As the exchange-traded fund (ETF) market has grown to a net worth of 400 trillion won, the Financial Supervisory Service noted that, amid overheated marketing competition among asset managers, some ads and social media (SNS) content have been found to provide insufficient explanations from an investor-protection standpoint.
On the 5th, the Financial Supervisory Service (FSS) laid out five things investors should watch for when viewing ETF advertisements.
First, an ETF is an investment product with the possibility of losses. Some managers previously ran ads that caused misunderstanding by emphasizing that, although there is a possibility of principal loss, stable interest is paid as if it were the same as bank deposits. For example, when promoting an ETF with a target distribution rate of 10% a year, they said, "If you put in 100 million won, you will steadily receive 1.5 million won a month."
Distributions are paid from dividends and interest from the ETF's underlying assets—stocks and bonds—and the ETF's net worth decreases by the amount distributed. If the price of the underlying assets falls, investment losses may also occur.
Caution is also needed regarding definitive phrasing that implies favorable returns regardless of exchange-rate trends, such as promoting a foreign equity ETF with currency exposure by saying "dollar exposure is an advantage." Investors should look at the key risk factors inherent to the product's characteristics.
The return cited in an advertisement may be for a specific period and can be mistaken for the ETF's overall performance. For example, one manager promoted a specific covered-call ETF by citing only a period when market volatility was high and returns were temporarily elevated, claiming that the daily option premium (proceeds from selling) is several times higher than the monthly option premium.
An FSS official said, "Overemphasizing temporary performance driven by short-term factors can lead to investment decisions that do not fully consider long-term performance or volatility," adding, "Be sure to check the time frame of the return and verify the target return and performance figures."
Do not be swayed by expressions such as "the first in Korea," "overwhelming No. 1," or "lowest volatility" used without objective grounds to advertise a product as far superior to competitors. This can distort reasonable investment judgments and does not collateralize the product's profitability or stability.
Lastly, some ads provide skewed information focused on management fees and omit entries for other and securities trading costs, offering inadequate guidance on actual investment expenses, so investors should check how much the fees are beyond the advertised fees. In addition to total fees, ETFs incur other expenses and securities trading costs.
Going forward, the FSS plans to continuously monitor for inappropriate cases so that ETF ads do not confuse investors and to encourage financial companies to make voluntary corrections.
An FSS official said, "We will continue to provide guidance on key points that help investors make rational decisions and work to foster a sound culture of ETF investing."