NPS sells Samsung, buys SK shares

The National Pension Service (NPS) cut its stock investments in Samsung Group and Hyundai Motor Group last year, as part of efforts to diversify its portfolio, the pension fund said Sunday.

“We have recently decided to decrease the ratio of bonds (amid the U.S. Federal Reserve’s move to pare back its bond-buying program with the U.S. economy improving). Instead, we will increase the ratio of (small) stocks and alternatives to have a more balanced portfolio,” NPS spokeswoman Lee Cheol-hee said by telephone.

Currently, the world’s fourth-biggest pension fund by size runs bonds which make up 60 percent of its portfolio. Stocks account for more than 30 percent, with the remainder claimed by alternative products, Lee said.

As part of a mid-term plan for the next five years, she said, “We will seek a stable return by readjusting the ratios of bonds, shares and alternatives at lower than 60 percent, around 30 percent and about 10 percent, respectively.” There will be no drastic changes to the composition, she added.

If the NPS invests in real estate, social overhead capital projects and other infrastructure projects, they can be seen as investments in alternative products, the spokeswoman explained.

The 27-year-old national pension service will hold a meeting in June to discuss how to operate funds for the 2015 fiscal year. The current fund-management programs are based on the meeting held a year ago, she said.

NPS, which manages a total 427 trillion won ($404.8 billion) as of December, spent more to buy stocks in SK Group and LG Group last year. But it spent less to purchase shares in Samsung and Hyundai, the country’s two biggest conglomerates by assets.

NPS’s reduced spending on stocks in Samsung and Hyundai is seemingly in line with sluggish demand in their major export markets and decreased dividends for shareholders.

Last year, NPS reportedly increased the value of overall corporate stock purchases by more than 10 trillion won compared to a year earlier. But the value of shares in the big four companies just inched up to 4.41 trillion won from 4.25 trillion won during the same period.

It was a “sharp reversal” from the previous trend in which the state fund had been increasing the ratio of stocks in the big four by an average of 39 percent annually since the 2008 financial crisis, an official at a private equity fund said asking not to be named.

As a result, the move helped reduce the ratio of the big four in NPS’s investment portfolio. Their combined ratio fell to 52.5 percent in 2013 from the previous year’s 58 percent. It was the first decline in six years, according to data offered by NPS.

Market experts and business people seem to be sharply divided over the move.

Those who stand for a reduced ratio of the big-four stocks say if NPS continues to make a long-term investment in highly-potential and undervalued stocks, it will help stimulate the economy.

“A bigger buying of small but healthy stocks as well as large ones could boost the domestic capital market,” said the official at the private equity fund.

However, those against a bigger investment in small stocks say NPS may end up wasting taxpayers’ money on risky assets. By Choi Kyong-ae, The Korea Times