As exchange-traded funds (ETFs) become a popular investment tool in South Korea, interest is growing in the upcoming launch of single-stock leveraged ETFs. While the introduction of various investment options centered around major semiconductor stocks like Samsung Electronics and SK Hynix is welcomed, investors should be cautious of the potential for daily losses of up to 60%.
According to financial industry sources, leveraged and inverse products based on single stocks will be listed on the domestic stock market starting May 27. This includes ETFs that aim to double the returns of stocks like Samsung Electronics and SK Hynix. Some asset management firms are also set to introduce inverse products that bet on stock price declines.
Single-stock leveraged products follow the daily returns of individual stocks, meaning if the ETF rises, the returns are doubled. However, if the stock moves contrary to investor expectations, significant losses can occur in a short period. Given that domestic stock prices can fluctuate by ±30%, losses of up to 60% in a single day are possible.
Investors should also be aware that even if a single stock's price fluctuates without a net change, the value of leveraged products can steadily decline. For instance, if stock A drops from 100 won to 80 won (-20%) and then recovers to 100 won (+25%), a leveraged product starting at 100 won could fall to 60 won (-40%) and then rise to 90 won (+50%), resulting in a loss of 10 won. In fact, a comparison of specific stocks in the U.S. market last year showed that while individual stocks yielded an 18% return, a double-leveraged product recorded a 20% loss instead of the expected double return.
Unlike general ETFs that track indices, single-stock leveraged ETFs expose investors directly to risks associated with individual companies, such as poor performance or negative news.
Due to the high-risk nature of these products, investors must deposit a minimum of 10 million won and complete two hours of training through the Financial Investment Association's learning system—one hour of general education and one hour of advanced education. Previously, only one hour of training was required to invest in overseas leveraged ETFs.
Yoon Jae-hong, a researcher at Mirae Asset Securities, noted, "Considering the size of the domestic ETF market and the trading patterns of individual investors, the inflow of funds into the 14 leveraged ETFs is estimated to be around 1.7 trillion won conservatively, and up to 5.3 trillion won aggressively. Given that initial capital tends to concentrate in the first five trading days, investors should be cautious of potential spikes in short-term volatility during this period."
* This article has been translated by AI.
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