The incident of Mirae Asset Global Investments’ 'exchange-traded fund (ETF) dividend halving' revealed that the dividend determination process was not transparent. The market recognized that it had received more than half of the dividend from the problematic Mirae Asset Global Investments ETF because there were comparable products since the fund was based on a U.S. representative index. Industry insiders noted that if it was an ETF unique to Mirae Asset Global Investments, it is likely that it would have gone unnoticed due to difficulty in detection. Consequently, there are calls for more transparency in the guidance related to dividends.
According to the financial investment industry on the 13th, the only way for investors to infer the deferred dividends of a specific ETF is by observing the fluctuations in the won deposits among the constituent assets (PDF) of that product. Even then, this figure is only an estimate and does not accurately reflect the deferred dividends. The won deposits include not only dividends derived from underlying assets but also profits from leftover cash after purchasing underlying assets and from partially selling underlying assets.
To determine whether the asset management company has distributed all the dividends from the underlying assets or only a portion, investors have no choice but to calculate it individually. If it is an ETF based on the NASDAQ-100 index, this involves checking whether the quarterly or annual dividend rate of that index aligns with the distribution rate of the U.S. NASDAQ-100 ETF. Since most asset management firms offering ETFs have products based on representative indices like the NASDAQ-100, one can speculate on the amount withheld by the asset manager through a comparison of the distributions of different products.
If it is a thematic ETF issued only by a specific asset management company, the calculations become more complex. This is because the reference index is often created through contracts with index producers like FnGuide or S&P Dow Jones, which many times do not disclose the dividend rates. In such cases, investors must aggregate the dividends of all constituents in the ETF to calculate the dividend rate and then compare it with the ETF's distribution rate. While it is also possible to check for the deferment of dividends through the dividend income indicated in the fund's income statement, this statement is only issued once a year and is difficult to use for immediate investment data.
The distribution decision is solely based on the judgment of the asset management company. Under the Capital Markets Act, if the fund's cash holdings are insufficient or if it is deemed more advantageous not to distribute dividends to reduce the tracking error rate against the underlying index, the company may decide not to distribute at all.
The issue is that the process by which the asset management company decides on ETF distributions is communicated as a notification rather than an explanation. This month, Mirae Asset Global Investments withheld about 71% of the dividends from its 'TIGER U.S. NASDAQ-100' without informing investors until payment. Investors only noticed that Mirae Asset Global Investments had deferred the dividends after receiving lower distributions than expected. Mirae Asset Global Investments explained, "The deferred dividends that occurred in January will be paid out in addition to the dividends as of the end of April," adding, "The deferred dividends are safely kept with a separate custodian."
There is no obligation to inform about deferred dividends, so it cannot be assured that similar cases do not exist at other management companies besides Mirae Asset Global Investments. The scale of covered call ETFs focused on dividends, aimed at generating regular cash flow, grew tenfold (789.8 billion won to 6.7201 trillion won) last year, but the system has not kept pace with this speed.
Currently, asset management companies only promote dividends, distribution rates, and payment schedules through their blogs and other means. The current regulation states that once dividends generated from an ETF occur, they only need to be paid to investors within one year. An industry official said, "Through social networking services (SNS) and press releases, we are only explaining distributions for products that attract investor attention," and noted, "The distribution policy is entirely up to the asset management company's discretion."
Professor Seo Ji-yong of Sangmyung University said, "It is a necessary situation to improve the lack of various indicators that investors can use to assess ETFs," and advised, "In qualitative terms, the market needs to improve, starting with the resolution of the insufficient disclosures."
Meanwhile, Mirae Asset Global Investments acknowledged the underpayment on the first distribution day of the year but stated that the total annual distributions would likely be similar to those of other companies. They noted that while the funds remain within the fund, they would ultimately be distributed at some point. It was explained that even if the TIGER U.S. NASDAQ-100 was sold before the next distribution day in April, the deferred dividends would still be factored into the price, resulting in no loss.