Retail stock investors are underperforming in indirect investment through funds as well as in direct investment. They are not benefiting from the rising stock market since the turn of the year as they have betted largely on bond-type funds, which are more like risk-free assets, while shunning Samsung Group funds and leveraged funds which offer a high rate of return. In addition, individual investors are suffering losses by investing mainly in stocks with a high level of short sale transactions.
Market data provider FnGuide said on Jan. 22 that the average earnings rate of the total bond-type funds listed on the domestic public offering fund market stood at 0.11 percent as of Jan. 21. The figure is much lower than the average price-earnings ratio of the total equity-type funds, which stands at 3.57 percent. As the benchmark KOSPI index rose 4.1 percent from Jan. 1 to 21, showing a rebound from the beginning of the year, most equity-type funds made a good profit. On the other hand, bond-type funds seemed to be losing an upward momentum due to the austerity measures in major countries, including the U.S. Federal Reserve’s interest rate hike, and concerns over the global economic downturn.
The problem is that retail investors have gone against the trend this year by buying up mostly bond-type funds. About 865.40 billion won (US$764.49 million) of money flowed into domestic bond-type funds in the public offering fund market, which is crowded with retail investors, until Jan. 21. Nearly 1 trillion won (US$883.39 million) of money has been invested in bonds in less than a month since the New Year has kicked off. The figure is three times higher than 309.90 billion won (US$273.76 million) of money flowed into domestic equity-type funds over the same period.
An official from the asset management industry said, “It seems that individual investors have shifted the focus of their New Year’s fund investment strategy from equity to bond after stock prices showed a steep decline at the end of last year. Since they have failed to benefit from the rise in stock prices at the beginning of the year, their new strategy is a failure.”
The equity-type funds that retail investors bought also showed a poor performance. FnGuide said that 73.50 billion won (US$64.93 million) of money was invested into financial funds in the domestic public offering fund market from Jan. 1 to 21. This is the largest influx of capital among a total of 39 theme funds, except for exchange traded funds and retirement pension funds. However, the earnings rate of domestic financial funds for this year is 2.84 percent, which is one of the lowest among theme funds. Retail investors bet on bond-type funds and financial funds, which are a type of risk-free assets, but they could not achieve good results as major financial stocks were excluded from the bullish stock market at the beginning of the year.
On the contrary, there was a capital outflow from Samsung Group funds and leveraged funds which are enjoying the rally in the stock market. Net outflow from leveraged funds and Samsung Group funds in the public offering fund market amounted to 243.30 billion won (US$214.93 million) and 22 billion won (US$19.43 million) of money, respectively, this year as of Jan. 21. Considering the fact that the annual rate of return of the two funds recorded at 5.75 percent and 3.97 percent, respectively, with the recent stock market rally, the timing of sale was premature, according to market experts.
As individuals made a bad investment decision, there is growing concern over funds leakage. Retail investors bought Celltrion Inc. and Samsung Electro-Mechanics Co. the most on the stock market this year. They bought 197.50 billion won (US$174.47 million) worth of Celltrion shares and 153.50 billion won (US$135.60 million) of Samsung Electro-Mechanics shares as of Jan. 21. However, the earnings rate of the two stocks after the beginning of the year is low at -11 percent and -6 percent, respectively, due to a high level of short sale transactions by foreign and institutional investors. The net sale of retail investors on the KOSPI market this year was also on the rise to 1.34 trillion won (US$1.18 billion) until Jan. 21.