KODEX Ultra-Long-Term Bond ETFs 2 Types Surpass 10% Monthly Returns

Expected Interest Rate Decline... Interest in Long-Duration Bond ETFs
Anticipating an 'Era of Ultra-Long-Term Bonds' for the Time Being

[Asia Economy Reporter Hwang Yoon-joo] Two ultra-long-term bond ETFs with maturities of 30 years or more managed by Samsung Asset Management have attracted the attention of individual bond investors by surpassing a one-month return rate of 10%.

On the 8th, Samsung Asset Management announced that the recent one-month returns of the ‘Samsung KODEX U.S. Treasury Ultra 30-Year Futures (H) ETF’ and the ‘Samsung KODEX Treasury Bond 30-Year Active ETF’ reached 12.9% and 13.1%, respectively.

Riding on this rising return trend, the KODEX U.S. Treasury Ultra 30-Year Futures (H) ETF attracted 21.5 billion KRW of individual investor funds on the market, ranking first in net purchases among bond-type ETFs.

The KODEX U.S. Treasury Ultra 30-Year Futures (H) ETF allows asset allocation to 30-year U.S. Treasury bonds with a small amount of investment. It tracks the ‘S&P Ultra T-Bond Futures Excess Return Index’ as its underlying index and has a duration of 17 years. Moreover, this product is currency-hedged, so it is not significantly affected by the recent decline in the dollar, making it advantageous for managing returns. As a result, buying interest continues among investors interested in high-quality U.S. bonds. The total expense ratio is 0.3% per annum.

The KODEX Treasury Bond 30-Year Active ETF is an active bond ETF representing the Korean ultra-long-term bond market. It includes treasury bonds issued with a 30-year maturity that have a remaining maturity exceeding 20 years. Since its listing in August this year, both individual and institutional investors have steadily shown buying interest on the market, recording net purchases of 4 billion KRW.

This year, as market interest rates sharply rose to ease inflation but are now believed to have reached a peak due to concerns over economic slowdown, the number of investors betting on falling interest rates has increased, leading to a rise in bond investors as well.

In particular, investors’ interest is focusing on ultra-long-term bonds with long durations to properly leverage the effect of falling interest rates. Duration refers to the period required to recover the principal invested in a bond and represents the bond’s effective maturity. Generally, the longer the maturity, the longer the duration.

Im Tae-hyuk, Head of ETF Management at Samsung Asset Management, said, “During periods of falling interest rates, the length of a bond ETF’s duration is directly linked to the size of returns, and ultra-long-term bond yields tend to decline if the possibility of an economic recession increases.” He added, “Although there may be some debate about the timing of entry, since many forecasts suggest that the end of the ongoing global central bank rate hikes will ultimately be an economic recession, the ‘golden age of ultra-long-term bonds’ with growing interest in ultra-long-term bond ETFs with long durations is expected to continue for the time being.”