Hantoo Asset Management "Covered Call ACE ETF 3 Types Average Distribution Rate 15% Over the Past Year"

Korea Investment Trust Management announced on the 14th that the average distribution rate over the past year for its three covered call exchange-traded funds (ETFs) reached 15.07%.

Korea Investment Trust Management operates covered call products including ▲ ACE US 500 Daily Target Covered Call (Synthetic) ETF ▲ ACE US Semiconductor Daily Target Covered Call (Synthetic) ETF ▲ ACE US Big Tech 7+ Daily Target Covered Call (Synthetic) ETF. All three were listed on the Korea Exchange in April last year as the first domestic ETFs to utilize daily options (0DTE) for covered call strategies.

The three ACE ETFs will pay their 12th distribution on the 17th. The April distribution rate, disclosed on the ACE ETF website on the 11th, is 1.25%. Including this monthly distribution, the annual distribution rate ranges from 15.03% to 15.10%. The cumulative distributions recorded by the three ACE ETFs rank among the top for covered call ETFs listed domestically.

The cumulative distribution for the ACE US Big Tech 7+ Daily Target Covered Call (Synthetic) ETF is 1,705 KRW, while the ACE US 500 Daily Target Covered Call (Synthetic) ETF and ACE US Semiconductor Daily Target Covered Call (Synthetic) ETF have recorded 1,591 KRW and 1,550 KRW respectively.

The use of 0DTE options is cited as the reason behind the excellent distribution performance of the three ACE ETFs. A 0DTE option is an option that expires within 24 hours; although the premium received per transaction is lower than that of monthly or weekly options, premiums can be collected approximately 20 times per month. On an annual basis, the total premium amount can exceed that of monthly and weekly options.

The synthetic structure design and use of out-of-the-money (OTM) options are also advantages. Considering that the three ETFs have been trading 0DTE options on every business day for less than three years, they were designed as synthetic ETFs. They receive performance through local investment banks experienced in the US options market, preparing for black swan events (unpredictable incidents) that may occur in the options market. Additionally, by utilizing OTM 1% options, they partially mitigate the upper limit drawback inherent in covered call products.

Nam Yong-su, Head of ETF Management at Korea Investment Trust Management, explained, "The three ACE covered call ETFs have been able to consistently pay distributions above a certain level every month because they use not only stock dividends but also call option premiums as sources for distributions."

He added, "The underlying indices of the three ACE covered call ETFs consist of high-growth US large-cap stocks, US semiconductor stocks, and US big tech stocks. Since the covered call structure is not a cure-all, investment decisions should also reflect the growth potential of the underlying indices."

The three ACE ETFs are performance-distributing products, so principal loss may occur depending on operating results. Also, all types of covered call products, including ACE ETFs, may incur losses if the decline in the underlying index exceeds the option premium.