'TIME US Dividend Dow Jones Active ETF' to Be Delisted Due to Low Correlation Despite Excess Returns

TIME Folio Asset Management announced on August 14 that the TIME US Dividend Dow Jones Active ETF (exchange-traded fund) will be delisted on the 19th due to a failure to meet the required correlation coefficient.

Active ETFs are subject to delisting if their correlation coefficient with the benchmark index falls below 0.7 for three consecutive months or more. This ETF is being delisted because its correlation coefficient remained below 0.7 for three months, despite generating excess returns compared to its benchmark.

The correlation requirement is designed to prevent ETFs from deviating from their originally stated investment strategies or product identity, thereby preventing potential investor losses.

The correlation coefficient requirement for passive ETFs is 0.9, where a value closer to 1 means it closely mirrors the benchmark index.

This ETF is an active product that primarily invests in US high-dividend and dividend-growth stocks while flexibly incorporating market-leading stocks. It aimed to generate excess returns over the benchmark by incorporating growth stocks while maintaining the downside defense of dividend assets.

In fact, as of May 14, three months ago, its 1-year and since-inception returns stood at 36.06% and 37.20%, respectively, outperforming the benchmark (the Korean Won-converted Dow Jones U.S. Dividend 100 Index) by 9.42 percentage points and 9.68 percentage points.

However, some AI (artificial intelligence)-related stocks incorporated in early May to generate excess returns experienced sharp short-term surges, causing the correlation coefficient with the underlying index to drop below 0.7.

The asset management company explained, "As soon as we confirmed that the correlation requirement was not met, we tried to raise the correlation coefficient by reducing the portion of excess-return positions. However, because the underlying index exhibited very low daily average volatility, there was insufficient time to fully recover it."

The scheduled delisting date is the 19th, with trading to be suspended one day prior on the 18th.

Liquidation proceeds for investors are scheduled to be distributed on the 21st.

Assets held within the ETF will be calculated based on the net asset value (NAV) at the time of delisting and returned entirely in cash to investors, meaning there is no risk of principal loss.

Shim Hyun-soo, Chief Investment Officer (CIO) of the Equity Investment Division, stated, "We apologize for the inconvenience caused to our customers who invested with trust in TIME Folio's active management capabilities. Taking this case as an opportunity, we will continuously reinforce our operation and risk management systems to maximize our unique active management strength of generating excess returns while more meticulously balancing regulatory compliance."

Previously last month, four active ETFs managed by Korea Investment Trust Management were delisted for the same reason.

(Photo: Provided by TIME Folio Asset Management, Yonhap News)
※ Please note: This article was translated by AI and may contain errors.