Achieved No.1 Returns Across All Periods Including 6.2% Over 3 Months and 18.72% Over 2 Years
[Asia Economy Reporter Yoonju Hwang] As the default option system for retirement pensions is set to be fully implemented, interest in target date funds (TDF) is increasing. Korea Investment Trust Management announced on the 28th that its 'Korea Investment TDF Alseorae 2050 UH' recorded a 6.2% return over the past three months, ranking first in returns across all periods.
According to fund evaluator FnGuide, as of the 26th, the 'Korea Investment TDF Alseorae 2050 UH' achieved an 18.72% return over the past two years (based on the representative class C-Re). The 1-month, 3-month, and 6-month returns were -1.58%, 6.2%, and -2.06%, respectively. Year-to-date and 1-year returns stood at -7.39% and -6.59%. These returns rank first among 30 domestic TDF 2050 vintages across all periods.
TDFs are global asset allocation funds that automatically adjust portfolios according to lifecycle asset allocation strategies, targeting the investor's expected retirement year. Korea Investment Trust Management has demonstrated long-term performance through collaboration with global pension specialist T. Rowe Price, managing the 'Korea Investment TDF Alseorae Fund.'
The four-digit number in the TDF name, called the 'vintage,' indicates the investor's expected retirement year. Investors can select the appropriate TDF based on their anticipated retirement year. For example, 'TDF 2050' is optimal for investors planning to retire around 2050. The larger the vintage (the longer the time until retirement), the higher the equity investment ratio. Aggressive investors may choose a TDF with a larger vintage regardless of their expected retirement date to pursue higher expected returns.
Since TDFs invest diversely in global stocks and other assets, currency strategies also deserve attention. Overseas stock investments are exposed to both stock price volatility and exchange rate fluctuations.
Most TDFs are offered in two types: currency-hedged (H·Hedged), which eliminates exchange rate volatility, and currency-unhedged (UH·Unhedged), which exposes assets to exchange rate fluctuations. Korea Investment Trust Management advises focusing on the strengths of the currency-unhedged (UH) option when selecting a TDF. Although it is commonly assumed that currency-hedged funds carry lower investment risk, Korea Investment Trust Management's analysis shows that the return volatility risk of currency-unhedged funds is actually lower.
In recent years, overseas stock returns and the KRW-USD exchange rate have tended to move in opposite directions. Due to global economic uncertainties and increased preference for safe assets, the US dollar's value rose while overseas stock prices performed poorly. This means that currency hedging, which removes exchange rate volatility, risked creating a large gap between expected and actual returns. Conversely, without currency hedging, exchange rate returns offset stock return volatility risk. Exchange rate fluctuations thus played a role in reducing the risk of overseas stock investments.
Min Sang-gu, head of the Solutions Division at Korea Investment Trust Management, emphasized, "Since it is difficult to predict the short-term direction of exchange rates, it is impossible to know in advance which investment return?hedged or unhedged?will be higher. Ultimately, investors can only choose options that reduce risk."
Min added, "The common belief that currency hedging lowers investment risk is not accurate, so investors should examine the currency hedging and unhedged strategies when investing in funds. Especially for TDFs, which are intended for long-term investment, choosing the currency-unhedged type is a good way to reduce risk if the investor has a long time until retirement or wants a high equity allocation."
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