Leverage and Parking ETFs Gain Popularity Amid Stock Market Decline

 
Domestic stock markets have been experiencing significant declines, leading to a surge in investments in exchange-traded funds (ETFs) as investors seek to capitalize on potential rebounds while also preparing for further downturns. The KODEX Leverage ETF has seen the largest influx of funds, while parking-type ETFs, which manage short-term funds, have also ranked high in net inflows. Conversely, funds have exited inverse products that profit from market declines.
 
According to data from Koscom CHECK and financial information provider FnGuide, from October 9 to 16, the KODEX Leverage ETF recorded a net inflow of 642.7 billion won, marking the highest increase among all domestic listed ETFs. During the same period, two money market active ETFs also ranked among the top five for net inflows.
 
The second highest net inflow was for the KODEX Money Market Active ETF, which saw 574.4 billion won enter. This was followed by KODEX 200 (407.5 billion won), KODEX 200 Target Weekly Covered Call (359.8 billion won), and TIGER Money Market Active (304.3 billion won). Net inflow refers to the amount of new investments in an ETF minus the amount redeemed, serving as an indicator of the flow of funds into or out of the ETF market.
 
The KOSPI index has fallen for seven consecutive trading days, at one point dipping below the 5,500 mark, prompting varied responses from investors. Funds focused on the potential for a rebound in the declining index have gravitated toward leverage ETFs, while those concerned about market uncertainty have opted for parking-type ETFs.
 
Leverage ETFs are designed to track the daily returns of an underlying index at a specified multiple. The KODEX Leverage ETF aims to double the daily returns of the KOSPI 200, offering the potential for high returns if the index rebounds, but also amplifying losses if it declines.
 
The parking-type ETF, KODEX Money Market Active, invests in short-term high-quality bonds and commercial paper (CP). It has lower price volatility and higher liquidity compared to equity ETFs, making it a useful tool for managing idle funds before making investment decisions. However, unlike deposits, the principal is not guaranteed.
 
Interest in covered call ETFs has also increased during the market downturn. The KODEX 200 Target Weekly Covered Call saw a net inflow of 137 billion won on October 13, the highest increase among all ETFs. Even on October 15, when the KOSPI fell more than 7%, it still gained 72.2 billion won.
 
Covered call ETFs involve holding the underlying asset while selling call options to secure premium income. While the option premiums can cushion some losses from falling stock prices, they also limit profits during price increases and can result in principal losses.
 
In contrast, funds have exited inverse ETFs that seek to profit from market declines. The KODEX 200 Futures Inverse 2X ETF saw a net outflow of 161.6 billion won during the same period, the largest decrease among all ETFs. The KODEX Inverse also experienced an outflow of 115.9 billion won.
 
The domestic stock market had been on a downward trend until October 16. On that day, the KOSPI rebounded after eight trading days, while the KOSDAQ rose after seven days of decline.
 
Market analysts note that while the recent drop has made large semiconductor stocks more attractive in terms of valuation, volatility may continue until foreign investment stabilizes. Concerns remain regarding credit risks associated with artificial intelligence (AI) and the supply expansion from Chinese memory firms, and the buying base in the domestic market has not fully recovered.
 
Lee Jae-won, a researcher at Yuanta Securities, stated, "Despite the recent decline, there is limited evidence to suggest that the medium- to long-term profit outlook for the semiconductor sector has been structurally damaged. A technical rebound has begun, but for a trend recovery, we need to see a sustained easing of foreign selling pressure, absorbing buying momentum, and stabilization of AI credit risks."