On the 18th, Kim Nam-gi, head of the ETF division at Mirae Asset Global Investments, expressed the view that investors should beware of excessive payout ratios in covered call exchange-traded funds (ETFs).
At a TIGER ETF press briefing held that morning, Kim opened by saying, "There are many misunderstandings investors have about covered call products, and they are being used incorrectly."
Regarding covered call ETFs, Kim said, "No covered call strategy can beat the original underlying index's return," adding, "It is important to maintain an appropriate payout ratio in line with the growth of the underlying asset."
He continued, "People often confuse ETF distributions with corporations' stock dividends and think more is better, but this is a forced cash withdrawal process for National Tax Service tax payment," adding, "The size of the distribution has no effect on an investor's revenue."
Kim stressed, "Covered call 2.0 products are a solution for withdrawing from pensions accumulated over a long period," adding, "2030 investors should not be withdrawing pensions but rather accumulating and growing them. For such investors, covered call products are not suitable."
He added, "The core value of Mirae Asset's covered call strategy is to provide 'appropriate distribution' that is sustainable over the long term through honest and principled management, even amid excessive high-payout competition."
A covered call ETF buys underlying assets such as stocks and simultaneously sells call options on the assets to earn option premiums as revenue and pay distributions. Recently, competition among managers has overheated, and payout ratios have become excessively high, exceeding 15%.
Kim warned that such excessive payout ratios could damage principal. According to Mirae Asset Global Investments, the average annual return of the Kospi 200 over the past 20 years is around 8%, but the recent average payout ratio of domestic covered call ETFs reaches 17%.
Mirae Asset Global Investments proposed 7% as an appropriate payout ratio for covered call ETFs.
Yun Byung-ho, head of strategy ETF management at Mirae Asset, said, "To raise the payout ratio, you have to sell a lot of options, but if you do that, you ultimately fail to keep up when the market rises, which hurts returns."
He emphasized, "Distributions must be sustainable and principal must be able to keep growing, and the result that can balance these two is a 7% payout ratio."
Accordingly, the "TIGER 200 Target Weekly Covered Call ETF" and the "TIGER Korea Dividend Dow Jones Weekly Covered Call ETF," which Mirae Asset Global Investments said will list on the 23rd, are set with a 7% payout ratio.
The TIGER 200 Target Weekly Covered Call ETF primarily invests in Korea's representative blue-chip index, and the TIGER Korea Dividend Dow Jones Weekly Covered Call ETF primarily invests in dividend growth stocks. The distribution dates are the 15th of every month for the TIGER 200 Target Weekly Covered Call ETF and the end of every month for the TIGER Korea Dividend Dow Jones Weekly Covered Call ETF.