Bond ETFs Attracting Investors in ETF Market
The net asset value of bond-type exchange-traded funds (ETFs) surpassed 6 trillion won (US$5.16 billion) this month. With uncertainty arising from the stock market and expectations on interest rates going lower, a large amount of money in the EFT market is flowing into bond ETFs which follow the bond index. The selling points of ETF products, such as relatively lower commissions and easy transaction by retail investors, are also raising interest in bond ETFs.
The total net assets of bond ETFs came to 6.04 trillion won (US$5.19 billion) as of June 21, according to the Korea Securities Depository (KSD) on June 23. The figure increased by 296.20 billion won (US$254.58 million) from 5.74 trillion won (US$4.94 billion) last month, exceeding 6 trillion won (US$5.16 billion). Bond-type ETFs also showed the biggest growth among 11 types of ETFs released by the KSD and it is the only ETF that has had an increase in asset value every month from the beginning of this year.
By type of bond ETFs, the net asset value of short-term bonds grew by 164 billion won (US$140.95 million) to 4.35 trillion won (US$3.74 billion) compared to last month, while that of corporate bonds and government and public bonds rose by 102.50 billion won (US$88.10 million) and 29.50 billion won (US$25.35 million), respectively, to 945.10 billion won (US$812.29 million) and 739.80 billion won (US$635.84 million). Local market tracker FnGuide found that yield for Kiwoom KOSEF 10-year Government Bond Leverage reached the highest at 7.35 percent since the beginning of the year, followed by KB KBSTAR V&S Select Value Bond at 5.46 percent.
Bond ETFs have been growing in size every month but ETFs that follow the market index have a big difference in capital inflow and outflow in each time period. In fact, the net asset value of ETFs which follow the market index, including KOSPI 200, net increased by 154.50 billion won (US$132.79 million) this month but decreased by 2.09 trillion won (US$1.80 billion) and 1.71 trillion won (US$1.47 billion) in April and May, respectively, compared to the previous month.
Bond-type ETFs are getting popularity largely due to preference for bonds. With the intensifying trade dispute between the United States and China and concerns over the economic slowdown this year, bonds which are considered risk free assets are in high demand. The price of bonds is also on the rise as major countries recently hinted that they would lower their benchmark interest rates. Againstthisbackdrop, an increasing number of investors prefer bonds and invest in bond-type ETFs.
The feature of EFTs also raises investors’ interest in bond ETFs. An ETF is an investment fund listed and traded on stock exchanges, much like stocks. It has lower commission fees than other funds and can be easily sold and bought. In short, it has better liquidity than investing directly in bonds and funds and can be easily traded.
In addition, institutional investors’ growing interest has also led to the growth of bond-type ETFs. A manager of ETF operation division at an asset management firm said, “Since institutional investors viewed bonds in the long run in the past, they were disinterested in ETFs. However, even institutions have recently been raising the ratio of EFTs in corporate bonds and bond futures.”