As domestic investors' demand for gold has increased recently, asset management firms are rolling out a wider array of gold-related products. Kiwoom Asset Management brought a strategy that combines gold with a major U.S. index to buffer stock volatility, while Hanwha Asset Management introduced a niche strategy that blends gold and bonds to boost usability within retirement pension accounts.
According to the financial investment industry on the 2nd, Kiwoom Asset Management plans to launch the KIWOOM S&P 500 & GOLD exchange-traded fund (ETF) on the 9th of this month. It will consist of 90% of the Standard & Poor's (S&P) 500 index and 10% gold.
The core strategy is to track the U.S. stock market's long-term growth while adding gold, a safe asset, to defend returns in downturns. Kiwoom Asset Management said stocks and gold tend to move in opposite directions, making it effective at reducing volatility. In addition, gold is expected to provide a currency-hedging effect for the S&P 500 index, which is a dollar asset.
Kiwoom Asset Management's analysis of long-term returns since 2000 found that including 10% gold produced an annual compound return (6.5%) that was 0.62 percentage point higher than holding only the S&P 500 index. As a result, the cumulative return was 328.7% with the index alone, versus 399.5% when adding 10% gold. The firm said reducing investment losses in downturns ultimately lifts long-term compound returns.
A Kiwoom Asset Management official, explaining the 10% gold allocation, said, "Excessive gold exposure can undermine the stock performance of the S&P 500," adding, "When gold was included at a 10% weight, it best tracked rallies while defending against downturns."
On the 15th of this month, Hanwha Asset Management will newly list the PLUS Gold Bond Mix ETF, which blends gold and 3-year Treasury bonds in half. It reflects demand to invest in gold among safe assets.
It stands out in particular for boosting usability in retirement pension accounts (DC, IRP). This product is a bond-mix ETF that holds gold with bonds and is recognized as a safe asset in retirement pensions. Existing gold ETFs were classified as risky assets and could be included in retirement pension accounts only up to 70%.
A Hanwha Asset Management official said, "It is the only gold-related ETF in which 100% of accrued funds can be invested within a retirement pension account," adding, "If 70% is invested in domestic or overseas stocks and the remaining 30% in this product, the portfolio can be 70% stocks, 15% gold, and 15% bonds."
In the capital markets industry, smaller and mid-sized managers are seen joining the race to secure niche revenue with new types of products. As investment demand becomes increasingly segmented, there is perceived "food" beyond the spot gold ETF market already dominated by large firms. In fact, as gold prices surged early this year, four gold-related ETFs were launched in the first half alone, and large managers first took control of the spot gold ETF market with products such as Korea Investment Management's ACE KRX Gold Spot ETF, followed by TIGER KRX Gold Spot and KODEX Gold Active ETFs. Now, small and mid-sized firms such as Kiwoom and Hanwha are seeking additional demand by differentiating with mixed strategies.
Although gold prices have entered a breather recently, global investment banks are betting on a mid- to long-term uptrend. Deutsche Bank said demand, including the Central Bank's gold purchases and ETF investments, has exceeded total supply, and on the 26th of last month it raised its gold price outlook for next year to $4,450 per ounce. On the New York Mercantile Exchange (COMEX) that day, the February gold futures price was fluctuating around $4,260.