Hantoo Asset Management, "More Important Than Low PBR Is 'Shareholder Return'"

Korea Investment Trust Management Shareholder Return Seminar Held
"Era of Shareholder Returns, Focus on Small and Mid-Cap Stocks"

Korea Investment Trust Management announced on the 22nd that it held a seminar titled "The Era of Shareholder Returns, Changes in the Korean Stock Market" at the Financial Investment Association in Yeouido.

The seminar began with a greeting from Jung Sang-jin, Head of Equity Management at Korea Investment Trust Management (Executive Director). Jung cited the history of the shareholder value enhancement movement in the United States as an example and mentioned that the current trend of shareholder returns sweeping through the Korean stock market will gradually become a social norm.

Jung said, "In the U.S., since the 1927 proxy battle of Northern Pipeline led by Benjamin Graham, shareholder populism and hedge fund-centered activism have expanded the shareholder return rate to about 90%. Recently, the focus on enhancing shareholder value in Korea, combined with institutional improvements such as amendments to the Commercial Act and foreign buying demand, is expected to lead to a trend highlighting undervalued stocks."

The keynote speaker was Kim Ki-baek, Team Leader of the Small and Mid-Cap Value Team at Korea Investment Trust Management. Kim is a fund manager operating the Korea Investment Small Value Fund and the ACE Shareholder Return Value Active Exchange-Traded Fund (ETF), and also the author of the book "Compete with Hidden Premium Blue-Chip Stocks in the Era of Shareholder Returns."

He said, "Recently, stocks with low price-to-book ratios (PBR) have been attracting attention, but the key is not the low PBR itself," adding, "It is about aligning the interests of controlling shareholders and common shareholders through companies' strengthened and institutionalized shareholder returns."

Kim identified the biggest factor behind the 'Korea Discount' as opaque governance and low shareholder returns.

He explained, "Changes in government systems such as dividend system reforms, social atmosphere toward enhancing shareholder value including activist funds and shareholder coalitions, and generational changes in corporate management leading to strengthened shareholder return policies have all come together," adding, "The phenomenon of aligning the interests of controlling shareholders and common shareholders is emerging."

He continued, "It is important not just to focus on companies with low PBR figures but to select those that can consistently strengthen shareholder returns," emphasizing, "Strong shareholder return policies are necessary for companies to escape undervaluation." He further stressed, "Companies capable of enhancing shareholder returns can be identified through net liquid assets and earnings value."

Regarding investment targets in the era of shareholder returns, he suggested paying attention to small and mid-cap stocks rather than large caps. Kim explained, "Small and mid-sized companies are now experiencing governance changes from the first to the second generation," adding, "Unlike large companies that already have a shareholder return rate of about 30%, these companies have greater potential for shareholder return rate increases, so benefits are expected."

He added, "The conditions for small and mid-sized companies to sustain shareholder returns largely overlap with the conditions for blue-chip stocks, but these stocks are not easy for individual investors to find and analyze information on," concluding, "Investment products such as the Korea Investment Small Value Fund and the ACE Shareholder Return Value Active ETF, where fund managers select and invest in companies, will be good alternatives."

The Korea Investment Small Value Fund and the ACE Shareholder Return Value Active ETF were first launched in 2007 and 2022, respectively. They invest in companies with good quality of earnings and capital that have the potential to transition from value stocks to growth stocks. Kim has been the lead portfolio manager of the Korea Investment Small Value Fund since 2014 and of the ACE Shareholder Return Value Active ETF since its listing. The ACE Shareholder Return Value Active ETF is the only ETF with the keyword 'shareholder return' in its product name.

The seminar concluded by mentioning expectations for a healthy FOMO (Fearing Of Missing Out). Kim advised, "Since COVID-19, the FOMO phenomenon has spread widely in the stock market," adding, "I hope a time will come when those who do not participate in the shareholder return trend will feel FOMO, thereby improving the quality of the capital market."