Rainbow Robotics was excluded from major active exchange-traded funds (ETFs). As the company became entangled in legal risk, including a prosecution raid, asset managers are seen moving to manage risk.
According to the financial investment industry on the 25th, TIME KOSPI Active by Timefolio Asset Management, TIGER Korea Tech Active by Mirae Asset Global Investments, and KoAct Korea Value-up Active ETF by Samsung Active Asset Management removed Rainbow Robotics from their constituents.
The market views the exclusion as a measure to manage the recent legal risk that has surfaced. On the 18th, prosecutors raided the headquarters over allegations that employees used nonpublic information to reap illicit gains worth tens of billions of won during the process of Rainbow Robotics being incorporated as a subsidiary of Samsung Electronics.
Until the raid, the ETFs in question had included Rainbow Robotics at certain weights. As of the 18th, Rainbow Robotics accounted for 3.40% in TIME KOSPI Active, 0.87% in TIGER Korea Tech Active, and 0.28% in KoAct Korea Value-up Active. TIME KOSPI Active then cut the Rainbow Robotics weight by 2.05 percentage points (p) on the 19th to 1.35%.
Weight reductions also appeared in KOSDAQ active ETFs. KoAct KOSDAQ Active by Samsung Active Asset Management reduced the Rainbow Robotics weight from 3.44% on its listing date on the 10th to 2.23% on this day, down 1.21 percentage points. Timefolio Asset Management's TIME KOSDAQ Active also cut it from 5.03% to 1.06% on this day, down 3.97 percentage points.
In the market, comparisons with the past FADU case have prompted assessments that this highlights the nimble response of active ETFs. FADU, which listed on the KOSDAQ market in Aug. 2023 via the technology track, faced allegations that it conducted a "pumped-up" listing based on high revenue. Prosecutors indicted the management for violating the Financial Investment Services and Capital Markets Act.
Subsequently, on Dec. 19 last year, FADU's trading was halted due to the occurrence of reasons for a substantive review of listing eligibility, but some ETFs were criticized for failing to immediately reflect the risk through weight reductions or exclusions.
For example, as of Jan. 20, the RISE AI Semiconductor TOP10 ETF held FADU at a 6.71% weight, and at that time a discount rate of -1.86% to net asset value (NAV) also occurred. This means the ETF's market price was set below the value of its underlying assets, so sales could be executed at a relatively disadvantageous price.
Performance management is also seen as a reason for rebalancing. A Timefolio Asset Management official said, "Given the nature of active ETFs, we can reduce weights through rebalancing to manage performance," adding, "we have recently been increasing the weight of the consumer sector rather than humanoid robots."