KCGI Asset Management announced on September 8 that it will newly launch a target-convertible fund that invests in small-cap stocks and converts to bonds once a target return of 12% is achieved.
This marks the first time that KCGI Asset Management is introducing an equity-type target-convertible fund. Taking into account the characteristics of the small-cap market, the company plans to limit the fundraising amount.
KCGI Asset Management will accept subscriptions for the "KCGI Korea Small Cap Target-Convertible Securities Investment Trust [Equity]" until September 19. The fund is managed with a strategy to seek stable returns by converting to a bond-type fund once a 12% return is reached.
Given the nature of funds investing in small and mid-cap stocks, the company judged that an excessively large fund size could be disadvantageous for trading efficiency and generating excess returns. Therefore, it decided to limit the total investment to around 30 billion won, rather than accepting unlimited capital. The fund will invest at least 60% in equities, and construct a concentrated portfolio of up to 30 stocks among small and mid-cap companies located at the optimal point (sweet spot) in the value chain of growth industries, focusing only on stocks in which it has strong conviction.
The "sweet spot" refers to companies that, under the premise of upstream industry growth, are expected to achieve higher revenue growth than their peers within the same industry due to factors such as technological superiority in core components, stronger pricing power from supply disruptions, and a high proportion of sales from popular products and brands.
Unlike typical small and mid-cap funds that focus on KOSDAQ stocks, this fund will classify all stocks except large-cap stocks (ranked 1st to 100th by market capitalization according to Korea Exchange standards) and all KOSDAQ stocks-about 2,500 stocks in total-as small and mid-cap stocks, thereby ensuring flexibility in portfolio inclusion.
The fund will select 200 to 300 stocks with strong fundamentals and sufficient trading liquidity as the final investment candidates, and then concentrate investments in those stocks with the highest conviction.
When investing, the fund will monitor macroeconomic conditions and the relative performance of KOSDAQ and KOSPI, adjusting the allocation between growth stocks (KOSDAQ) and value stocks (KOSPI mid-caps) accordingly. If it is determined that liquidity in the small and mid-cap market is insufficient, the fund is designed to allow up to 30% allocation to KOSPI large-cap stocks.
A KCGI Asset Management representative explained, "The small and mid-cap market is a treasure trove of potential home-run companies that cannot be replaced by large-cap stocks." The representative added, "An analysis of 600 companies with a market capitalization of over 30 billion won showed that companies with a market capitalization between 800 billion and 1.8 trillion won have a higher frequency of annual returns exceeding 100% compared to companies in other market cap ranges."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
