Yellow Umbrella Mutual Aid Fund is set to invest 200 billion won ($167 million) in overseas stocks to increase its return on assets as a low interest rate environment persists.
The South Korean savings arm for small and mid-sized business owners plans to receive investment proposals from managers by August 7 and then select preferred bidders in late August, The Financial News reported, citing investment banking (IB) sources on July 27. Yellow Umbrella will commit a total of 200 billion won to the selected managers that will invest in stocks, exchange traded funds (ETFs) and exchange traded notes (ETNs), all listed in foreign countries.
ETFs are a type of security that involves a collection of securities – such as stocks – that often track an underlying index, although they can invest in any number of industry sectors or use various strategies, while ETNs are a type of unsecured debt securities that track an underlying index of securities and trade on a major exchange like a stock.
The investment period is one year from the establishment date of the funds and the contract will be extended on a yearly basis. Yellow Umbrella plans to increase its investments in funds that show outstanding performance, the report said.
Prior to this investment, Yellow Umbrella committed about 500 billion won to overseas stock funds at the end of last year.
“Yellow Umbrella tries to invest in overseas stocks and bonds due to the low expected rate of return on investment in domestic bond and stock markets,” an IB industry source said. “It is expected to increase the overseas investment in order to increase the rate of return on investment and diversify its portfolio.” (Reporting by Jinwon Lee)