Leveraged chip ETFs in South Korea outpace semiconductor funds as rally compounds

As an exchange-traded fund (ETF) that tracks twice the returns of Samsung Electronics and SK hynix is set to launch on the 22nd of next month, leveraged semiconductor ETFs have shown higher returns than semiconductor ETFs.

On the 26th, according to Koscom ETF Check, the year-to-date return of Samsung Asset Management's KODEX Semiconductor ETF was 95.10%. Expanding the window to six months, the return was 112.20%, and the return over the past year surged to 300.86%.

Mirae Asset Global Investments' TIGER Semiconductor 10 ETF also posted a year-to-date return of 90.03%, a six-month return of 112.07%, and a one-year return of 304.39%.

Although semiconductor ETFs also saw returns surge, leveraged ETFs that track twice the daily return of the semiconductor indexes they follow posted substantially larger returns.

The year-to-date return of the KODEX Semiconductor Leveraged ETF was 215.21%, exceeding twice the return of the KODEX Semiconductor ETF. Over longer periods, the return expands to more than double. The leveraged ETF's six-month return was 261.55%, about 1.5 times the semiconductor ETF's return. Over the past year, the return was 1,115.98%, about 3.4 times the semiconductor ETF's return.

The TIGER Semiconductor 10 Leveraged ETF likewise recorded a year-to-date return of 201.60%, a six-month return of 259.90%, and a one-year return of 1,141.10%.

The return gap between ETFs that track semiconductor indexes and leveraged ETFs that track twice those returns widens the longer the period in an environment like recently, where indexes are trending upward.

Because leveraged ETFs track twice the daily return, if the index continues to rise, investors can benefit from a compounding effect where returns build on returns.

Meanwhile, with leveraged ETFs using Samsung Electronics and SK hynix as underlying assets now permitted to list, multiple leveraged ETF products are expected to be listed by asset managers next month. However, while leveraged ETFs can generate higher returns when indexes rise, losses can be larger in a downturn.