1-Year Return Surpasses 1,100%: Domestic Equity Funds Boom as ‘Forced Long-Term Investment’ Pays Off

Public Funds See Inflows into Domestic Equity-Type Products
Scale Surpasses Overseas Equity Funds
“1,100% One-Year Return” Leverage Products Emerge

With expectations rising again for a rally in the domestic stock market, helped by factors such as the anticipated end of hostilities between the United States and Iran, public funds are also seeing capital flow into domestic equity products. In line with the stock market boom, some funds are reporting returns exceeding 1,000%.

According to FnGuide on June 19, the net inflow into domestic equity public funds increased by KRW 1.5507 trillion during the week ending June 17. In comparison, net inflows into overseas equity funds only rose by KRW 683.1 billion during the same period.

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As domestic equity funds have gained popularity, their size has outpaced that of overseas equity funds. On December 26 of last year, the net asset value (NAV) of domestic equity funds stood at KRW 65.5457 trillion, which was less than the KRW 64.3289 trillion held by overseas equity funds. However, as of June 17, domestic equity funds had grown to KRW 96.8864 trillion, while overseas equity funds stood at KRW 73.2752 trillion, making domestic equity funds larger by about KRW 23 trillion.

The strong inflow into domestic equity funds is largely attributed to their robust returns. The KOSPI, which hovered at the 4,200 level at the end of last year, surged to 8,800 on June 17, propelling the performance of domestic equity funds. The average six-month return stands at 117.90%, and the one-year average is 200.22%, which is roughly four times higher than the 24.54% and 52.87% posted by overseas equity funds for the same periods.

There are now domestic equity funds with one-year returns exceeding 1,000%. According to Fund Guide, “Hanwha 2.2x Leveraged Index Securities Investment Trust (Equity-Derivatives Indirect Type) Class A” posted a one-year return of 1,111.86%. Excluding three exchange-traded funds (ETFs), this is the highest one-year return among all products. This high-risk fund invests in leveraged ETFs in an indirect structure to track about 2.2 times the daily return of the KOSPI 200 Index.

Domestic equity funds eligible for retirement pension investment are also delivering strong one-year returns in the 300% range. “Mirae Asset Core Tech Securities Investment Trust (Equity) Class C-P2e” recorded a one-year return of 368.15%, the highest among pension fund products. This fund holds large allocations in high-performing stocks such as Samsung Electronics (25.06%), SK hynix (14.42%), SK Square (7.95%), and Samsung Electro-Mechanics (4.70%).

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On the other hand, capital is flowing out of bond funds, whose returns have lagged those of equity funds. According to FnGuide, during the week ending June 17, domestic bond public funds saw net outflows of KRW 703 billion, while overseas bond funds saw outflows of KRW 431.1 billion.

Industry experts explain that, for similar asset classes, public funds may be better suited for “long-term investing” compared to ETFs. An asset management company official stated, “With ETFs, the convenience of trading can lead to excessive trading, which can be a drawback. In contrast, using a fund can be advantageous for what amounts to a ‘forced long-term investment.'”

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