow easy global asset allocation investment according to life cycles, are expected to continue to grow."

Inflow of Frustrated Individual Investors

The rise in the fund market is analyzed as a result of individual investors who tasted the bitter side of direct investment turning their eyes to indirect investment. In particular, as individual investors poured funds into the easily tradable ETF market, ETF net assets increased by about 38.09% compared to the beginning of the year. The impact of asset management companies releasing various themed products such as global stocks, metaverse, and carbon emission rights tailored to these tastes was also significant. Given the increased anxiety about the stock market due to factors such as the US interest rate hikes and semiconductor industry uncertainties next year, this trend is likely to continue.

Additionally, in this year's fund market, MMFs increased to an all-time high, and overseas equity funds also expanded significantly. Funds related to the public offering craze attracted capital, and there was also a trend of increasing online subscribers.

Oh Kwang-young, a liquidity researcher at Shin Young Securities, advised, "Next year, changes in the fund market will be driven by regulatory easing on active ETFs and institutional changes such as financial investment income tax. It will be advantageous to build a diversified portfolio composed of many high-quality stocks and funds both domestic and overseas."

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