Korea Investment Trust Management announced on the 8th that it has launched the Korea Investment US Long-Term Treasury Fund, the first public fund in Korea to invest exclusively in US Treasury bonds. Currently, subscriptions are available through Hanwha Investment & Securities and Kookmin Bank, with plans to expand the number of distributors in the future.
The fund is characterized by a high correlation between the price movements of US Treasury bonds and the fund’s returns, making it an easy-to-understand investment strategy for investors by investing solely in US Treasury bonds. Additionally, by investing in long-term bonds, it offers an annualized yield to maturity (YTM) of 4.55% as of the 8th, along with potential capital gains when the US benchmark interest rate is lowered.
The Korea Investment US Long-Term Treasury Fund is a public fund that focuses on investing in US long-term Treasury bond spot markets and US-listed ETFs that invest in US long-term Treasury bond spot markets. The portfolio consists of approximately 30% US long-term Treasury bond spot holdings with a remaining maturity of 24 years and duration over 15 years, and about 70% US-listed US long-term Treasury ETFs. Some residual liquidity (US dollar cash) is also continuously used to pursue interest income through dollar money market funds (MMFs) and similar instruments.
The Korea Investment US Long-Term Treasury Fund aims to outperform the benchmark index, the Bloomberg US Long Treasury Total Return Index. This index is a representative US long-term Treasury bond index composed of US long-term Treasury bonds with an issuance size of over $300 million and a remaining maturity of 10 years or more. The fund’s US long-term Treasury portfolio selects bonds within the benchmark index by comprehensively considering factors such as yield to maturity and current yield (bond price relative to face value interest), duration (weighted average maturity), and liquidity, aiming to achieve excess returns compared to the benchmark.
For the US long-term Treasury ETF investment strategy, bond ETFs tracking indices similar to the benchmark are prioritized. To pursue excess returns, the fund invests in ETFs by comprehensively considering factors such as whether they invest in spot or futures, tracking error relative to the benchmark, total fees, and liquidity. Additionally, as an interest rate hedge strategy, the fund uses US 30-year Treasury futures within a maximum of 5% of the portfolio.
Considering investor satisfaction, the Korea Investment US Long-Term Treasury Fund also offers a short redemption base price period. While most funds of the same type (overseas bond funds) have a redemption cycle of 9 business days, this product applies the base price as of 4 business days from the redemption application date, allowing investors to receive redemption proceeds in 6 business days.
Seoyongtae, head of the Global Strategy Management Department at Korea Investment Trust Management, who is in charge of managing the fund, stated, “This year, the US Federal Reserve (Fed) is expected to conclude its aggressive monetary tightening policy and begin a full-scale interest rate cut phase within the year. The Korea Investment US Long-Term Treasury Fund is an optimal product for long-term investors who want to enjoy both interest income and capital gains by investing in the anticipated interest rate cut environment.”
The Korea Investment US Long-Term Treasury Fund has been launched in three types: a currency-hedged (H) type that hedges risks from exchange rate fluctuations, an unhedged (UH) type that exposes assets to exchange rate fluctuations, and a USD type that allows direct investment with held US dollars (USD). This fund is a dividend-paying product, and principal loss may occur depending on management results. Also, the yield to maturity (YTM) may vary depending on the investment timing, so investors should exercise caution when investing.
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