Investor deposits, the stock market's standby funds, are topping 70 trillion won. With a long Chuseok holiday ahead, many investors appear to be watching rather than making new investments.
If there is no immediate plan to buy, it may be better to use interest rate-linked exchange-traded funds (ETFs) than to leave cash in a stock account. Because the ETFs reflect the holiday period interest in their prices in one go in advance, investors can earn more than usual over a shorter period.
As of the 27th, according to the financial investment industry, representative interest rate-linked ETFs track the CD rate and the Korea overnight financing repo rate (KOFR). These ETFs divide the tracked rate by 365 and reflect it in the price daily. Simply put, if the rate is 3.65%, the ETF price rises 0.01% each day. Currently, both the 1-year CD rate and the KOFR are in the 2.5% range.
Buying an interest rate-linked ETF before the holiday can maximize returns over a short period. That is because the interest for the period when the stock market is closed and ETFs are not traded is reflected in the price in advance.
You can see this from the usual price pattern of KODEX CD Rate Active (synthetic), the largest domestic interest rate-linked ETF. While KODEX CD Rate Active (synthetic) had been rising 75 won a day this month, it rose 215 won every Thursday. That reflects in advance the interest accrued on Saturday and Sunday when ETF transactions are not possible.
TIGER CD 1-Year Rate Active (synthetic) likewise rose about 45–90 won on Monday, Tuesday, Wednesday, and Friday this month, but climbed 220–225 won on Thursdays. Similarly, it reflected two days of weekend interest in Thursday's price in advance.
This year's Chuseok holiday runs from Oct. 3 to 9. KODEX CD Rate Active (synthetic), TIGER CD 1-Year Rate Active (synthetic), and others plan to reflect eight days of interest in prices on Oct. 1. The next day, Oct. 2, they will add three more days of interest to the price at once. This accounts for the fact that the only trading day after the Chuseok holiday is Oct. 10.
Because 11 trading days' worth of interest will be reflected in just two days, it is advantageous to buy CD rate ETFs by the 30th of this month if you plan to park idle cash over the holiday.
There is also a way to maximize returns by using the timing gap in price reflection between CD rate ETFs and KOFR ETFs. KODEX KOFR Rate Active (synthetic) and TIGER CD 1-Year Rate Active (synthetic) plan to reflect eight days of Chuseok holiday interest in advance on Oct. 2. Then on Oct. 10, they will add three more days of interest to the price.
In short, if you buy a CD rate ETF by the 30th of this month, then sell it the next day after eight days of interest is reflected in the price and immediately switch to a KOFR ETF, you can secure an additional 11 days of interest by Oct. 10. That adds up to a total of 19 days of interest.
If you buy KODEX CD Rate Active (synthetic) with 100 million won in idle cash before the Chuseok holiday and then switch to KODEX KOFR Rate Active (synthetic), the profit is estimated at about 154,000 won, excluding fees.
However, because the market is closed during the Chuseok holiday, funds placed in interest rate-linked ETFs will be tied up. This means you should use only idle cash. Also keep in mind that, due to ETF characteristics, if you end up buying higher and selling lower than expected during the trading process, your profit may decrease accordingly.