Bae Jae-kyu, CEO of Korea Investment & Trust Management, posted a warning on Facebook on the 20th urging investors to stop investing in single-stock leveraged ETFs, then deleted the post. Bae, known as the 'father of Korean ETFs,' stated that even if underlying stock prices recover, ETF prices may not return to original levels due to high volatility causing daily compounding losses. Bae led the launch of Korea's first ETF 'KODEX 200' in 2002 while at Samsung Asset Management, and Korea Investment & Trust Management currently operates single-stock leveraged ETF products including 'ACE Samsung Electronics Single-Stock Leverage' and 'ACE SK Hynix Single-Stock Leverage.'
Bae Jae-kyu Posts Facebook Warning Against Single-Stock Leveraged ETFs, Then Deletes
Bae posted on his Facebook account on the 20th stating, "I apologize for saying this as the CEO of an asset management company operating individual stock leveraged ETFs. The conclusion is not to invest in individual stock leverage and inverse 2x ETFs." He wrote that "even if the original stock price returns to its original position over time, there is a high possibility that the ETF price will not return to its original position," adding "especially if the volatility of the original stock is as large as it is now, the structure is such that losses increase every day." Bae attributed this to the fact that "no one expected volatility to become this large." Bae deleted the post on the same day.
SK Hynix Stock Falls 17.9% While Leveraged ETF Drops 47.5%
According to analysis data released by Bae, from May 27 to the 16th, SK Hynix stock price declined from 2,243,000 won to 1,842,000 won, a drop of 17.9%. During the same period, the SK Hynix single-stock leveraged product fell 47.5%. If the underlying asset decline rate is simply calculated as 2x, the theoretical loss rate is 35.8%, but the actual loss rate was 11.7 percentage points higher. The SK Hynix single-stock inverse ETF posted a 31.1% loss, despite theoretically needing to generate a 35.8% return based on the SK Hynix stock decline.
Negative Compounding Effect Causes Losses in Inverse ETFs
The analysis attributes the discrepancy to a 'negative compounding' effect that occurs as the ETF principal itself decreases during the process of the underlying stock price repeatedly surging and plunging. Bae explained that the structure causes losses to increase daily when volatility is high.
Korea Investment & Trust Management Operates Samsung and SK Hynix Leveraged ETF Products
Korea Investment & Trust Management operates single-stock leveraged ETFs including 'ACE Samsung Electronics Single-Stock Leverage' and 'ACE SK Hynix Single-Stock Leverage.' Cases of asset management company CEOs publicly requesting investment restraint in products they offer and operate are uncommon.
FAQ
What did Bae Jae-kyu warn about single-stock leveraged ETFs on the 20th?
Bae Jae-kyu, CEO of Korea Investment & Trust Management, posted on Facebook on the 20th stating that investors should not invest in individual stock leverage and inverse 2x ETFs because even if the original stock price returns to its original position, ETF prices may not return due to high volatility causing daily compounding losses. He deleted the post on the same day.
How much did SK Hynix stock and its leveraged ETF fall from May 27 to the 16th?
From May 27 to the 16th, SK Hynix stock fell 17.9% from 2,243,000 won to 1,842,000 won. The SK Hynix single-stock leveraged product fell 47.5% during the same period, which was 11.7 percentage points higher than the theoretical 35.8% loss rate calculated by doubling the underlying asset decline.
What single-stock leveraged ETF products does Korea Investment & Trust Management operate?
Korea Investment & Trust Management operates 'ACE Samsung Electronics Single-Stock Leverage' and 'ACE SK Hynix Single-Stock Leverage' ETFs.
