KB Securities "Intermediary ISA Customers Bought Many Overseas Stock ETFs"

KB Securities announced on the 10th that customers with brokerage-type Individual Savings Accounts (ISA) are investing heavily in overseas equity Exchange-Traded Funds (ETFs) to take advantage of tax benefits.

According to an analysis of ETF investment trends among brokerage-type ISA customers by KB Securities, the proportion of indirect ETF investments using tax-advantaged accounts is increasing.

An ISA is a tax-advantaged account that allows investment in various financial products within a single account. Interest and dividend income from products invested in through a brokerage-type ISA are tax-exempt up to KRW 2 million (KRW 4 million for the basic type). While capital gains from trading domestic listed stocks are not taxed even in general accounts, capital gains from overseas equity and bond ETFs, excluding domestic equity ETFs, are subject to a 15.4% dividend income tax. Therefore, investing through a brokerage-type ISA is advantageous.

Looking at the types of ETFs traded by customers through brokerage-type ISAs, as of the end of July, overseas equity ETFs accounted for the largest balance proportion at 68.0%. Since individuals may be liable for capital gains tax when directly investing in overseas stocks, it is interpreted that customers are employing strategies to maximize tax benefits.

Examining the top holdings by account type, popular overseas equity ETFs included not only those tracking indices such as the U.S. S&P 500 and Nasdaq 100 but also theme ETFs focused on growth stocks with high capital gains tax burdens during price increases, such as Chinese electric vehicle and U.S. tech stocks. For domestic equity ETFs, many top-ranked ETFs were related to secondary battery stocks, which rallied since the beginning of the year. High-dividend stock ETFs, which offer significant tax benefits when invested through an ISA, were also found among the top ranks.

Next, for overseas bond ETFs, the 30-year and 10-year U.S. long-term bonds ranked highly, reflecting the view that U.S. interest rates have peaked. Even if interest rates rebound slightly, downward pressure is expected to remain strong, and the strategy appears to be to fully enjoy tax-exempt capital gains accordingly.

Finally, for domestic bond ETFs, the 30-year and 10-year government bonds ranked first and second, respectively. The rise of maturity-matching (term-limited) bond ETFs, which have recently gained popularity, was notable. These ETFs pay principal and agreed interest upon maturity and are then delisted, allowing investors to avoid bond loss risks due to interest rate fluctuations while pursuing high expected yields to maturity (YTM). Investing through a brokerage-type ISA also provides tax benefits on expected returns.

Wang Hyun-jung, a tax specialist at KB Securities’ TAX Solutions Department, said, "Considering the recent rise in U.S. stock prices and domestic and international interest rate trends, utilizing ETF investments within brokerage-type ISAs to reduce capital gains and interest income taxes is analyzed to be a wise choice."

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