Mirae Asset Global Investments urges investors to dodge volatility with US Dividend Dow Jones strategy

Mirae Asset Global Investments has proposed diversified investment using a US Dividend Dow Jones covered call strategy as an alternative amid growing volatility in the domestic stock market.

The firm said Monday it held an online seminar on its YouTube channel TIGER ETF under the theme “Strategies for avoiding volatility using the US Dividend Dow Jones covered call.”

Mirae Asset Global Investments said sustained high volatility in the domestic market makes it necessary to seek alternatives. The Kospi Volatility Index, known as VKOSPI, hit a record high of 96.94 on June 29 before easing to 84.35 as of July 31. The KOSPI 200 had fallen about 30 percent from its year-to-date peak as of July 31.

Lee Jeong-hwan, a managing director at Mirae Asset Global Investments overseeing strategy ETF management, presented the US Dividend Dow Jones index as a way to shift investment from semiconductors to dividend stocks while simultaneously diversifying geographically from Korea to the United States.

“The core of the US Dividend Dow Jones is investing only in companies whose dividend sustainability, dividend growth and corporate fundamentals have all been verified,” Lee said.

The index selects constituents from companies that have paid dividends for at least 10 consecutive years, taking into account five-year dividend growth rates, dividend yields, cash-flow-to-debt ratios and return on equity. The structure is designed to avoid “yield traps” that can arise when selecting companies solely on the basis of high current dividend yields.

The index also held up well during the recent volatile market. The US Dividend Dow Jones rose 5.2% in July, while the S&P 500 fell 0.1% over the same period. The KOSPI 200 and KRX Semiconductor indexes dropped 23.6% and 31.1%, respectively.

“Every time the market has been shaken, the defensive strength of the US Dividend Dow Jones has been confirmed — and last month was no different,” Lee said.

Mirae Asset Global Investments also introduced a strategy combining a covered call approach with the US Dividend Dow Jones index to generate steady cash flow.

Its flagship product, the TIGER US Dividend Dow Jones Target Covered Call 2 ETF, uses monthly options. As of the end of July, the fund’s net assets stood at approximately 706.1 billion won ($497 million), making it the largest US Dividend Dow Jones covered call ETF listed in Korea. Its average monthly distribution rate is 0.87 percent.

The TIGER US Dividend Dow Jones Target Daily Covered Call ETF uses daily options and keeps the option-selling ratio at around 10 percent, resulting in approximately 96 percent participation in the underlying index’s performance. Its average monthly distribution rate is 1.00 percent, and the per-unit distribution has grown to 104 won from 99 won about a year ago.

The two products also differ in distribution timing. The Target Daily Covered Call distributes mid-month, while the Target Covered Call 2 distributes at month-end, meaning investors who hold both can pursue cash flow twice a month.

However, covered call strategies can limit upside returns compared with simply holding the underlying asset when prices surge sharply over a short period.

“The most realistic way to keep investing through a volatile market is not to try to predict where it is headed, but to build a structure that generates steady cash flow no matter how the market moves,” Lee said.

moon@heraldcorp.com