In just 50 days since their launch, single-stock leveraged and inverse ETFs have attracted a significant number of individual investors. Many were betting on a booming stock market to double their profits. A total of 290,000 investors completed the required pre-investment education for these products. However, instead of the anticipated gains, they faced substantial losses, with estimated losses exceeding 8 trillion won in July alone.
According to data from FnGuide, the evaluation profit and loss of four single-stock leveraged ETFs for Samsung Electronics and SK Hynix shifted from a 2 trillion won profit at the end of June to a 6 trillion won loss by July 14. This marked a drastic decline of approximately 8 trillion won in investment performance within just two weeks.
Despite the sharp market downturn, investor buying activity did not wane. During the same period, the cumulative net inflow for the four ETFs increased from 12.3 trillion won to 15.7 trillion won, a rise of about 3.4 trillion won. Individual investors viewed the declining market as an opportunity for bargain buying, but the leveraged structure of these ETFs meant that losses accumulated rapidly.
In terms of assets under management (AUM), the total AUM for 16 single-stock leveraged ETFs fell from 16.1 trillion won at the end of June to 10.4 trillion won by July 14, a decrease of 5.7 trillion won (35.6%). Specifically, the net assets of seven Samsung Electronics single-stock leveraged ETFs dropped from 5.8 trillion won to 3.8 trillion won, a decline of 35.29%. The seven SK Hynix single-stock leveraged ETFs saw an even larger decrease, falling from 10.1 trillion won to 5.6 trillion won, a drop of 44.91%. In contrast, the net assets of two inverse ETFs increased from 182.8 billion won to 280.5 billion won, reflecting a surge in demand for risk-averse investments.
Market analysts believe that the design structure of single-stock leveraged ETFs inherently leads to the magnification of losses. When individual investors buy leveraged ETFs, asset management firms and liquidity providers must purchase additional futures to match the daily returns at double the rate. If futures prices rise above spot prices, institutional and foreign investors may engage in arbitrage trading, further driving up spot prices. However, in a declining market, a sharp drop in indices triggers a mechanical rebalancing process in leveraged ETFs, leading to a flood of futures selling, which can exacerbate downward pressure on the spot market.
* This article has been translated by AI.
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