Hello, this is Ho-seok Lee. Today, Senior Manager Dong-woo Lee from the ETF Consulting Team of Samsung Asset Management has joined us. Hello. Nice to meet you. Could you please introduce yourself briefly? Yes, hello everyone. I am Dong-woo Lee, Senior Manager of the ETF Consulting Team at Samsung Asset Management. It's nice to meet you. Well, today we will talk about interest rates. Actually, the topic of interest rates is something that I have discussed a lot on this channel as well. However, I'm not sure what the Fed is thinking, but it seems like the market's sentiment is changing a lot. Just a few days ago, there was talk that the rate cut might be postponed again, but when I checked this morning, the forecast is that there might be a cut in September. I really can't wait for this.

I wonder what's going on with this, and many people may think, Oh, it's tough now. Please go down a bit now. I think people might have various concerns. I'm curious about Assistant Director's thoughts on the delayed interest rate issue. Yes, indeed, I'm also very curious about when the interest rates will be lowered. Prices are not easily controlled, and with the continuous positive aspects of the U.S. economy, the outlook for interest rate cuts seems to be pushed back a lot. Some even mentioned the possibility of raising rates recently. That's right. However, we believe that the trend has shifted towards interest rate cuts. Yes, the issue is when the interest rate cuts will start. In fact, this is the issue.

The trend of raising interest rates is no longer considered at all now. This is based on the remarks of the Fed chairman and members, as well as the market's outlook on future interest rates in the futures market. When looking at these factors, it seems that the shift towards a rate cut is appropriate. However, within the Fed, there is still a debate between hawks and doves, so the situation is somewhat conflicting. Of course, depending on future economic indicators, things could change, but it seems that the pace of interest rate cuts could be slower. The speed may slow down a bit. If we wait a little longer, it might come, but the pace could slow down. So, for those who invest in bonds, it's good that interest rates are high, but ultimately, when the interest rate cut will happen is quite important.

What do you think? Yes, that's right. We know the direction, but I think it's time to think a bit about the speed. When we look at how interest rates will flow, there are three economic indicators that we commonly refer to. The first one is the Consumer Price Index, which we call CPI. And second is the unemployment rate. Lastly, there is the Personal Consumption Expenditures (PCE) index, which is a price index. If you look at each one, first, if you look at the chart we are showing at the bottom left, you can see the trend of the U.S. CPI, which has been steeply declining from last year to the end of last year, and has been moving sideways from the second half of last year until recently. So, inflation is stabilizing, but the speed has been greatly.

It has slowed down. You can see it this way, and if you look at the chart on the right, there are indicators related to the job market. The blue line represents the unemployment rate. Looking at the graph, you can see that it has been maintaining a very low unemployment rate around 3% to 4% since 2022. So, when we look at these things, we can see that the U.S. job market is very robust. In fact, the U.S. economy is doing very well. If that's the case, we might judge that the interest rate cuts will proceed gradually. Additionally, the Federal Reserve relies heavily on the PCE price index, known as the most important economic indicator. This includes personal consumption expenditure prices. It is announced at the end of each month. Looking at the PCE price index for March, released on April 26th, it shows a 2.7% increase compared to the previous year.

The Federal Reserve's inflation management target is 2%, but the actual rate has been consistently above that level, so it is necessary to confirm a further decrease in the numbers. Therefore, as the level is still high, there is a need for it to go down further. This is how I see it. Well, investors may hope for a rapid interest rate cut, but it seems a bit challenging for the Fed to perceive interest rate cuts as a priority and solve them quickly. Therefore, discussions about the Fed's interest rate cuts are actually quite frequent, and as a result, investors are considering various good options when interest rates are lowered. If that's the case, many investors are thinking of investing in long-term bonds. How about you? Yes, indeed. Not only have you considered it, but many investors have been actually considering long-term bond investments since last year.

You have shown a lot of interest and have made many direct investments. Mentioning the possibility of the interest rate hike by the U.S. Federal Reserve in the second half of 2023, the perception that long-term bonds are good for enjoying the spread when the interest rate is lowered from that time has started to spread widely. As a result, investments in long-term bonds have expanded. In the U.S. stock market, there is an ETF called TLT from the asset management company BlackRock. Regarding TLT, Korean investors bought 520 billion won just last year, and this year, from the beginning of the year until May, they have continued to buy more than 1.5 billion won. However, contrary to expectations, the interest rates have not come down until 2024, creating a somewhat uneasy macro environment. In this situation, investors have begun to think that investing in long-term bonds might be risky, as interest rates have not fallen.

There is an ETF strategy called ttw in Korea, and many investors are showing great interest in U.S.-listed ETFs. So, Korean investors have purchased approximately 370 billion won worth of the tlt W ETF just last year. In Korea, there are ETFs for investing in U.S. long-term bonds, such as tlt, and also ETFs like Covered Call for U.S. long-term bonds. Now, tlt is attached to this product, and investors are showing a lot of interest in it. There is even a strategy that combines these two forces. Yes, indeed. A product has been launched that implements a Covered Call strategy that allows investors to receive monthly dividends while investing in U.S. long-term bonds. It's called Kodex U.S. 30-Year Treasury Plus 12% Premium ETF. It's getting longer and more complex, but this ETF now exports option premiums while investing in U.S. long-term bonds.

There is an ETF with a strategy of utilizing it as a distribution source, so for those who want to invest in long-term bonds in uncertain situations due to interest rates, it could be a great investment alternative. It was launched on April 30th, with the underlying asset being U.S. Treasury bonds with a maturity of over 20 years. They buy a certain portion of TLT ETF and sell call options to secure option premiums. Therefore, when interest rates fall, they can benefit from the rise in bond prices and also earn the price difference by participating in the option, selling options to generate a certain level of premium monthly. By combining these two strategies, this ETF can be seen. So, if you are tired of waiting for interest rate cuts, you can still consider it as a concept that comes in the form of monthly dividends. Yes, that's a fitting expression. So, even in the United States,

When you look at long-term stay like TLT and TLTW, this time, in the US 30-year bond, they seem to have added a 12% premium. Could you please introduce this? Yes, the US 30-year bond now signifies a long-term strategy. Therefore, we need to compare it with the products listed in the US as mentioned earlier and explain. First, the US TLT and TLTW are ETFs. TLT invests in long-term bonds, expecting interest from those bonds and profit from interest rate cuts. On the other hand, TLTW gives up profit from price differences in bonds and focuses 100% on covered call strategies for those bonds, receiving monthly option premiums. So, TLT is about buying bonds, while TLTW may not be clearly understood, but it is an ETF structure that focuses solely on covered call strategies for bond ETFs.

Options were sold, so something will come in. This is now what we call premium. This is the concept of mixing these two, right? Yes, you understood it correctly. The product we are introducing today is the Codex U.S. 30-year Treasury Plus 12% Premium ETF. As you can tell from the product name, it essentially combines these two strategies. TLT, the U.S. long-term Treasury investment, is for those seeking capital gains during interest rate declines. On the other hand, TLTW offers covered call options for premium income, appealing to investors focusing on monthly dividends. Both strategies have limitations in simultaneously capturing changes in U.S. interest rates or expectations and providing high monthly dividends.

Yes, so we at Codex adjust the covered call ratio of the U.S. 30-year Treasury PS 12% Premium ETF to a certain premium level each month, focusing the rest on bond investments. By doing this, we can participate in bond price increases even when interest rates rise. Now, let's break this down step by step. First, could you explain the bond investment part? Yes, of course. This product fundamentally invests in U.S. 30-year Treasury bonds to profit from capital gains during interest rate declines. When interest rates fall, bond values typically rise. Many of you who subscribe to this channel may already be familiar with this concept as our CEO has explained it in detail. However, when bonds have a short maturity, they essentially...

Since it will be settled in a few days, there won't be much price fluctuation. However, on the other hand, in the case of long-term bonds like Treasury bonds, they are more exposed to price changes due to the longer maturity, so the magnitude of price increase due to interest rate cuts becomes significant. Therefore, investing in U.S. 30-year Treasury bonds with over 20 years remaining maturity can be seen as investing in such time differences. Secondly, through weekly call option selling, we distribute the premiums received monthly. By adjusting the proportion of call option selling each month, we can steadily generate premiums at a certain level, which is the key investment point of this product. So, when we talk about Covered Call TLT-W, typically, it is often said that the upside is blocked.

The product we are talking about can be seen as having a slightly bullish bias when interest rates fall, right? Yes, as you mentioned, the typical covered call strategy involves buying the underlying asset and selling a call option on that underlying asset to block the upside and open the downside, creating such a profit structure. Consequently, when it falls, it falls together, and when it rises, it may not rise, so there is a disadvantage of not being able to participate in an uptrend. However, it is a strategy that can be separated from the bull market because it secures profits only up to the premium secured by selling. The product we are introducing today implements a covered call strategy called a target premium, which is an upgraded version of the covered call strategy. When we talk about a target premium strategy.

Every month, we set a specific goal for premiums, sell options as much as we can to achieve that goal, and invest the remaining portion in bonds. This way, we can expect a predictable cash flow at a certain level each month, and the additional part invested in bonds allows us to aim for interest rate differentials when rates fall. Therefore, we can mention a hybrid covered call strategy that combines these two features simultaneously. Yes, just like receiving money when selling goods in a store, we receive money when selling options, which is what you refer to as premiums. By setting a target for the premiums we can receive and deciding to sell that amount, this strategy is discussed. So, how do we sell options to make this happen? This strategy also...

It would be good to introduce. Yes, as I explained earlier, we are now going to sell a call option. So, when choosing which option to utilize, there are various types of options available. We commonly have monthly options that can be sold once a month, then we have weekly options that expire once a week, and there are also daily options that expire every day. Therefore, the total sum of premiums in weekly options is larger than in monthly options. For example, the sum of premiums from selling three times a week surpasses the premium of selling once a month in monthly options. Yes, and furthermore, the total monthly premium in daily options is even higher. However, as you increase the frequency of trading, the trading costs will rise, so.

In terms of cost, there are now disadvantages. Therefore, it is necessary to choose appropriately according to the ETF strategy. Our product executes weekly call option selling through subjective options to secure a certain level of premium faithfully each month. The reason we chose subjective options is that, in fact, it requires more effort. It only needs to be done once, but we do it four times. Nevertheless, by consistently repeating it four times a month, we can obtain more premium. Also, by continuously selling options shortly, reinvestment in more assets becomes more possible. Consequently, there is a greater opportunity to participate in market prices. This is why we are now engaging in weekly options.

I can say that we listen to the cover and come up with a strategy. Instead of selling once a month, we sell every week. I think it's more advantageous. Anyway, the way we invest in bonds is whether we receive interest or profit from the interest rate going down. As you mentioned today, we gain additional profit by selling call options. So, we have to wait until the interest rate is lowered. When it gets too boring, you can consider it as a new product that keeps coming in. Thank you for the detailed explanation of today's product. Finally, if you have any words for our subscribers, please let us know. Yes, in fact, investors have been thinking a lot about the direction of interest rates.

Waiting for this interest rate day is important, but investing in long-term bonds exposes you to market volatility. At times like this, receiving monthly dividends while waiting for the interest rate day can be a good strategy. Our Codex US 30-year International Plus 12% Premium ETF was listed on April 30th. We appreciate your interest. Those interested can check the comments below. We will say our farewells here. Thank you.

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