Timefolio Asset Management's 'TIME US Dividend Dow Jones Active' ETF will be delisted on May 19 after failing to maintain the required 0.7 correlation coefficient with its benchmark index. Trading will be suspended from May 18, with redemption payments scheduled for May 21. This marks the fifth active exchange-traded fund delisting in two months due to the same regulatory requirement, following four Korea Investment Trust Management products delisted last month. The delistings occurred despite the ETFs generating returns exceeding their benchmark indexes. Current Korean regulations require active ETFs to maintain a correlation coefficient of at least 0.7 with their benchmark index, with delisting triggered after three consecutive months below this threshold.
Timefolio ETF Delists After Three-Month Correlation Breach
The 'TIME US Dividend Dow Jones Active' ETF invested in US high-dividend and dividend-growth stocks while flexibly incorporating market-leading stocks to pursue returns above its benchmark index. Investor assets will not disappear immediately upon delisting. Holdings will be converted to cash based on the net asset value (NAV) at the time of delisting and paid to investors.
Korean Regulations Mandate 0.7 Correlation Coefficient for Active ETFs
Under current Korea Exchange listing regulations, active ETFs must maintain a correlation coefficient of 0.7 or above with their benchmark index. Products become subject to delisting if the correlation coefficient remains below 0.7 for three consecutive months. Passive ETFs face a higher threshold of 0.9 or above. The correlation coefficient measures how similarly two products' daily returns move, not how much higher returns one product generates versus another.
TIME ETF Outperformed Benchmark by 9.42 Percentage Points
As of May 14, the last day maintaining an active management approach, the TIME ETF recorded a 36.06% one-year return and 37.20% cumulative return since listing. These figures exceeded the 'Dow Jones US Dividend 100 Index (KRW)' benchmark by 9.42 percentage points and 9.68 percentage points respectively. However, some artificial intelligence-related stocks added to pursue excess returns surged rapidly in May, causing daily movements to diverge from the dividend-stock-focused benchmark index. The AI stock positions that created the return gap simultaneously lowered the correlation coefficient. Timefolio reduced excess return positions and increased index replication, but could not avoid delisting after the correlation coefficient remained below 0.7 for three months. The asset manager explained that the benchmark index's small average daily volatility made it difficult to sufficiently dilute the impact of past low-correlation periods within three months.
Korea Investment Trust Management Delisted Four ETFs Last Month
Last month, Korea Investment Trust Management's 'ACE TDF2030 Active Eligible', 'ACE TDF2050 Active Eligible', 'ACE TDF Long-term Asset Allocation Active', and 'ACE Apple Value Chain Active' were also delisted for the same reason. Portfolio adjustments responding to domestic and international stock market volatility increased the weight of stocks not included in the benchmark index. Although the products later reverted to a benchmark-focused approach, they failed to recover the required standard.
Industry Requests Six-Month Grace Period Extension
The asset management industry points out that products using low-volatility indexes as benchmarks can see correlation coefficients drop due to fluctuations in just a few stocks, and even after adjusting portfolios, the influence of past figures makes it difficult to recover the standard in a short period. Financial authorities have pursued introducing 'full active ETFs' that do not apply correlation coefficient requirements, but related discussions have not gained momentum. After market volatility expanded recently due to single-stock leveraged products, regulatory work concentrated on preparing follow-up measures, reportedly pushing ETF deregulation discussions to a lower priority. The industry voices that authorities should first consider easing delisting requirements from the current 'three consecutive months of correlation coefficient shortfall' to 'six consecutive months of shortfall' while full active ETF introduction requires time. An asset management industry official stated that while investor protection is necessary, it can be difficult to recover standards in a short period due to the influence of past figures even after modifying management strategies, adding that the period to adjust portfolios and recover correlation coefficients needs to be extended at least until full active ETFs are introduced.
FAQ
What happened to Timefolio's TIME US Dividend Dow Jones Active ETF?
Timefolio Asset Management's 'TIME US Dividend Dow Jones Active' ETF will be delisted on May 19 after its correlation coefficient with the benchmark index remained below the required 0.7 threshold for three consecutive months. Trading will be suspended from May 18, and redemption payments will be made on May 21.
Why did the TIME ETF get delisted despite outperforming its benchmark?
The ETF was delisted because it failed to maintain the required 0.7 correlation coefficient with its benchmark index, not because of poor performance. As of May 14, the ETF outperformed the Dow Jones US Dividend 100 Index by 9.42 percentage points in one-year returns. However, AI-related stock positions added in May caused daily movements to diverge from the dividend-stock-focused benchmark, lowering the correlation coefficient below the regulatory threshold for three consecutive months.
What are asset managers requesting regarding correlation coefficient requirements?
Asset management industry representatives are requesting that delisting requirements be eased from 'three consecutive months of correlation coefficient shortfall' to 'six consecutive months of shortfall' while full active ETF introduction is pending. Industry officials argue that even after adjusting management strategies, the influence of past correlation figures makes it difficult to recover the required standard within three months.
