While the financial authorities hesitate to sort out the outdated exchange-traded funds (ETFs), investment management companies have encountered problems as they cannot handle the number of products. There was an error in the calculation of the real-time net asset value (iNAV) in the products of Mirae Asset Global Investments, the second largest company in the industry that has launched more than 200 ETFs. This means that investors are buying ETFs at prices higher than their true value. Analysts attribute this to the adverse effects of companies competing by flooding the market with a number of ETFs that they cannot manage. Last year, the financial authorities stated they would reorganize small-scale ETFs, but no measures have been announced yet.
According to the financial investment industry on the 2nd, it was revealed that the majority of domestic asset management companies have been using information such as dividends and bond prices received from fund administrators without verifying the information themselves when calculating iNAV. This implies that the companies do not have a system to verify the authenticity of that information.
Since ETFs are traded in real-time during the day, asset managers post iNAV as one of the indicators for investors' judgments. iNAV is the real-time 'estimated' net worth calculated based on the current stock prices of the companies or bonds held by the ETFs. In this process, the dividends generated from the stocks are accounted for as cash held by the ETFs and included in the iNAV. First, estimated dividends are recorded, and when the actual dividends are released, adjustments are made according to the difference.
The problem arises when the fund administrator incorrectly inputs these dividends, leading to the unverified information being reflected in the market due to the lack of a self-correcting mechanism within the asset management companies. This is the background for the iNAV errors that occurred on 28th of last month in 170 ETFs belonging to 11 asset management companies, including Mirae Asset Global Investments.
If an asset management company employee checks the stocks contained in each ETF and verifies the dividends accordingly by cross-referencing them with the figures provided by the fund administrator, they can catch any discrepancies. However, Mirae Asset Global Investments has released 204 ETFs. Considering that the minimum composition of ETFs is 10 stocks, this means they need to review over 2040 dividends.
Given the scale that makes it practically impossible to review with the current visual screening method, Mirae Asset used the data provided by the fund administrator as is, leading to iNAV calculation errors.
A representative from an asset management company noted, "Unless the asset managers review all the constituent stocks (PDF) of the ETFs, it is difficult for the company to detect NAV errors before the market opens."
Among the major ETF operators, Timefolio Asset Management is free from iNAV calculation errors, managing only 14 ETFs. This company has only launched limited thematic products that seem viable in the market. As a result, the number of ETFs managed by a single asset manager is fewer than that of competitors.
They have also established a system to verify information such as dividends received from external data sources. A representative of Timefolio Asset Management stated, "When an iNAV error occurs, we identify and correct it before the market opens," adding, "We double-check information such as dividends."
iNAV errors are not an unusual occurrence. In the past, the Standard & Poor's (S&P) 500 ETF faced issues when foreign index operators transmitted incorrect prices to Korea. Catching such errors is solely the responsibility of the asset management companies.
In this context, the iNAV calculation error that occurred on the 31st of last month in the Samsung Asset Management short bond ETF is slightly different, as it was self-detected.
Since bonds are traded over the counter, Koscom cannot directly calculate prices and relies on information from the index operators of the ETFs. For the Kodex short bond ETF, the figures provided by the financial information company FnGuide were used.
In other words, the bond data flows from FnGuide to Koscom to Samsung Asset Management. If an incorrect price is inputted at FnGuide, an inaccurate iNAV will be displayed. This incident occurred when some of the real-time prices of certain currency stabilization bonds showed an error during the process of the price calculation program being slightly modified at FnGuide.
Just seven minutes after the incorrect iNAV was displayed, a trader from Samsung Asset Management discovered it, and it was corrected within an hour after the announcement from the Korea Exchange.
The market points out that the large scale of ETFs launched by asset management companies, which they cannot even handle, has led to the current iNAV calculation error situation. The total net worth (AUM) of ETFs in South Korea is only one-seventy-fifth that of the U.S. However, in terms of quantity, it is about one-fourth. This means that there is a high number of ETFs relative to the market size.
Last year, the financial authorities began discussions on improving the ETF-related system. One of the key discussion topics was the reorganization of small-scale ETFs. However, as of April 2025, no substantial measures have been announced. A representative from the Financial Supervisory Service (FSS) stated, "We are currently investigating overseas cases and gathering industry opinions regarding ETF system improvements," adding, "Some progress has been made."