Monthly distribution rate of 2.05%; entire dividend tax-exempt

'Dividend avoidance strategy' used to secure after-tax returns

September strategy applied to Samsung Electronics and others

[Provided by Hanwha Asset Management]
[Provided by Hanwha Asset Management]

Hanwha Asset Management's PLUS 200 Covered Call Active ETF will pay a September distribution of 152 won per share. Based on the closing price on Monday — the day before the ex-dividend date — the distribution rate stands at 2.05 percent, with a taxable standard amount of zero won per share.

Hanwha Asset Management said Wednesday it had set the September distribution for the PLUS 200 Covered Call Active ETF at 152 won per share, meaning investors will receive the full amount tax-exempt.

A covered call ETF holds shares while simultaneously selling call options on those shares to generate option premiums as additional income. The structure caps some of the upside from share price gains in exchange for using those premiums to pay regular distributions.

The PLUS 200 Covered Call Active ETF is a monthly-dividend covered call product that invests in KOSPI 200 constituent stocks and pursues monthly cash flow through a call-option selling strategy. It applies an active strategy that adjusts the proportion of options sold, strike prices and expiration dates according to market conditions.

A key feature is its use of a "dividend avoidance strategy," which involves selling shares before the ex-dividend date and repurchasing them at the lower post-ex-dividend price to reduce dividend income. Unlike dividends, capital gains from share trading are not subject to tax when distributed through an ETF, which the company said can improve after-tax returns.

In practice, the ETF executed the dividend avoidance strategy in September for Lotte Chemical, LG Group, Samsung Electronics, Hankuk Carbon and Hyundai Department Store. Most of the distribution is funded by call option premiums and capital gains from share trading, making tax-exempt receipt possible.

"Many investors who use covered call ETF distributions as living expenses — such as those drawing on retirement funds — are concerned about the month-to-month fluctuations in how distributions are taxed," said Keum Jeong-seop, head of the ETF business division at Hanwha Asset Management. "By using the PLUS 200 Covered Call Active ETF, investors can keep the door open to market gains while receiving most distributions tax-exempt, allowing them to expect a more consistent after-tax payout."


kacew@heraldcorp.com