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Mirae Asset to shift paradigm with new rate-tracking ETF

Feb. 1, 2024 - 15:50 By Im Eun-byel
Mirae Asset Global Investments Chief Officer Nathan Nam-ki Kim introduces the firm's new ETF product tracking one-year CD rates during a press conference held at the Mirae Asset Center 1 building in central Seoul, Thursday. (Mirae Asset Global Investments)

Mirae Asset Global Investments is to launch a new exchange-traded fund product investing in interest rates, seeing lucrative opportunities amid the relatively high-interest rates, the asset manager said Thursday.

The asset manager, with total assets under management surpassing 300 trillion won ($225 billion) as of the end of 2023, is to add a new product to its Tiger ETF lineup to secure the lead in the local ETF market.

Named the Mirae Asset Tiger Synth CD 1Y Rate Active ETF, the financial product is to invest in the rates of a one-year certificate of deposit. A CD, or certificate of deposit, is a type of savings account with a fixed term.

The ETF of 230 billion won ($172 million) is set to be launched through the Korea Exchange, the nation's sole bourse operator, on Tuesday.

“While the newly introduced product is an exchange-traded fund, it could be called an exchange-traded deposit, the first of its kind here,” said Nathan Nam-ki Kim, chief officer at the firm who heads the ETF management business unit, at a press event held in central Seoul, Thursday.

“This ETF will be an innovation of deposit investments, which will change the paradigm of the financial market,” Kim said.

As Kim said, this is the first ETF tracking one-year CD rates to be launched by a Korean asset management company. Four other CD rate-tracking ETF products introduced to the local market all follow 91-day CDs.

As of Thursday, one-year CD rates stood at 3.65 percent, 0.28 percentage points higher than the average of 91-day CD rates in the past three years, as funds track higher rates with a longer maturity, according to the asset manager.

In addition, the firm stressed the ETF product has an edge over fixed deposits offered by lenders in its high liquidity.

“Considering that banks usually give back only a certain percentage of the stipulated interest rate for a deposit if withdrawn earlier than the maturity date, the ETF product could be a good substitute in terms of liquidity,” Kim Nam-ho, an official from the firm, said.

Different from bank deposits, the ETF product does not have a maturity date. Investors can sell their stake through market transactions, the firm explained.

Though there are concerns that the ETF product may not be able to yield high profits when the US Federal Reserve starts to cut rates sometime later this year, the fund manager viewed that the product can bring relatively high yet stable profits for the time being.

"The Fed still has the room to control the rates, considering the strength of the US economy remains," Kim said. "The market rates will reflect this, resulting in high volatility until the Fed actually starts the rate cut. In times of high volatility, rate-tracking ETF products could be a stable investment outlet."

The asset manager, operating more than 570 ETF products worldwide with net assets of 141 trillion won, nearly half of its total AUM, aims to expand its presence in the local ETF market.

The Korean ETF market's total net assets mount up to 124 trillion won as of Wednesday. Crosstown rivals Samsung Asset Management and Mirae Asset Global Investment are vying to take the lead, each owning a market share of 40 percent and 37 percent.