Korea Investment Management Launches Korea Investment Crisis Response Strategic Asset Allocation Fund

Korea Investment Management announced on December 23 that it will launch the "Korea Investment Crisis Response Strategic Asset Allocation Fund," a product that invests in strategic assets. The fund will be available for subscription at KB Kookmin Bank starting December 24.

Strategic assets refer to assets that maintain or increase in value during times of market crisis or heightened uncertainty. The characteristics of strategic assets include: low volatility, high liquidity, scarcity due to limited supply, and low correlation with risk assets. Thanks to these features, they can be used to limit losses or pursue hedging even when risk assets experience sharp declines.

The Korea Investment Crisis Response Strategic Asset Allocation Fund invests 90% in strategic assets and 10% in alpha strategies. Strategic assets include U.S. Treasury bonds, U.S. dollars, and gold. U.S. Treasury bonds have played a strategic asset role during major financial crises in the 21st century, such as the dot-com bubble, the global financial crisis, and COVID-19. The U.S. dollar, as the world's key currency, accounts for about 60% of global foreign exchange reserves and international settlement currency. Gold is expected to see excess demand due to increased demand from global central banks amid geopolitical uncertainty and a slowdown in annual mining growth.

The alpha strategy includes assets such as silver, copper, and German government bonds. Alpha strategies are investment strategies that seek excess returns (alpha) above the market average. The fund selects and incorporates alpha assets that either share similar characteristics with traditional strategic assets or are suitable for approaches such as selling overvalued assets and buying undervalued ones. This approach aims to uncover additional profit opportunities. The allocation between strategic assets and alpha strategies is rebalanced quarterly based on market conditions and asset performance. This enables the fund to prepare for sharp declines in risk assets while also pursuing stable returns.

Another strength of the Korea Investment Crisis Response Strategic Asset Allocation Fund is its use of currency hedging strategies tailored to each asset. For example, U.S. Treasury bonds and gold are invested with currency hedging, while U.S. dollars are invested with currency exposure. For alpha assets, the decision to hedge currency risk is made based on market conditions.

Korea Investment Management also analyzed the effects of combining strategic assets with alpha strategies. Based on the average annual returns over the past 20 years, the company compared a portfolio invested 100% in strategic assets with one allocated 90% to strategic assets and 10% to alpha strategies. The former achieved an average annual return of 6.24%, while the latter recorded 6.69%, resulting in a difference of 0.45 percentage points per year.

Kim Donghyun, Head of Global Quantitative Investment at Korea Investment Management and the fund's responsible manager, stated, "The Korea Investment Crisis Response Strategic Asset Allocation Fund is a product that pursues both stable and additional returns in today's highly uncertain market environment. It is suitable for inclusion as part of the portfolio of investors with a high proportion of risk assets, as a preparation for increasing market uncertainty."

Meanwhile, the Korea Investment Crisis Response Strategic Asset Allocation Fund mentioned in this article is a performance-based product, and past returns do not guarantee future returns. Principal loss may occur depending on investment results.