"They Said It Was Safe, Even Seniors Invested... But ETFs Can Also Be Delisted [Investment Barometer]"

Eight ETFs Delisted This Year; 50 Last Year
Net Asset Value Below 5 Billion Won Leads to Delisting
Sell Before Delisting Once Notice Is Announced
Redemption Payment Provided If Held Until Delisting

As the Exchange-Traded Fund (ETF) market has expanded to a scale of 400 trillion won, the number of newly listed ETFs is also increasing rapidly. Amid the flood of ETFs, some are left virtually inactive and may be delisted if they fail to meet certain criteria, so caution is advised.

According to the Korea Exchange on April 23, a total of eight ETFs have been delisted so far this year. The number of ETF delistings jumped from 14 in 2023 to 51 in 2024, with 50 ETFs delisted last year. As the market size and the number of listed products grow, the number of ETFs being delisted is also on the rise.

This month, the ACE FTSE WGBI Korea and TIGER 26-04 Corporate Bond (A+ or higher) Active ETF were delisted.

The TIGER 26-04 Corporate Bond (A+ or higher) Active ETF was a fixed-term ETF that was delisted due to the expiration of its term. Unlike standard ETFs, fixed-term ETFs are bond-type ETFs with a set maturity date, and are also referred to as "maturity-matching ETFs." While general ETFs are operated permanently unless delisted, the distinguishing feature of fixed-term ETFs is that at a specified point, the fund is liquidated and both the principal and interest income are returned to investors.

Apart from cases where ETFs are delisted due to the expiration of their term, such as with fixed-term ETFs, most delistings occur when they fail to meet established criteria.

The ACE FTSE WGBI Korea ETF was voluntarily delisted by its asset management company only one month after announcing the delisting, as it failed to surpass a total net asset value of 5 billion won for one year after its inception.

Last month, KIWOOM Global Future Mobility, KIWOOM US ETF Industry STOXX, KIWOOM China A50 Connect MSCI, and KIWOOM Fn Gene Innovation Technology ETFs, all managed by Kiwoom Asset Management, were delisted. Like the ACE FTSE WGBI Korea, these ETFs were subject to delisting as their total net asset values fell below 5 billion won, prompting the asset manager to proceed with voluntary delisting.

According to the Korea Exchange, if an ETF's total net asset value falls below 5 billion won after being listed for more than one year and this situation is not rectified by the end of the next half-year period, it meets the criteria for delisting.

ETFs can also be delisted if they fail to properly track their underlying index. If the correlation coefficient between the net asset value per ETF unit and the daily return of the underlying index remains below 0.9 for three consecutive months, the ETF will be delisted. The correlation coefficient is a number between 0 and 1 that indicates how closely two data sets move together; a coefficient below 0.9 means there is a significant discrepancy, such as the index rising while the ETF remains flat, or the index dropping while the ETF surges.

Other cases include: ▲ if there is no liquidity provider (LP) or a liquidity provision agreement is not signed within one month of the replacement date; ▲ if there is a willful, grossly negligent, or habitual violation of reporting obligations; ▲ or if the exchange deems delisting necessary to serve the public interest or protect investors.

So, what should investors do if an ETF they hold becomes subject to delisting? Once delisting is decided, the asset manager will issue a preliminary announcement one month in advance. Investors who confirm the announcement can sell the ETF on the market before the delisting date.

If investors miss this period and still hold the ETF at the time of delisting, they will receive a redemption payment calculated based on the net asset value. The redemption payment is made by liquidating all holdings in the fund to cash, then returning the amount to investors after deducting expenses from the net asset value.

An official in the financial investment industry advised, "If you confirm that an ETF is being delisted, it is best to sell it at market price and switch to another product. Selling on the market is much more advantageous in terms of tax implications and the speed of fund recovery than waiting for the redemption payment."

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