Domestic investors have turned to buying 3x leveraged exchange-traded funds (ETFs) focused on semiconductors, despite a more than 20% drop in U.S. semiconductor stocks over the past month. This trend appears to reflect a strategy of buying on dips, betting on a potential rebound after the recent declines.
According to the Korea Securities Depository, the top net purchase in U.S. stocks for July (1-30) was the Direxion Daily Semiconductor Bull 3X ETF (SOXL), with domestic investors net buying $3.33 billion. However, since this figure is based on foreign currency securities settlement, the actual purchase date is likely to be up to July 29. SOXL is a leveraged ETF that aims to deliver three times the daily return of the Philadelphia Semiconductor Index (SOX), investing in major global semiconductor companies such as NVIDIA, Broadcom, AMD, and Qualcomm. Investors typically use this product to bet on a recovery in the semiconductor sector and a rebound in stock prices.
This buying spree occurred amid significant corrections in U.S. semiconductor stocks. It seems that domestic investors viewed the drop in semiconductor stocks as a buying opportunity. With concerns over the overvaluation of AI-related stocks and fears of a slowdown in the semiconductor sector, investors have channeled funds into leveraged products, anticipating a future rebound.
The Philadelphia Semiconductor Index fell from 14,246.96 on June 30 to 10,447.49 on July 29, a decline of 3,799.47 points, or 26.7%. Throughout July, the index experienced significant volatility, dropping 6.27% in a single day on July 1, and falling more than 4% on both July 7 and July 13. On July 29, it also dropped 5.33%, falling below the 10,500 mark.
This buying on dips appears to have yielded some results, as the Philadelphia Semiconductor Index rebounded significantly, rising by 855.50 points (8.19%) to 11,302.99 on July 30 (local time). Consequently, SOXL also saw a substantial rebound, suggesting that investors who bought during the downturn may have realized short-term gains.
In addition to semiconductor-related assets, domestic investors have shown buying interest in leveraged products overall. Among the top net purchases were ProShares UltraPro QQQ (TQQQ) at $326.26 million and ProShares Ultra QQQ (QLD) at $276.46 million. TQQQ aims to deliver three times the daily return of the Nasdaq-100 Index, while QLD seeks to deliver double the return.
However, it is important to note that leveraged ETFs, which track the daily volatility of their underlying indices, can offer high returns in bullish markets but may also amplify losses in bearish conditions. Particularly in volatile markets, long-term holdings can lead to discrepancies between the underlying index and actual returns, necessitating caution from investors.
* This article has been translated by AI.
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