[Asia Economy Reporter Hwang Yoon-joo] Korea Investment Trust Management announced on the 21st that it will list two maturity bond-type exchange-traded funds (ETFs) on the Korea Exchange on the 22nd.
The maturity bond-type ETFs to be listed this time are the 'ACE 23-12 Corporate Bond (AA- or higher) Active ETF' and the 'ACE 24-12 Corporate Bond (AA- or higher) Active ETF.' These ETFs primarily invest in bonds maturing in about one year and two years, respectively.
They invest in bonds with excellent liquidity and credit ratings of AA- or higher, aiming to achieve mid-5% maturity yields and stability simultaneously. According to NICE Credit Rating Agency, the average cumulative default rate of AA-rated bonds has been 0% from 1998 to the present, with no defaults. Unlike existing bond-type ETFs, maturity bond-type ETFs are automatically liquidated upon maturity. The numbers in the ETF name indicate the year and month of delisting. For example, 23-12 means it will be delisted in December 2023.
The 'ACE 23-12 Corporate Bond (AA- or higher) Active ETF' uses the 'KIS Credit 2312 Maturity Total Return Index' as its benchmark. This index consists of bonds maturing in December 2023 and January 2024. According to KIS Asset Evaluation as of the 31st, the target maturity yield of this index is 5.32%, and the duration is 1.16 years.
The benchmark index for the simultaneously listed 'ACE 24-12 Corporate Bond (AA- or higher) Active ETF' is the 'KIS Credit 2412 Maturity Total Return Index.' It consists of bonds maturing in December 2024 and February 2025. The target maturity yield of this index is 5.58%, and the duration is 2.10 years.
Both indices include high-quality components from the KIS Composite Bond Index that meet the following criteria: △ credit rating of AA- or higher △ special bonds, bank bonds, other financial bonds, corporate bonds △ issuance balance of 50 billion KRW or more, enhancing stability. To improve profitability, the issuance balance proportion of special bonds and bank bonds is limited to 40%. The number of components is 201 and 146, respectively, using a market capitalization weighting method.
The 'ACE 23-12 Corporate Bond (AA- or higher) Active ETF' and 'ACE 24-12 Corporate Bond (AA- or higher) Active ETF' are active ETFs where fund managers discretionarily manage part of the assets to pursue higher performance than the benchmark. The management is led by Senior Manager Jo Ik-hwan of FI Management Department 1, who has managed bonds for over 10 years and currently manages about 1.4 trillion KRW in assets. Utilizing accumulated management know-how, the plan is to select and invest in bonds within similar ratings that have higher interest income and are undervalued relative to fundamentals, aiming for excess returns compared to the benchmark.
Another feature is that dividends are retained until maturity to eliminate reinvestment risk. The total fee for these ETFs is 0.05%. The price per unit is set at 100,000 KRW. Tax benefits are also available when investing through pension accounts. Investments can be made up to 100% within pension accounts.
Meanwhile, it should be noted that past default rates may not necessarily apply equally in the future.
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