BNK Asset Management Launches Korea's First ETF Investing in 'Treasury Shares'

[Asia Economy Reporter Hwang Yoon-joo] BNK Asset Management is making its debut in the exchange-traded fund (ETF) market.

BNK Asset Management announced on the 27th that it will list the 'BNK Shareholder Value Active ETF' on the 27th. The newly listed ‘Shareholder Value Active ETF’ is an exchange-traded fund that actively invests in companies with aggressive share buybacks and high dividends. It is the first domestic product related to share buyback ETFs.

As a subsidiary of BNK Financial Group, representing regional financial groups, it had already signaled its full-scale entry into the ETF market by recruiting Executive Director Lim Seung-kwan from KB Asset Management at the end of last year.

Recently, the number of companies announcing shareholder return policies to enhance shareholder value has also increased significantly. Most investors tend to consider only dividend yields when comparing the size of such shareholder return rates, but a representative method to enhance shareholder value besides dividends is share buybacks. When a company buys back its own shares, the number of shares circulating in the market decreases, which can lead to an increase in stock price. In other words, the returns to shareholders should consider not only dividends but also the amount spent on share buybacks, and the sum of these two amounts divided by the market capitalization is called the Shareholder Yield in the market.

The ‘Shareholder Value Active ETF’ focuses on this shareholder yield. Looking at the period returns from April 17, 2017, to recently (September 30, 2022), the underlying index return is about +50.0%, significantly outperforming the KOSPI index, which recorded +0.45% during the same period. In particular, in 2021 alone, it showed a performance of +26.7%, greatly surpassing the KOSPI index’s +3.63% during the same period.

The underlying index, the ‘FnGuide Shareholder Value Index,’ consists of mid-to-large cap companies listed on the KOSPI and KOSDAQ markets with the highest shareholder yields, and additionally considers the share buyback acquisition rate, which refers to the actual purchase volume compared to the publicly announced quantity of shares to be acquired.

There are two methods for companies to buy back shares: direct acquisition, where the company purchases shares directly, and indirect acquisition, where a financial institution buys shares on behalf of the company through a trust. According to regulations, in the case of direct acquisition, the company must acquire the planned number of shares within three months from the day after the announcement, but there is no such mandatory requirement for indirect acquisition.

Lim Seung-kwan, head of BNK Asset Management’s ETF business, explained, "The indirect acquisition method of share buybacks through trusts carries the risk that the actual acquisition may not meet the contract amount specified in the announcement, so careful attention is required," adding, "Our ETF takes these factors into consideration."

Meanwhile, the ‘Shareholder Value Active ETF’ is managed as an active ETF aiming for higher performance compared to the underlying index. To achieve this, it plans to link events commonly used by companies as shareholder return measures to boost stock prices?such as stock splits, bonus issues, and share cancellations?to investments, and pursue differentiated performance through analysis of key factors that have the most decisive impact on the market at specific times.

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