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Unification funds are a hot ticket

Hoping for improved relations, investors bet on infrastructure
June 07,2018
As hopes for peace sweep the Korean Peninsula ahead of the historic North Korea-U.S. summit on June 12, investment firms are hoping to cash in on optimism through so-called unification funds.

These funds mostly invest in construction and steel companies, which are projected to rise in value if the two Koreas agree to economic cooperation.

The HI Korea Unification Renaissance Class A stock fund, one unification fund from investment firm HI Asset Management, recorded 8.15 percent year-to-date (YTD) returns between January and May of this year, according to investment consulting firm KG Zeroin on Sunday. During the same period, Korean equity funds posted negative returns of 1.15 percent on average.

Not counting exchange-traded funds (ETFs), there were only 12 funds, including HI Korea Unification Renaissance, that posted over 8 percent returns among all the 543 active equity funds in Korea.

The HI Korea Unification Renaissance fund invests in construction and railway shares that are expected to grow if South Korean firms help build infrastructure in North Korea.

“Before, unification funds invested in shares related to government support, like consumer goods, food, fertilizer and biopharmaceuticals, as well as infrastructure and underground resources,” said Kim Yeon-su, a manager at HI Asset Management.

“Now, we’ve revamped the fund’s portfolio to focus on investing in firms that will benefit the most from each stage of inter-Korean cooperation, with the end goal of North-South unification in mind.”

In the past month, total investment in the HI Korea Unification Renaissance fund doubled from 1.4 billion won ($1.3 million) to 2.8 billion won.

Investors also put 2 billion won into Shinyoung Asset Management’s Shinyoung Marathon Unification Korea stock fund in May, as the upcoming North-South summit boosted investor sentiment.

The fund recorded 3.47 percent YTD returns, and had a total investment size of 28.3 billion won as of the end of May.

Unification funds initially emerged in 2014, when former President Park Geun-hye said in a speech that riches could be made in unification. However, they faded into obscurity as North-South relations worsened.

The May North-South summit was a boon for the HI Korea Unification Renaissance fund, which was on the verge of liquidation earlier this year.

“As return rates improved and customers showed high interest, we decided to reorganize the fund and nurture it,” said Kim.

HI Asset Management no longer charges investors redemption fees on the fund. It also makes donations to the Korean Red Cross, which has historically worked on projects to assist North Koreans.

Other investment companies are scrambling to launch their own unification funds.

On May 14, UBS Hana Asset Management launched the Hana UBS Greater Korea stock fund, based on the Hana UBS FirstClass Ace fund, which came out in 1999. Though the Greater Korea fund invests in large-cap shares, including Samsung Electronics, KB Financial Group and Posco, the rest of the investment is in shares related to inter-Korean cooperation.

Samsung Asset Management is also redesigning the Samsung My Best fund - made up of large-cap and blue-chip stocks - into a unification fund. BNK Asset Management’s BNK Brave New Korea fund, which is scheduled to start accepting investments this month, will invest in shares from companies that are planning on entering North Korea, according to industry sources.

Hopes for peace are also helping to buoy ETFs related to inter-Korean cooperation. Samsung Asset Management’s KODEX Construction stock ETF posted 16.52 percent in one-year returns as of Monday, one of the highest among all the equity funds.

Other ETFs that invest in construction shares, like Mirae Asset Global Investments’ Tiger 200 Construction stock ETF, posted returns of over 14 percent as well.

Some consulting firms are even coming up with products that will allow clients to invest in hand-picked high-return ETFs. NH-Amundi Asset Management’s Great Korea ETF-Managed Portfolio, unveiled on May 23, invests in several ETFs related to inter-Korean cooperation.

“Because there will be a large structural change in the domestic economy as North-South economic cooperation materializes, investors need to think long-term and invest with insight,” said Lee Jin-young, a marketing manager at NH-Amundi Asset Management. “We are also planning to launch a new open-ended public offering fund that will invest in shares that will benefit from inter-Korean cooperation.”


BY SHIM SAE-ROM [kim.eunjin1@joongang.co.kr]