The domestic exchange-traded fund (ETF) market is witnessing intense competition as the first single-stock leverage products are set to debut. The "Samsung Electronics and SK Hynix Leverage" ETFs will be listed on May 27, with most asset management firms offering the lowest total fees in the industry, leading to a lack of differentiation among the products from an investor's perspective.
According to the financial investment industry on May 22, among the eight asset management firms launching single-stock leverage ETFs, Mirae Asset, Korea Investment Trust, KB, Hanwha, and Hana Asset Management have set their total fees at an annual rate of 0.0901%. Initially, Mirae Asset Management started the competition by advertising the "lowest fee in the industry," but competitors quickly followed suit by lowering their fees to match this rate.
On May 21, Hanwha Asset Management reduced the total fee for its Samsung Electronics leverage ETF from 0.10% to 0.0901%. On May 22, KB Asset Management, Hana Asset Management, and Korea Investment Trust also adjusted their fees from 0.0910% to 0.0901%.
Single-stock leverage ETFs are designed to track the daily returns of specific stocks at double the rate. Given that these products are based on the same underlying assets, it is challenging to differentiate them in terms of structure or returns, making total fees the primary competitive factor. However, with major asset managers uniformly offering the lowest fees, analysts predict that investors may not perceive significant differences between the products.
In contrast, Samsung Asset Management has opted for a relatively higher total fee of 0.29%. This strategy is interpreted as a move to leverage the market dominance of its leading leverage ETF brand, "KODEX." Kiwoom Investment Management has set its fee at 0.25%, while Shinhan Asset Management has established a fee of 0.10%. Hanwha Asset Management applies the 0.0901% fee to its Samsung Electronics leverage product but has set a higher fee of 0.49% for its inverse 2X product, indicating a differentiated strategy.
In terms of asset size, Samsung Asset Management is taking a more aggressive approach. It has established trust principal amounts of 1.0665 trillion won for the KODEX Samsung Electronics single-stock leverage and 1.3665 trillion won for the KODEX SK Hynix single-stock leverage, totaling over 2 trillion won for both products. The total trust principal amount for the ETFs being launched is approximately 4.1227 trillion won.
The issue price for all products has been standardized at 20,000 won. Given the high volatility associated with single-stock leverage products, there are concerns that excessively low prices could widen the spread relative to the minimum tick size, complicating market management.
However, financial authorities have repeatedly warned about the investment risks. Single-stock leverage and inverse products exhibit greater volatility than regular stocks and have much larger price fluctuations compared to index-based leverage ETFs like KOSPI 200, making them unsuitable for anything other than short-term investment purposes.
A significant risk factor is the "negative compounding effect" that can occur during repeated fluctuations. For instance, even if the underlying stock price remains stable over a long period, the structure of tracking daily returns at double the rate can lead to a continuous decline in the ETF price.
Investors should also be aware that imbalances in supply and demand can lead to discrepancies between the actual net asset value (NAV) and market prices. While arbitrage typically normalizes these discrepancies over time, trading during periods of significant divergence can result in unexpected losses.
To address investment risks, the barriers to entry for investors have been raised. To invest in single-stock leverage and inverse ETFs, a minimum deposit of 10 million won is required, along with completion of a two-hour pre-education course provided by the Financial Investment Association. The association has established a dedicated training program for single-stock leverage and inverse products ahead of their launch.
Industry insiders believe that investors will choose between "ultra-low fees" and "liquidity." A financial investment industry official stated, "Aside from total fees, the differences in products that investors can perceive are minimal. Ultimately, the key variable will be whether they prioritize lower fees or liquidity in their selection."
* This article has been translated by AI.
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