1. The Korea Fund, Inc. Kim Sang Won
Portfolio Management Presentation Portfolio Manager
RCM Asia Pacific Limited
Fourth Quarter 2012
2. Portfolio review
In the fourth quarter of 2012, the MSCI Korea Index was up 5.2% in USD terms and up 1% in KRW terms. The KOSPI showed some
weakness in November due to uncertainties around the US fiscal cliff. However, the equity market picked up again from mid-November
through December with heavy foreign buying as hopes around a smooth resolution of the US fiscal cliff situation was expected. For 2012,
the MSCI Korea was up 11.7% in KRW terms and up 21% in USD.
The Bank of Korea cut the policy interest rate in October by 25bp to 2.75% following a 25bp rate cut in July. The rate cuts were justified
as GDP growth continued to decelerate and households were bothered by high debt service burdens. On December 19th, Ms. Park Geun
Hye was elected as the 18th president of Korea becoming the first woman to win the post. She is also the first presidential candidate who
received more than 50% of the vote since democratic elections were introduced in Korea.
During the quarter, the Fund underperformed the MSCI Korea benchmark by 39 basis points. During the quarter, our stock picks in the
consumer discretionary sector worked against the Fund’s performance. On the other hand, our stock picks in the industrials and an
underweight position in financials worked for the Fund’s performance.
In the fourth quarter, growth was the most effective style category. The strong performance of growth last quarter contrasts with its
performance in 3Q12, when it was the worst performing category of factors. Earnings growth factors also performed well. In particular,
Forecast Earnings Growth was the only factor that was consistently effective in all three months of 4Q12. On the other hand, the
performance of value was mixed. Book to Price and Earnings Yield performed well, but other value factors such as Dividend Yield did not.
During the quarter, the Fund initiated a positions in selected IT and consumer discretionary names in view of positive earnings outlook.
On the other hand, we exited from credit card company because of government initiative to cut credit card fees to help mid-small
business.
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3. Sector Breakdown with Attribution Analysis
(Q4 2012)
GICS Sector Attribution
End Weight Total Return Attribution
Port BM Active Port BM Alloc Selec Total
Consumer Discretionary 22.2% 16.4% 5.8% -8.88% -4.33% -.57% -1.22% -1.79%
Consumer Staples 3.5% 5.2% -1.8% 3.22% 5.77% .02% -.09% -.07%
Energy 2.2% 3.0% -.8% 11.90% 6.69% -.03% .05% .02%
Financials 9.6% 12.9% -3.2% 2.81% 2.48% .05% .04% .09%
Health Care 1.2% .7% .4% 8.29% 13.03% .04% -.04% .00%
Industrials 13.5% 12.4% 1.1% .48% -.10% .03% .05% .07%
Information Technology 31.5% 36.7% -5.2% 14.68% 13.07% -.47% .44% -.04%
Materials 14.3% 10.5% 3.8% -2.97% -.43% -.22% -.40% -.62%
Telecom Services — .7% -.7% — 8.33% -.03% .00% -.03%
Utilities — 1.5% -1.5% — 12.42% -.11% .00% -.11%
Total Equity 98.0% 100.0% -2.0% 2.27% 4.76% -1.28% -1.18% -2.46%
Cash (Other Assets) 2.0% — 2.0% 3.35% — -.12% .06% -.07%
Total 100.0% 100.0% — -1.40% -1.12% -2.53%
Source : Wilshire
Attribution figures are based on Wilshire’s Atlas position-based performance attribution. All performance figures shown on this report are approximates only and may not
reflect the official fund’s performance figures.
* Rounding may cause figures to vary from 100%
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4. Relative Performance by Market Cap
Return % Weight %
10 20
5 10
0 0
-5 -10
-10 -20
Q1 2012 Q2 2012 Q3 2012 Q4 2012
Large Cap - Relative Performance Mid Cap - Relative Performance
Small Cap - Relative Performance Fund's Weighting in Mid-Small Cap (non-BM included)
Source : Datastream
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5. Relative returns by portfolio styles
Q4 2012 (MSCI Korea)
MSCI KOREA Q4 2012 return 4.8% in USD
Relative Relative
Style outperformers Type Style underperformers Type
return return
High Forecast Earnings
Growth 11.9% High EBIT/EV Value -3.9%
Growth
Low Sales Yield Value 11.4% Value Composite Value -3.2%
Low PEG Value 10.9% High Dividend Growth Growth -3.0%
High 12 Price Momentum Momentum 10.7% Low Book/Price Value -2.9%
Low Dividend Growth Value 10.1% Low 6m Price Momentum Momentum -1.7%
Source : UBS Quantitative Research, Based on MSCI Korea universe, as at 30 September 2012
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7. Some of the information contained herein including any expression of opinion or forecast has been obtained from or is based on sources believed by us to be
reliable, but is not guaranteed and we do not warrant nor do we accept liability as to adequacy, accuracy, reliability or completeness of such information obtained
from or based on external sources. The information is given on the understanding that any person who acts upon it or otherwise changes his or her position in
reliance thereon does so entirely at his or her own risk without liability on our part. This is not an offer to buy or sell or a solicitation or incitement of offer to buy or
sell any securities referred to herein. It should also be appreciated that under certain circumstances the redemption of units/shares may be suspended. Investment
involves risks, including but not limited to the risks associated with investment in emerging and less developed markets, investments in small or medium market
capitalization companies as well as currency and exchange rate fluctuations. This Fund may not be registered or authorized for public distribution in the country of
residence of investors. Therefore this document is meant to provide a broad overview for discussion and/or information purposes only and is not for public
distribution. This document was not prepared with the intention of providing legal or tax advice. The views and opinions expressed in this document, which are
subject to change, are those of RCM and its affiliated companies at the time of publication. The duplication, publication, or transmission of the contents of this
document to unauthorized persons, irrespective of the form, is not permitted.
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