Hanwha Asset Management’s monthly dividend covered call ETF (exchange-traded fund), the ‘PLUS 200 Covered Call Active,’ will pay its first distribution since listing. The key feature is that the entire distribution is tax-exempt.
Hanwha Asset Management announced on the 3rd that the ‘PLUS 200 Covered Call Active’ ETF will pay a monthly distribution of 135 won per share on the 4th. Based on the closing price on the ex-dividend date of the 29th of last month, the monthly distribution yield is approximately 2.13%. The taxable standard amount per share is calculated at 0 won, making the entire distribution tax-exempt.
The product was listed on June 23rd. It is a monthly dividend covered call product that generates monthly cash flow by investing in KOSPI 200 constituent stocks while selling call options. It is differentiated from typical passive covered call ETFs in that it uses an active strategy to adjust option selling ratios, strike prices, and maturities according to market conditions.
In particular, this ETF maximizes tax savings through a ‘dividend avoidance strategy.’ The strategy involves selling held shares before the ex-dividend date to avoid directly receiving dividends from the underlying stocks. While stock dividends are subject to a 15.4% dividend income tax upon distribution, capital gains from repurchasing shares at the lower post-ex-dividend price are not taxed upon distribution. Hanwha Asset Management plans to source most of its distribution from call option selling premiums and trading gains to maximize the tax-exempt benefit.
Hanwha Asset Management explained that the fund is designed to immediately utilize KOSPI 200 daily options once they are introduced. The KOSPI 200 daily options, currently under discussion for introduction, have shorter maturities, allowing for more frequent selling and enabling more sophisticated management depending on market conditions.
Kim Jung-seop, head of Hanwha Asset Management’s ETF business division, said, “The PLUS 200 Covered Call Active ETF participates in index gains during bull markets through active management tailored to market conditions, while most of its distributions are tax-exempt,” adding, “Retirees who use distributions as living expenses will be able to receive predictable distributions without worrying about fluctuating amounts caused by changing tax burdens each month.”
Covered call products employ a strategy of holding underlying assets while selling call options to secure option premiums. In strong bull markets, profits may be limited due to call option selling, but in sideways markets, additional returns can be expected from premiums. Recently, monthly dividend covered call products have gained significant popularity in South Korea’s ETF market, intensifying competition among asset managers.
With this distribution payment, the PLUS 200 Covered Call Active ETF has completed its first step as a monthly dividend product. Investors can now receive monthly distributions, and the product is expected to attract significant interest from investors seeking tax savings given its low tax burden.