Hantoo Asset Management Simultaneously Lists 3 Covered Call ACE ETFs... "Annual Target Distribution Yield 15%"

Korea Investment Trust Management announced on the 22nd that it will simultaneously list three covered call exchange-traded funds (ETFs) on the 23rd, targeting an annual distribution yield of 15%. Covered call ETFs are products that employ a strategy of purchasing underlying assets such as stocks while simultaneously selling call options.

The three newly listed covered call ETFs are △ ACE US 500 15% Premium Distribution (Synthetic) ETF △ ACE US Semiconductor 15% Premium Distribution (Synthetic) ETF △ ACE US Big Tech 7+ 15% Premium Distribution (Synthetic) ETF. The main underlying assets for each product are 500 leading US companies, the top 30 semiconductor companies by market capitalization listed in the US, and the top 7 US big tech companies by market capitalization, respectively.

These three ETFs are monthly dividend products targeting an annual distribution yield of 15%. Dividends are paid after the record date (the 15th of each month). The fact that dividends are paid on the 15th of each month distinguishes these ETFs from other monthly dividend ETFs. Currently, most monthly dividend ETFs listed domestically pay dividends based on the end of the month. Therefore, including ACE ETFs’ covered call products in a portfolio allows investors to receive distributions mid-month, unlike before.

The annual target distribution yield of 15% is based on the average net asset value (NAV) of each ETF over one year. Accordingly, even if the annual target distribution yield is achieved, the dividend yield may vary depending on each investor’s investment timing.

Korea Investment Trust Management plans to utilize zero-day-to-expiration (0DTE) options, which mature within 24 hours, to achieve a high distribution yield. Among covered call ETFs listed domestically, ACE ETFs are the first to use 0DTE options. Generally, option premiums tend to be higher the longer the expiration period, but an analysis of past data (from November 2022 to November 2023) by Korea Investment Trust Management showed that the total premiums collected daily through 0DTE options exceeded the total premiums from monthly options during the same period.

Out-of-the-money (OTM) options, which partially track market performance, are also considered an important strategy that differentiates these covered call ETFs from others. OTM refers to options whose strike price is higher than the current price of the underlying asset. The three ETFs adopt a 1% OTM strategy, meaning that in addition to call option premiums, daily returns of up to 1% from the underlying assets are reflected in the portfolio’s performance.

Nam Yong-su, Head of ETF Management at Korea Investment Trust Management, said, "The covered call ETFs being listed this time are ACE ETF’s first covered call products, and all three ETFs feature the use of 0DTE and OTM options to increase the target distribution yield." He added, "In fact, option premiums tend to be highest the day before expiration, so the three ACE ETFs can provide high premiums by trading options daily."

He continued, "Due to the nature of covered call ETFs, losses can occur if the decline in the underlying index stock portfolio price exceeds the option premium. Investing in underlying assets with a long-term upward trend is also an important point when investing in covered call ETFs," he emphasized.