"Choosing the Right Distribution Rate Is Crucial for Weekly Covered Call ETFs"

Mirae Asset Launches Domestic Weekly Covered Call ETFs
Emphasizes Sustainability of Monthly Distribution Products
Through Honest and Principled Management

Kim Namki, Head of the Exchange-Traded Fund (ETF) Division at Mirae Asset Global Investments, held a press conference at the Mirae Asset Center One Building in Jung-gu, Seoul on September 18, where he pointed out the recent phenomenon of excessively high distribution rates among covered call ETFs in the market.

Kim stated, "No covered call strategy can ever outperform the original index return," adding, "ETF distributions are not dividends paid by companies, but rather a cash withdrawal process for tax payment purposes."

He explained, "If investors allocate as much as they want to covered call products for their desired assets, they can secure the necessary cash after retirement without having to sell their ETFs. Since it is impossible to know whether one will live 20 or 30 years after retirement, it is important to maintain a sustainable distribution."

Kim emphasized, "Mirae Asset TIGER ETF is leading the way in establishing a sound monthly dividend investment culture. We will strengthen disclosures on our website so that investors can clearly understand income and capital gains, and we will continue to support the development of a long-term investment culture through education."

A covered call refers to a strategy of buying the underlying asset while simultaneously selling a call option on that asset. The downside is that to increase the distribution rate, more call options must be sold. If a large number of call options are sold, the difference in returns becomes significant when the underlying asset rises.

Yoon Byungho, Head of Strategic ETF Management at Mirae Asset Global Investments, explained, "The average annual return of the KOSPI 200 over the past 20 years has been about 8%. However, the average distribution rate for domestic covered call ETFs has reached 17%, raising concerns about long-term principal erosion."

Mirae Asset Global Investments has set the appropriate distribution rate for covered call ETFs at 7%, in line with the original purpose of these products. Yoon introduced, "The TIGER 7% Weekly Covered Call series was designed to prioritize sustainable cash flow and principal growth, excluding the temptation of high distributions."

Mirae Asset Global Investments will list the 'TIGER 200 Target Weekly Covered Call ETF' and the 'TIGER Korea Dividend Dow Jones Weekly Covered Call ETF' on September 23. Amid excessive competition for high distribution, the company has made it a core value to provide 'appropriate distribution' that is sustainable over the long term through honest and principled management. The annual distribution rate is expected to be around 7% for the TIGER 200 Target Weekly Covered Call ETF and between 10% and 12% for the TIGER Korea Dividend Dow Jones Weekly Covered Call ETF, including stock dividends.

The TIGER 7% Weekly Covered Call ETF series aims for sustainable distributions, and thus maintains the lowest call option selling ratio among currently listed weekly covered call ETFs. The average option selling ratio is about 20%, allowing for approximately 80% index tracking during stock market upswings. In addition to distribution payments, the structure also enables pursuit of ETF price appreciation, i.e., principal growth.

Yoon stressed, "What investors need is not short-term high distributions, but stable cash flow over the long term. Based on the growth of the KOSPI 200 and the stability of dividend growth stocks, this can serve as an alternative for securing steady post-retirement living expenses."

By using both products together, investors can build a biweekly distribution portfolio. The TIGER 200 Target Weekly Covered Call ETF pays distributions on the 15th of every month, while the TIGER Korea Dividend Dow Jones Weekly Covered Call ETF pays at the end of each month. The distribution resources generated from option premiums are tax-exempt, so investors can also enjoy tax benefits on a portion of the distributions.