Korea Investment Management announced on May 22 that it is launching the Korea Investment Hang Seng Tech Step-Up Dollar-Cost Averaging Target Conversion Fund, which seeks stable returns by dollar-cost averaging investments in domestically listed China Hang Seng Tech ETFs until a target return is achieved. Subscriptions are available at SC First Bank until May 27.
The Korea Investment Hang Seng Tech Target Conversion Fund is a product that invests in Chinese innovative companies expected to benefit from the current expansion of the artificial intelligence (AI) ecosystem, driven by the emergence of DeepSeek in China, as well as from the Chinese government's recent economic stimulus measures. The main investment vehicle, the domestically listed Hang Seng Tech ETF, includes 30 high-growth, innovative technology stocks listed on the Hong Kong Stock Exchange.
This fund employs a 'step-up dollar-cost averaging strategy' to pursue a target return of 10% with relatively low volatility. According to the dollar-cost averaging strategy, at the initial setup, approximately 30% of total net assets are allocated to the Hang Seng Tech ETF, while the remaining 70% are invested in domestic short-term bond ETFs. The proportion of Hang Seng Tech ETF holdings is gradually increased in line with buy signals, eventually reaching up to 100% of the portfolio.
The strategy simultaneously implements both price-based and time-based dollar-cost averaging. The price-based strategy involves buying or selling approximately 4-5% of total net assets each time the reference index rises or falls by about 2%, repeating this process. No more than three purchases are made within the same index price range. The time-based strategy involves making at least one 5% purchase every 10 trading days, with up to three purchases allowed within any five trading days.
Korea Investment Management confirmed through its own simulations that the fund's management strategy demonstrated lower volatility and more stable performance in loss periods compared to the market index (Hang Seng Tech). Looking at the maximum drawdown (MDD) indicator, which measures the largest potential loss during the investment process, an analysis assuming weekly entries over approximately seven years from January 15, 2015, showed that while the Hang Seng Tech index experienced declines averaging up to -18%, the strategy limited maximum drawdown to -13%. This indicates that even during sharp market downturns, losses could be relatively reduced, enabling more stable achievement of the target return.
As a 'target conversion' fund, once the target return of 10% is reached, the portfolio is rebalanced into a bond fund. All assets are then managed in relatively stable domestic bonds and liquid assets until liquidation.
The fund's management period also varies depending on when the target return is achieved: 1) one year from the initial setup date (if achieved within six months), 2) six months after fund conversion (if achieved after six months), or 3) five years (if the target return is not reached). However, investors may redeem their holdings at any time without redemption fees, regardless of the management company.
Cha Hyemin, the responsible manager at Korea Investment Management's Global Quantitative Management Division, stated, "DeepSeek, unveiled in China this January, is expected to accelerate the commercialization of AI in areas such as humanoids and autonomous driving, as it outperforms many existing models despite its low cost." She added, "At the National People's Congress in March this year, the Chinese government set 'domestic demand and science and technology' as its top policy priorities, so we can expect expanded policy support for the AI sector."
The Korea Investment Hang Seng Tech Step-Up Dollar-Cost Averaging Target Conversion Fund is a performance-based product, and past returns do not guarantee future performance. Principal loss may occur depending on investment results.
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