Investors Suffer as Leveraged ETFs Plummet to Record Lows

On June 16, the KOSPI and KOSDAQ indices are displayed on the trading board at Hana Bank in Jung-gu, Seoul. The KOSPI opened at 8,696.55, up 150.57 points (1.76%) from the previous trading day, while the KOSDAQ rose 4.97 points (0.48%) to 1,039. [Photo: Yonhap News]

As the KOSPI approaches the 9,000 mark, investors in leveraged ETFs, known as "gobbus," are facing significant losses. These inverse exchange-traded funds (ETFs), which aim to deliver double the inverse of daily returns, have seen their values plummet due to compounding effects, resulting in losses far exceeding the declines in the underlying index. Over the past year, prices have dropped to as low as one-tenth or one-twentieth of their original value, with many gobbus products now trading for less than 100 won.
According to the Korea Exchange on June 16, the RISE 200 Futures Inverse 2X ETF fell to 72 won, marking an all-time low. The KODEX 200 Futures Inverse 2X also hit 70 won, while the KIWOOM 200 Futures Inverse 2X reached 71 won, and the TIGER 200 Futures Inverse 2X dropped to 75 won, all setting new record lows.
These gobbus ETFs were trading at around 2,300 to 2,400 won just a year ago, but have plummeted as the domestic stock market has experienced a prolonged uptrend. Compared to the 1,600 to 1,700 won range from a year ago, the decline exceeds 90%.
The situation is similar for standard inverse ETFs. The RISE 200 Futures Inverse ETF recorded a low of 1,151 won, while the KIWOOM 200 Futures Inverse ETF fell to 1,171 won, and the HANARO 200 Futures Inverse ETF dropped to 2,090 won, all hitting record lows. This is a stark contrast to their trading levels of around 4,000 to 5,000 won and approximately 9,000 won a year ago.
The record lows for inverse products are largely attributed to the sustained rise in the domestic stock market. Notably, gobbus ETFs track -2 times the daily returns of the underlying index, which has compounded losses due to increased volatility. For instance, if an underlying asset rises by 30% and then falls by 30%, a standard product would see a decrease from 100 to 91, reflecting a 9% loss, while a leveraged product would drop from 100 to 64, resulting in a 36% loss.
While the KOSPI has risen 9.23% over the past month, inverse ETFs have recorded losses of 17% to 19%, and gobbus ETFs have seen losses of 32% to 37% during the same period. The recent increase in market volatility has exacerbated the negative compounding effect. In fact, during this month, the KOSPI's sidecar mechanism was triggered seven times in 11 trading days, with daily fluctuations exceeding 4% on six occasions.
The performance of these ETFs ranks among the lowest in the overall ETF market. The KODEX 200 Futures Inverse 2X has recorded a three-month return of -73.82% and a one-year return of -95.45%. An investment of 10,000 won made last year would now be worth only about 455 won. Since the beginning of the year, the return has also been -87.97%, reducing the initial investment to around 1,200 won.
The net assets of inverse ETFs are rapidly declining. The combined net assets of five gobbus ETFs have shrunk from 1.48 trillion won on June 16 last year to 880.1 billion won currently. Similarly, the combined net assets of three inverse ETFs have decreased from 9 billion won to 4.9 billion won.
However, the buying momentum from individual investors appears to be slowing. Since the beginning of the year, 1.56 trillion won has flowed into the KODEX 200 Futures Inverse 2X, but in the past month, net purchases by individuals have only reached 369.32 billion won. Analysts suggest that as the domestic stock market continues its upward trend, investor sentiment towards inverse products is gradually weakening.

* This article has been translated by AI.