Some actively managed public funds in South Korea are holding up better than the broader market, either limiting losses or posting gains as local stocks correct. With shares tied to artificial intelligence beginning to diverge, strategies that pick stocks based on company earnings and balance sheets — and adjust position sizes accordingly — are separating winners from losers.
The Korea Investment Rebound Growth Korea fund returned 8.58% over the past six months as of the previous day, based on its C-class shares, according to data from financial information provider FnGuide on the 22nd. That compares with a 10.63% decline in the KOSPI over the same period, an outperformance of 19.21 percentage points. Over the past three months, the fund lost 12.53%, but that was still a smaller drop than the KOSPI's 15.62% decline.
High-dividend and value funds also outperformed the index, in some cases over both periods. The Korea Investment Pension Savings Shareholder Return High Dividend fund gained 1.56% over the past three months and lost 8.69% over six months. The Korea Investment Retirement Pension Long Term Value fund rose 0.72% over three months and lost 8.01% over six months. The Hanwha Korea Legend Small & Mid Cap fund trailed the KOSPI with a 13.38% loss over six months but rose 2.39% over the past three months.
Over the past month, the Korea Investment Pension Savings Shareholder Return High Dividend fund and the Korea Investment Retirement Pension Long Term Value fund lost 1.16% and 1.22%, respectively, far less than the KOSPI's 18.27% decline over the same period. The Korea Investment Small & Mid Cap Value fund also limited its loss to 1.58%.
Behind those results is the freedom these funds have to reshuffle portfolios in line with market conditions. Domestic active exchange-traded funds must maintain a correlation coefficient of at least 0.7 with their benchmark index, while ordinary active public funds face no such constraint. That allows managers to sharply cut holdings in heavily weighted index names and look elsewhere for opportunities.
The Korea Investment Rebound Growth Korea fund did just that, reducing exposure to semiconductors and sectors benefiting from AI investment during the downturn that began in July. Rather than trying to call a rebound, the fund focused on cutting risk exposure as the market fell, according to the manager. Sectors that had driven returns during the rally were pared back once market conditions changed.
Analysts say that if AI-related shares continue to diverge, the scope for excess returns through stock selection could widen. The Wall Street Journal said on the 19th that cracks in the AI investment boom could give active funds, which have struggled in recent years, a chance to prove their stock-picking skills. Investors have begun scrutinizing more closely those AI companies with weak balance sheets and sensitivity to rising borrowing costs, the paper said.
Assets in domestic active equity public funds are also growing. They rose from 12.9081 trillion won at the start of 2025 to 13.3641 trillion won at the beginning of this year, and reached 16.5666 trillion won ($11.6 billion) as of the previous day.
"Deciding when to sell doesn't mean selling precisely at the top — it means having your own criteria," said Song Won-bo, senior fund manager at the equity management division of Korea Investment Management. "If you can do that yourself, investing through thematic ETFs is efficient. If not, you might consider leaving it to a fund manager."