By Park Hyong-ki
With expectations rising on inflation during the Donald Trump administration next year, funds investing in bonds with yields linked to consumer price growth are gaining attraction.
Funds such as inverse-bond exchange traded funds (ETF) and inflation-linked bond funds are emerging as an alternative to stocks and fixed-income securities, according to Zeroin, a fund evaluating and investment firm.
President-elect Trump's key campaign pledge included financing infrastructure development through fiscal stimulus backed by bond issuances.
His fiscal policy is driving capital outflows from the bond market on forecast of rising inflation.
As bond prices move inversely to yields, higher consumer price growth would weigh down bond prices, leaving investors with potential losses.
Last month, investors pulled their money out of bonds funds worth over 1.2 trillion won in November this year as yields on Korea's three-year state bonds increased 27.2 basis points to around 1.7 percent.
In the U.S., its yields on 10-year Treasuries increased by 53 basis points to over 2 percent. Some $28 billion left the global bond market, of which some $9 billion left the bond markets in emerging economies, according to Shinhan Financial.
Inverse-bond ETFs such as Samsung Asset Management's KODEX enable investors to reap higher returns on rising inflation, whereas general bond funds enable investors to gain on low inflation and high bond prices.
Last month, Samsung KODEX inverse-bond ETFs had returns of 3.62 percent on average, according to Zeroin.
"There is an expectation of inflation as President-elect Trump seeks an expansionary fiscal policy during his first term," said Kim Jin-woo, global credit analyst at Shinhan Investment.
"Also, the global bond market is expected to weaken further on the U.S. Federal Reserve's possible rate hike (next week)."
The U.S. Federal Open Market Committee will meet on Dec. 13-14 to vote whether to raise its interest rate.