Shinhan Asset Management launches gold covered call ETF with monthly dividends

Shinhan Asset Management is launching the industry’s first gold investment covered call exchange-traded fund (ETF). Typically, when investing in gold, no dividends or interest are generated separately, but Shinhan Asset Management plans to secure distribution funds through a covered call strategy (buying the underlying asset while selling call options on that asset) to provide annual dividends in the 4% range.

Shinhan Asset Management emphasized that this ETF, which tracks international gold prices, will be managed more stably than domestic listed gold spot ETFs, which have the risk of ‘gold premium’ in Korea.

According to the financial investment industry on the 26th, Shinhan Asset Management will list the ‘SOL Gold Covered Call Active’ ETF on the stock market on the 11th of next month. A covered call ETF is a product that distributes profits earned from selling call options (the right to buy at a fixed price) back to investors as dividends. The ETF being listed this time aims to sell gold call options while tracking international gold prices at about 90% to provide an annual option premium of 4% as monthly dividends.

Currently, there are three domestic gold investment ETFs (excluding leveraged and inverse products): Mirae Asset Global Investments’ ‘TIGER Gold Futures (H)’, Samsung Asset Management's ‘Kodex Gold Futures (H)’, and Korea Investment Trust Management's ‘ACE KRX Gold Spot’, which tracks domestic gold prices.

So far this year (from January 2 to February 24), individual investors have net purchased 163.7 billion won of ACE KRX Gold Spot, 11.8 billion won of KODEX Gold Futures (H), and 6.7 billion won of TIGER Gold Futures (H). Recent increases in gold prices have led to a surge in investment demand.

Concerns over the tariff policy promoted by U.S. President Donald Trump have increased demand for gold as a safe asset, leading to a rise in gold prices. Accordingly, the prices of the three gold investment ETFs have risen 10% to 13% this year.

Especially this month, domestic demand for gold has surged, resulting in a disparity of over 20% between domestic gold spot prices and international prices, a phenomenon known as ‘gold premium.’ As a result, anxiety about a short-term downturn has grown among investors in gold spot ETFs. Shinhan Asset Management explained that the SOL Gold Covered Call Active ETF has been created to follow international gold prices, eliminating such risks.

Kim Jeong-hyun, head of the ETF business division at Shinhan Asset Management, said, “The SOL Gold Covered Call Active ETF incorporates a covered call strategy to aim to generate a certain level of dividend income while closely following international gold prices.”

Investors can also invest through tax-efficient accounts. For futures ETFs, since they are derivative products, investing through retirement pensions other than personal pensions is not possible, but the SOL Gold Covered Call Active ETF can be invested in retirement pension accounts (70% of which) such as personal pensions and personal retirement pension (IRP), similar to ACE KRX Gold Spot. As a foreign exchange exposed product, it can also take advantage of foreign exchange gains due to a strong dollar. The total fee for the ETF is 0.45% per annum. The total fees for the three currently listed gold investment ETFs range from 0.39% to 0.68% per annum.

The securities industry anticipates that gold prices will continue to rise for the time being. Hwang Byeong-jin, a researcher at NH Investment & Securities, noted, “As long as the monetary policy of the U.S. Central Bank (Federal Reserve) does not shift from ‘easing’ to ‘tightening,’ the strength of international gold prices will persist,” suggesting an ‘increased weighting’ opinion for gold investments this year.

However, if gold prices decline in the future, combined with a weak dollar, the magnitude of the price drop could be larger than that of other ETFs.