SK Hynix's stock price has surged over 340% this year, leading to increased operational pressures for a Hong Kong-listed exchange-traded fund (ETF) that aims to double this performance. The rapid rise in stock price and fund size may hinder the fund manager's ability to meet its target returns.
According to Bloomberg on June 22, Hong Kong asset management firm CSOP will raise the options investment limit for its SK Hynix leveraged ETF to 49% of the fund's total assets, effective June 23. The previous limit was set at 40%. CSOP had also increased this limit from 25% to 40% in May.
This ETF is designed to track double the daily returns of SK Hynix, with a total asset size of $14.4 billion. CSOP explained that this adjustment reflects the fund's growth and the unpredictable market volatility.
By raising the limit, CSOP will have more derivative instruments available to manage the ETF in line with SK Hynix's stock price fluctuations. However, this could also increase cost burdens. CSOP indicated that under the new guidelines, swap and options investment costs could rise to a maximum of 40% of the fund's asset value, up from the previous estimate of 36%.
Historically, this ETF has primarily utilized swap contracts with global investment banks to secure returns linked to SK Hynix's stock price. However, Bloomberg reported that as stock prices soar and volatility increases, the risk for investment banks has also grown, leading to higher costs for new swap contracts.
CSOP has warned that if it cannot secure enough derivative contracts, the establishment of new ETFs could be halted. This could result in a significant divergence between the ETF price and the actual fund value, as well as an increased gap between target returns and actual performance.
Since its launch in October of last year, this ETF has experienced rapid growth. According to Bloomberg, the fund's assets increased by $4.8 billion just last week, making it the ninth largest ETF in Hong Kong by assets under management.
SK Hynix's strong performance is also boosting the overall trend in the South Korean stock market. The company accounts for 28% of the KOSPI index and has contributed to making the KOSPI one of the top-performing markets globally this year.
* This article has been translated by AI.
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