“Just a year ago, the term ‘escape from the national pension’ was common, but now the undervaluation factors in the domestic stock market are gradually normalizing.”
Jeon Yong-woo, head of Samsung Asset Management's Pension OCIO Division, made this statement in a recent interview with Aju Economy, noting that the investment environment in the domestic stock market is changing. He assessed that the long-term investment appeal of the Korean market is increasing, considering factors such as expanded shareholder returns and the role of domestic companies in the artificial intelligence (AI) industry.
He emphasized that while investing in overseas assets, such as those in the U.S., remains valid, investors preparing for retirement should also include domestic assets in their portfolios to hedge against currency fluctuations.
One reason Jeon highlights the necessity of domestic assets is the impact of exchange rates. Overseas assets are influenced not only by the prices of the investments but also by currency fluctuations. Particularly for those investing with a retirement goal decades away, the exchange rate at the time of asset utilization must be considered.
He explained, “One of the biggest pitfalls of global diversification is currency risk. If you plan to live in Korea after retirement and the exchange rate drops significantly when converting dollar assets to won, it could pose a problem.” He added, “It is essential to hold assets that can move in tandem with the currency of the country where you reside over the long term.”
Jeon assessed that the investment environment in the domestic stock market has changed compared to the past. While the term ‘escape from the national pension’ was prevalent until last year, he believes that the undervaluation factors affecting domestic companies are gradually being resolved.
He stated, “If the Korean market has been undervalued until now, many of those issues have been alleviated over the past year. The ongoing shareholder returns indicate that the factors leading to undervaluation in the global market are slowly normalizing.” He also noted that considering the role of domestic companies in the global AI era, investing in the Korean market is becoming increasingly compelling.
However, he stressed the importance of managing volatility through diversification and rebalancing rather than chasing specific stocks or trending themes. This is crucial as market-leading sectors can change rapidly, making it difficult for individual investors to determine the right investment timing.
Samsung Asset Management's introduction of the 'Korea TDF (Target Date Fund) Active' aligns with this approach. Instead of simply tracking the KOSPI, it diversifies investments across domestic stocks and bonds and adjusts the portfolio based on market conditions.
Jeon explained, “If I were to describe TDF in two ways, the first would be diversification managed by experts, and the second would be automatic rebalancing. While diversification is not about achieving the top performance, it can be the best investment in the long run.”
Jeon emphasized that TDF should not be viewed as a product aimed at achieving high short-term returns. The Samsung Global Active Qualified TDF 2045 (H), launched in April 2016, recorded an annualized return of approximately 8.7% and a cumulative return of about 120% over ten years as of April this year.
He noted, “An annual return of 8.7% may not seem significant, but when compounded over ten years, it results in a cumulative 120%.” He added, “TDF is not a product that will yield huge profits next month after investing today.”
He recalled a phrase Samsung Asset Management used in the early days of its TDF business: “Sign up and forget about it.”
This reflects the investment philosophy of maintaining a well-diversified portfolio over the long term rather than buying and selling based on market fluctuations. He explained, “Diversification does not mean achieving the same returns when one asset rises significantly; rather, it helps reduce losses when an asset declines sharply.”
Jeon also noted the need to differentiate between the recently popular exchange-traded funds (ETFs) and TDFs based on investment objectives. While ETFs excel in allowing investors to select desired themes and trade in real-time, TDFs are more suitable for investors looking to steadily accumulate assets over the long term, similar to a pension.
He believes the key to long-term investing lies not in identifying the ‘winners’ of the market but in avoiding significant losses. He suggested, “If you have assets worth 100, consider keeping at least 70-80 in a stable diversified investment portfolio, invest 10-20 directly if desired, and keep the rest in liquid assets for when needed.” He concluded, “In the long run, it’s more about not being a ‘loser’ than becoming a ‘winner.’”
He emphasized that maintaining a well-diversified portfolio can help avoid situations where one feels they have “failed,” asserting that TDFs are well-suited for this purpose.
* This article has been translated by AI.
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