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Controversy over the regulation of correlation coefficients of active ETFs is rising again as Time Folio Asset Management's "TIME U.S. Dividend Dow Jones Active" ETF (listed fund) is expected to be delisted.

Active ETFs are products that seek excess performance compared to comparative indices, and there are a series of cases in which they are delisted due to the "correlation coefficient" requirement even though they produce higher returns than the actual comparative index.

According to the financial investment industry on the 16th, Time Folio Asset Management's "TIME U.S. Dividend Dow Jones Active" ETF will be delisted on the 19th due to a lack of correlation coefficients. It has been more than a month since four active ETFs of Korea Investment Trust Management were delisted for the same reason last month.

This time, controversy is growing as time portfolio asset management, which operates 19 active ETFs and is the No. 1 stock-type active ETF in Korea, failed to avoid regulation of correlation coefficients.

Correlation coefficients are figures that indicate how similar ETFs move to the comparison index (basic index). Under the current regulations, active ETFs are subject to delisting if the correlation coefficient is less than 0.7 for more than three months.

This requirement aims to protect investors by preventing ETFs from excessively deviating from the management strategy or product identity originally proposed. However, the industry and investors argue that the exit of active ETFs seeking excess returns for moving differently from the comparative index even with high returns conflicts with the purpose of the product.

As of May 14, "TIME U.S. Dividend Dow Jones Active" recorded 36.06% and 37.20%, respectively, in the past one-year yield and since its listing. The performance is 9.42 percentage points and 9.68 percentage points higher than the comparison index "Dow Jones U.S. Divide 100 Index won conversion index," respectively.

Time portfolio asset management explained, "We tried to increase the correlation coefficient by reducing the proportion of excess return positions as soon as we confirmed that the correlation coefficient requirements were not met, but the daily average fluctuation of the underlying index was very low, so there was not enough time to fully recover."

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"We apologize for the inconvenience to customers who believe in their active management capabilities and invest," he said. "We will supplement the operation and risk management system to control the balance with compliance more precisely while maximizing the active management strength of generating excess profits."

Investors are also complaining. "The purpose of active ETFs is excess performance, but it collides in the first place to be delisted with excess performance," a stock community investor said. "We should only target ETFs with lower returns than the index or remove regulations like other countries."

Another investor also pointed out, "Is it right that ETFs are delisted because they make a lot of profits?" and "If this happens, only passive ETFs will remain and active ETFs will disappear."

The asset management industry has suggested to financial authorities that the regulation of correlation coefficients should be abolished or eased. The industry has expected that the system will be improved in August after discussions in the first half of this year.

Kim Sung-hoon, CEO of DS Asset Management, which launched its first active ETF last month, also said at a press conference on the "DS KOSDAQ Active" listing, "The regulation of correlation coefficients is a system that is hard to find anywhere in the world," adding, "As the industry has also reached consensus on the need for improvement, we expect the system to be improved within August."

However, some observers say that discussions on improving the correlation coefficient system have taken a back seat as the financial authorities' response to single-stock leverage products, which have recently been cited as factors that have increased volatility in the domestic stock market, has been focused.

An industry official said, "As the authorities focus on reducing the harmful effects of leverage in single stocks, discussions on correlation coefficients seem to have been put on the back burner," adding, "Active ETFs are disappearing one by one while there is no discussion."