[ETF Investment Clock] '74 Trillion Market Cap' Shrinks Amid 'Annual Surge in Delisted Stocks'... 2 Managed Stocks

[Asia Economy Reporter Lee Seon-ae] As the growth of the Exchange-Traded Fund (ETF) market stagnates, the number of delisted ETFs is increasing, requiring investors to exercise caution.

According to the Korea Exchange on the 25th, the ETF market capitalization this month fluctuates between 73 trillion and 74 trillion KRW. Compared to the 74 trillion KRW recorded at the end of last year, it is essentially stagnant. However, considering the rapid growth rate of over 10% per month previously, the financial investment industry evaluates this as a 'negative growth.'

Meanwhile, the number of delisted ETFs has been increasing annually. The number of delisted ETFs, which was only 5 in 2017, rose significantly to 7 in 2018, 11 in 2019, 29 in 2020, and 25 in 2021.

The criteria for ETF delisting are based on Article 115, Paragraph 1 of the Korea Exchange's Securities Market Listing Regulations, which designate ETFs as managed stocks if the trust principal amount (establishment amount) is less than 5 billion KRW and the net asset value is less than 5 billion KRW. Once designated as a managed stock, the final decision is made at the discretion of the Korea Exchange. Asset management companies may also voluntarily delist ETFs. Other criteria include: a correlation coefficient between the daily fluctuation rate of net asset value per unit and the daily fluctuation rate of the ETF’s underlying index below 0.9 for three consecutive months; intentional, gross negligence, or habitual violation of reporting obligations; and cases where delisting is deemed necessary for public interest realization and investor protection.

Once delisting is decided, the management company must issue a notice one month in advance. Investors holding the ETF can sell at the bid price offered by liquidity providers before the trading suspension date. If investors hold the ETF until the delisting date, they will receive redemption payments calculated based on the net asset value. For investors, it is advantageous to trade if the ETF market price is higher than the investment amount at delisting, and to receive the fund redemption if the investment amount is higher than the market price. However, liquidity may sharply decrease simultaneously with the delisting notice, so caution is necessary.

Recently, three ETFs were delisted: 'KBSTAR KOSPI ex200,' 'SOL Developed Markets MSCI World (Synthetic H),' and 'Power Medium-Term Government Bonds.' Their trust principal amounts were only 2.83 billion KRW, 1 billion KRW, and 3.12 billion KRW, respectively.

This month, KB Asset Management’s 'KBSTAR 200 Construction' and Korea Investment Trust Management’s 'KINDEX Fn K-New Deal Digital Plus' have been designated as managed stocks. Both ETFs have trust principal amounts and net asset values below 5 billion KRW, which is the reason for designation.

A financial investment industry official said, "As the enthusiasm for ETF investment has explosively increased the number of newly listed ETFs, the number of ETFs quietly exiting the market is also rising," adding, "Even if ETFs are delisted, investors do not lose all their investment, but since they must stop investing at an undesired time, losses may occur. Therefore, it is essential to check net assets and trading volume before investing."

Meanwhile, from the second half of 2021 to recently, many bond-type ETFs tracking the KOSPI and MSCI indices have been delisted. Representative examples include Mirae Asset Management’s 'TIGER 3-Year Treasury Futures Inverse,' 'TIGER 10-Year Treasury Futures Inverse,' KB Asset Management’s 'KBSTAR KRX Treasury Futures 3-Year 10-Year Steepener,' and 'KBSTAR KRX Treasury Futures 3-Year 10-Year Flattener.' In the first half of 2021, ETFs investing in small and mid-cap stocks such as 'KOSEF Low PBR Weighted,' 'KOSEF KOSDAQ 150 Futures,' 'TIGER Small and Mid-Cap Value,' 'KBSTAR Small and Mid-Cap Momentum Value,' and 'TIGER Small and Mid-Cap Growth' mostly disappeared due to the collapse of small and mid-cap stocks caused by COVID-19.

After the trade war in 2019, ETFs such as 'ARIRANG China H Leverage,' 'KODEX US S&P IT,' 'KODEX US S&P Financials,' and 'KINDEX Gold Futures Inverse 2X' disappeared, while in 2018, ETFs like 'ARIRANG KOSPI 100 Equal Weight,' 'TIGER Consumer Staples,' and 'TIGER Automobiles' were mainly delisted.

This content was produced with the assistance of AI translation services.